2021 (9) TMI 98 - AT - Income Tax

Capital gain computation - applicability of provisions of section 50C - transfer of right in respect of a leasehold property - HELD THAT - What the assessee has sold is leasehold rights in certain property and therefore, the provisions of Sec.50C would not be applicable to such a transaction. The provisions of Sec.50C apply in case of transfer of capital asset being land or building or both and are not applicable in case of transfer of leasehold rights in land buildings. See M/S. GREENFIELD HOTELS ESTATES PVT. LTD. 2016 (12) TMI 353 - BOMBAY HIGH COURT . Also see ATUL G. PURANIK VERSUS ITO 2011 (5) TMI 576 - ITAT, MUMBAI Thus provisions of Sec.50C would not be applicable to the transaction under consideration and therefore, the consequential addition made in the hands of the assessee, would not be sustainable in law - Decided in favour of assessee.

Issues:
1. Applicability of Section 50C of the Income Tax Act, 1961 on a transaction.
2. Treatment of sale consideration for computing Long Term Capital Gain.
3. Disallowance of interest paid to partners.
4. Levy of interest under Section 234B.

Analysis:

1. Applicability of Section 50C:
The appeal involved a dispute regarding the applicability of Section 50C of the Income Tax Act, 1961 on a transaction. The assessee contended that Section 50C should not be applicable as the transaction was based on an unregistered document executed before a specified date. However, the Assessing Officer (AO) disagreed, stating that the provision was applicable to prevent the avoidance of stamp duty. The Commissioner of Income Tax (Appeals) upheld the AO's decision. The ITAT Mumbai, after considering relevant case laws, ruled in favor of the assessee, stating that Section 50C does not apply to the transfer of leasehold rights, thereby rendering the addition made by the AO unsustainable in law.

2. Treatment of Sale Consideration:
The dispute also involved the determination of the sale consideration for computing Long Term Capital Gain. The AO had substituted the agreed value with the stamp duty value, resulting in a re-calculation of capital gains as short-term. However, the ITAT Mumbai held that since the transaction involved leasehold rights, Section 50C did not apply, and the gains were considered long-term in nature. The ITAT directed the AO to compute long-term capital gains after indexation, as if the asset was acquired in a specific year.

3. Disallowance of Interest Paid to Partners:
Another issue was the disallowance of interest paid to partners by the assessee. The AO disallowed the interest since it was not provided for in the original partnership deed. The Commissioner of Income Tax (Appeals) upheld this disallowance. However, the ITAT Mumbai found that the deed of addendum allowed for such interest payments, and as per the provisions of Sec. 40(b), the firm was entitled to deduct interest paid to partners. Therefore, the ITAT allowed this ground of appeal and deleted the addition.

4. Levy of Interest under Section 234B:
Lastly, the appeal challenged the levy of interest under Section 234B. The assessee denied the liability of payment, arguing that the levy was not justified. However, the ITAT did not provide specific details on the decision regarding this issue in the summarized judgment.

In conclusion, the ITAT Mumbai ruled in favor of the assessee on the applicability of Section 50C and the treatment of sale consideration for computing Long Term Capital Gain. The ITAT also allowed the deduction of interest paid to partners, as provided for in the deed of addendum. The appeal was partly allowed based on the ITAT's orders.

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