2009 (12) TMI 48 - HC - Income Tax

Applicability of provisions of section 50C on a business asset income from sale of property held as business asset valuation for the purpose of stamp duty - The assessee company filed its return of income for the assessment year 2004-2005 on 1.11.2004 admitting an income of Rs.78,23,894/- and claimed set off of the entire income against the earlier years losses and claimed capital loss of Rs.83,64,350/-. While completing the assessment, the Assessing Officer noticed that the assessee claimed a capital loss on the sale of the property at Greams Road. The consideration shown was for Rs.5 Crores - As the assessee was engaged in the business of property development, the activities of the assessee were treated as business. Therefore, while computing the income, the question of indexation cost was not considered and the cost of the land was taken as Rs.3,19,49,496/-. In the balance sheet, the value of the property has been shown as Rs.2,55,87,815/- under current assets. The Assessing Officer held that though the apparent sale consideration was for Rs.5 Crores, the sale price should be taken at the amount as fixed by the Registering Authority on the basis of the guideline value of Rs.6,94,45,920/-. held that - The invocation of Section 50C of the Act as can be seen from the provisions of the Act can be made in order to find out the true value of the capital asset. In the very facts and circumstances of the case, the property in the hands of the assessee was treated as business asset and not as capital asset, there is no question of invoking the provisions of Section 50C of the Act, which is, as already stated, pertaining to determining the full value of the capital asset. decided in favor of assessee

Summary

Issues:
Applicability of Section 50C of the Income Tax Act in computation of business income.

Detailed Analysis:
1. Background: The case involved an appeal by the Revenue against the order of the Tribunal regarding the computation of income from the sale of a property at Greams Road for the assessment year 2004-2005. The dispute centered around the applicability of Section 50C of the Income Tax Act.

2. Assessing Officer's Findings: The Assessing Officer noted that while the sale deed showed a consideration of Rs. 5 Crores, the Sub-Registrar valued the property at Rs. 6,94,45,920. The Assessing Officer treated the property as a business asset due to the assessee's engagement in property development and computed the profit accordingly.

3. Appeals Process: The assessee contended that Section 50C should not apply to business income and sought reduction of certain payments from the consideration. The Commissioner of Income Tax (Appeals) agreed that Section 50C pertains to capital gains and directed the Assessing Officer to adopt the sale consideration of Rs. 5 Crores.

4. Tribunal's Decision: The Income Tax Appellate Tribunal dismissed the Revenue's appeal, stating that Section 50C did not apply when the income was treated as business income. The Tribunal considered the property as a business asset based on the funds paid to the owner and the treatment in the balance sheet.

5. High Court Judgment: The High Court concurred with the Tribunal's decision, emphasizing that Section 50C is meant to determine the value of capital assets. Since the property was treated as a business asset and not a capital asset, the provision was deemed inapplicable. The Court referenced a Mumbai Bench case to support this interpretation.

6. Conclusion: The High Court upheld the Tribunal's decision, dismissing the appeal by the Revenue and affirming that Section 50C did not apply to the computation of business income in this case. The judgment favored the assessee's position on the matter.

This detailed analysis outlines the key points and legal reasoning behind the High Court's judgment regarding the applicability of Section 50C of the Income Tax Act in the computation of business income from the sale of a property.