2022 (10) TMI 659 - AT - Income Tax

Long term capital gains v/s long term capital loss - applicability of provisions of section 50C - Sale of undetermined beneficial rights in the land at Chembu r - agreement to sell rights in land was unregistered - amendment brought in Section 50C - HELD THAT - Amendment in Section 50C of the Act by including the expression assessable could be made applicable only in respect of transfer of capital assets made on or after 01/10/2009. In the instant case, the transfer according to the Revenue had been completed prior to 01/10/2009. Hence, the amended provisions of Section 50C of the Act could not be applied at all by the Revenue, as admittedly the transfer of rights in land had happened pursuant to an unregistered agreement. Prior to 01/10/2009, we hold that provisions of section 50C of the Act cannot be applied for unregistered documents. There cannot be any substitution of stamp duty value as the full value consideration in terms of Section 50C of the Act in the instant case. This fact is also strengthened by the fact that assessee has also offered capital gains in the return of income as sale of rights in land has been transferred. The dispute between the Revenue and the assessee is only with regard to two issues (1) what is transferred is sale of land according to Revenue but what is transferred is sale of rights in land according to assessee (2) Revenue substituting stamp duty value in terms of Section 50C of the Act treating it as sale of land as against the actual consideration received in the sum of Rs.24.03 lakhs towards sale of rights in land. Both these issues have already been duly addressed by us hereinabove and hence, we direct the ld. AO to delete the full value of consideration substituted by him by adopting stamp duty value in terms of Section 50C of the Act and accept the sale consideration reported by the assessee herein. Since we have already deleted the addition made u/s.50C of the Act on the ground that the amended provisions of Section 50C of the Act could not be made applicable for transfers made prior to 01/10/2009, the adjudication of other grounds raised by the assessee with regard to reference to Departmental Valuation Officer (DVO), becomes infructuous and academic in nature. Hence, they are not adjudicated herein. Grounds raised by the assessee are allowed.

Summary

Issues Involved:
1. Applicability of Section 50C to the sale of undetermined beneficial rights in land.
2. Applicability of Section 50C to unregistered sale agreements prior to 01/10/2009.
3. Determination of long-term capital gains or loss based on the nature of the asset transferred.

Detailed Analysis:

1. Applicability of Section 50C to the Sale of Undetermined Beneficial Rights in Land:
The assessee contended that Section 50C of the Income Tax Act, 1961, which pertains to the valuation of capital assets for the purpose of calculating capital gains, should not apply to the sale of undetermined beneficial rights in land. The Tribunal observed that the assessee sold his right to acquire/own 5000 sq. yards of land through an unregistered agreement. The assessee had shown a long-term capital loss in his return, while the Assessing Officer (AO) computed long-term capital gains by invoking Section 50C, treating the transaction as a sale of land. The Tribunal noted that the assessee transferred only rights in the land, not the land itself, and upheld that Section 50C applies only to the transfer of land or building, not to rights therein.

2. Applicability of Section 50C to Unregistered Sale Agreements Prior to 01/10/2009:
The Tribunal considered the timing of the transaction, which was completed before the amendment to Section 50C on 01/10/2009 that included the term "assessable." The assessee argued that since the sale agreement was unregistered and executed before the amendment, Section 50C should not apply. The Tribunal agreed, referencing CBDT Circular No. 5/2010 and the Hon'ble Madras High Court's decision in CIT vs. R Sugantha Ravindran, which clarified that the amendment is prospective and not applicable to transactions prior to 01/10/2009. Therefore, the Tribunal concluded that the AO's application of Section 50C was incorrect for this period.

3. Determination of Long-Term Capital Gains or Loss Based on the Nature of the Asset Transferred:
The Tribunal examined whether the transaction resulted in a long-term capital gain or loss. The assessee sold his rights in the land for Rs. 23,53,000 and declared a long-term capital loss. The AO, however, computed long-term capital gains by substituting the stamp duty value. The Tribunal emphasized that the assessee transferred only rights in the land, not the land itself, and the transaction was subject to ongoing litigation regarding the title. The Tribunal directed the AO to accept the sale consideration reported by the assessee and delete the addition made under Section 50C, as the provision did not apply to the unregistered agreement executed before 01/10/2009.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the AO to delete the substitution of the stamp duty value and accept the actual sale consideration. The Tribunal's decision was based on the prospective application of the amended Section 50C and the nature of the asset transferred (rights in land, not the land itself). The Tribunal's analysis adhered to the directions of the Hon'ble High Court and resolved the issues in favor of the assessee.