2013 (6) TMI 428 - AT - Income Tax

Undervaluation of the sale consideration - whether CIT(A) erred in not adopting the circle rate at the rate of Rs.4500/- per sq. meter of land? - Held that - There is no involvement or requirement of approaching the Stamp Duty Authority by the persons involved in the transaction as per law in this case. The lease in question has been granted by UP State Industrial Development Corp. Ltd. to the assessee vide lease agreement dated 29th day of October, 2007 for a period of 90 years. These lease hold rights were transferred to M/s. Sara Exports Ltd., Ghaziabad for a total consideration of Rs.3,25,00000/- only. Such transfer requires the approval of UPSIDCO. As relying on Carlton Hotels (P) Ltd. Vs ACIT 2008 (11) TMI 295 - ITAT LUCKNOW-A & Atul G.Puranik vs. ITO 2011 (5) TMI 576 - ITAT, Mumbai sec. 50C applies only to a capital asst, being land or building or both, it cannot be made applicable to lease rights in a land - in cases of transfer where agreement or sale deed is not registered and stamp duty is not paid, or capital gain is simply charged by deeming certain transactions as transfer as per other provisions of the act or some transactions of transfer are not registered or are not legally required to be registered under the Registration Act, S.50C cannot be put into operation. Also see Dy CIT vs. Tejender Singh 2012 (3) TMI 47 - ITAT, KOLKATA . Thus on the issue of valuation, the working given by the CIT(A) could not be disputed by DR as CIT(A) held that the rate of Rs.4500/- per sq. feet is applicable for the standard period of 90 years and as what was transferred was lease rights for 54 years, the proportionate rate works out to Rs.2700/- and whereas the assessee has transferred these rights for an amount of Rs.3181/- and hence there is no undervaluation. Against revenue.

Summary

Issues:
- Applicability of section 50C of the Income Tax Act for calculating long term capital gain.
- Valuation of lease hold property for tax purposes.

Analysis:
1. Applicability of section 50C:
The appeal involved a dispute regarding the applicability of section 50C of the Income Tax Act for calculating long term capital gain. The assessee had sold a lease hold property, and the question was whether the provisions of section 50C applied to the transaction. The First Appellate Authority held that section 50C was not applicable as the transfer was of lease hold property, and there was no involvement of the Stamp Valuation Authority. The Tribunal analyzed relevant case laws, including the Carlton Hotels case and the Atul G.Puranik case, which emphasized that section 50C applies only to 'land or building or both' and not to lease rights in a land. Referring to the DyCIT vs. Tejender Singh case, the Tribunal concluded that section 50C would not be invoked in the case of lease rights transfer. Therefore, the Tribunal upheld the order of the First Appellate Authority on this issue.

2. Valuation of lease hold property:
Additionally, the Tribunal considered the valuation of the lease hold property for tax purposes. The Ld.CIT(A) had determined that the rate of Rs.4500/- per sq. feet was for a standard period of 90 years, whereas the lease rights transferred were for 54 years. The Ld.CIT(A) calculated a proportionate rate of Rs.2700/- per sq. feet, and since the transfer was made at Rs.3181/- per sq. feet, there was no undervaluation. The Ld.DR did not dispute this working. Consequently, the Tribunal found no undervaluation in the transaction based on the valuation provided by the Ld.CIT(A). Therefore, the appeal by the Revenue was dismissed, and the order of the lower authority was upheld.

In conclusion, the Tribunal held that section 50C did not apply to the transfer of lease hold property and that the valuation of the property was correctly determined by the Ld.CIT(A). The appeal by the Revenue was dismissed, and the order was pronounced on 7th June, 2013.