2024 (6) TMI 881 - AT - Income Tax

Capital gain computation - Applicability of Section 50C - transfer of leasehold rights - HELD THAT - Considering the fact that we are dealing with special provision for full value of consideration in certain cases u/s 50C of the Act, which is a deeming provision, the fiction created in this section cannot be extended to any asset other than those specifically provided therein. As section 50C of the Act applies only to a capital asset, being land or building or both, it cannot be made applicable to lease rights in a land. The Hon'ble Bombay High Court in the case of Greenfield Hotels Estates (P.) Ltd. 2016 (12) TMI 353 - BOMBAY HIGH COURT held that Section 50C of the Act would not be applicable while computing capital gains on transfer of leased hold rights in Land and buildings. The Hon'ble Delhi ITAT in the case of Noida Cyber Park (P.) Ltd., 2020 (10) TMI 563 - ITAT DELHI held that Section 50C of the Act covers only capital asset being land or building or both; it would not cover transfer of leasehold rights in land and building. Deeming provision has been incorporated to substitute the value adopted or assessed or assessable by stamp valuation authority in place of consideration received or accruing as a result of transfer, in case the latter is lower than the former. It, therefore, follows that only if a capital asset being land or building or both is transferred and the consideration received or accruing as a result of such transfer is less than the value adopted or assessed or assessable by the stamp valuation authority, the deeming fiction under sub-sec. (1) of Section 50C of the Act shall be activated to substitute such adopted or assessed or assessable value as full value of consideration received or accruing as a result of such transfer in the given situation. Thus is held that the section 50C of the Act, being deeming provision inserted by the Finance Act 2002 w.e.f. 01.04.2003, is not applicable in this case. However, the AO may compute capital gains as per the Act without invoking the provisions of section 50C of the Act.

Summary

Issues Involved:
The judgment deals with the reopening of assessment u/s 147 of the Income Tax Act, 1961 and the quantum addition made by the Assessing Officer.

Reopening of Assessment u/s 147:
The appellant challenged the reopening of assessment, contending that the AO did not apply his mind as the entire sale consideration was treated as income without considering the cost of acquisition. The Ld. Counsel emphasized that the AO did not give credit for the cost of acquisition while determining the income/capital gains. It was argued that the Ld. CIT(A) did not address the issue of the validity of reopening the assessment. The Tribunal refrained from adjudicating this issue and directed the CIT(A) to decide it afresh after providing a reasonable opportunity of being heard to the appellant/assessee.

Applicability of Section 50C to Leasehold Property:
The Ld. Counsel argued that Section 50C, a deeming provision, is not applicable to the transfer of leasehold rights, citing various decisions. It was highlighted that Section 50C specifically applies to land or building, excluding leasehold rights. The Tribunal noted that leasehold rights are distinct from 'land or building or both' and cannot be covered under Section 50C. Referring to legal principles, it was emphasized that a deeming provision should be applied within the scope of the law and not extended beyond its explicit mandate. Therefore, Section 50C does not apply to leasehold rights in land. Citing precedents, the Tribunal held that Section 50C is not applicable to the transfer of leasehold rights, and the AO should compute capital gains without invoking Section 50C.

Conclusion:
The Tribunal held that the AO should compute capital gains without applying Section 50C to leasehold rights. The judgment emphasized that Section 50C is limited to 'land or building or both' and does not extend to leasehold rights. The appeal was partly allowed for statistical purposes, and the matter of the validity of reopening the assessment was remanded to the CIT(A) for fresh consideration.