2017 (2) TMI 588 - AT - Income Tax

Addition on account of Short term capital gain u/s 50C - sale of Reservation Letter (Arakshan Patra) - considering the value adopted by Sub-Registrar - whether the value adopted by the registration authorities is in excess to fair market value of the property? - Held that - The plain reading of Section 50C shows that this provision is applicable only for the capital assets being land or building or both. Taking into consideration all the facts and circumstances of the case, it is noted that in assessee s case capital assets are neither land nor building. Hence, in such a situation, the provisions of Section 50C are not applicable on the assessee. In view of the above deliberations, the additional ground raised in the appeal of the assessee is allowed.

Summary

Issues Involved:
1. Applicability of Section 50C of the I.T. Act, 1961 to the sale of "Arakshan Patra".
2. Compliance with the provisions of sub-section 2 of Section 50C by the Assessing Officer (AO).

Detailed Analysis:

1. Applicability of Section 50C of the I.T. Act, 1961:

The primary issue raised by the assessee was whether the provisions of Section 50C of the Income Tax Act, 1961, which pertains to the valuation of land or building for the purpose of calculating capital gains, were applicable to the sale of "Arakshan Patra". The "Arakshan Patra" is a right to receive the allotment of land, not the land itself. The assessee argued that Section 50C is a deeming provision that applies only to the transfer of capital assets being land or building or both. Since "Arakshan Patra" does not qualify as land or building, the provisions of Section 50C should not apply.

The Tribunal agreed with the assessee's argument, noting that Section 50C can only be invoked when the capital asset in question is land or building or both. The Tribunal cited various case laws supporting the interpretation that deeming provisions should be strictly construed and cannot be extended beyond their explicit mandate. Therefore, the Tribunal concluded that Section 50C was not applicable to the sale of "Arakshan Patra".

2. Compliance with Provisions of Sub-section 2 of Section 50C:

The assessee also contended that the AO did not comply with the provisions of sub-section 2 of Section 50C, which requires the AO to refer the valuation of the capital asset to a Valuation Officer if the assessee contests the value adopted by the stamp valuation authority. The assessee had objected to the value adopted by the Sub-Registrar, arguing that it exceeded the fair market value of the property. However, the AO did not refer the matter to a Valuation Officer and instead directly adopted the value determined by the Sub-Registrar for the purpose of calculating capital gains.

The Tribunal noted that the AO's failure to refer the valuation to a Valuation Officer, despite the assessee's objection, was a procedural lapse. However, since the Tribunal had already determined that Section 50C was not applicable to the sale of "Arakshan Patra", this issue became moot. The Tribunal emphasized that for Section 50C to apply, the asset must be land or building, which was not the case here.

Conclusion:

The Tribunal allowed the appeal of the assessee, concluding that the provisions of Section 50C of the I.T. Act, 1961, were not applicable to the sale of "Arakshan Patra" as it did not constitute land or building. Consequently, the addition of ?6,05,980/- made by the AO on account of short-term capital gain was deleted. The Tribunal also highlighted the procedural lapse by the AO in not referring the valuation to a Valuation Officer, although this became a secondary issue given the primary finding on the inapplicability of Section 50C.

Judgment:

The appeal of the assessee was allowed, and the order was pronounced in the open Court on 10-02-2017.