2013 (8) TMI 413 - AT - Income Tax

Application of section 50C of the Act to the transfer of leasehold rights in the industrial plot - The assessee had transferred leasehold rights in the plot of District Industrial Centre, Rampur to Shri V.K. Gupta as per directions/terms or consideration of district Rampur and paid stamp duty of Rs.3400 and also got registered agreement from some Registrar, Tehsil Sadar, Rampur on 14.3.2007 - Assessee got a leasehold plot from District Industrial Center, Rampur for lease of 99 years for setting up an industrial unit. The assessee obtained required permission from the concerned authorities for transfer of leasehold rights after making payments of dues and transfer charges Held that - The assessee had transferred leasehold rights in the plot of District Industrial Centre, Rampur to Shri V.K. Gupta as per directions/terms or consideration of district Rampur and paid stamp duty of Rs.3400 and also got registered agreement from some Registrar, Tehsil Sadar, Rampur on 14.3.2007 - Assessee was having only leasehold rights and it had no absolute right to sale, exchange or relinquish the property. As per recital of the original lease deed, actual rights were in the hands of General Manager of District Industrial Center on behalf of Government of U.P - The triparty agreement was executed between the assessee, Shri V.K. Gupta and General Manager, District Industrial Center, Rampur on behalf of Govt. of UP and the deed was executed after granting approval by the District Magistrate, Rampur with certain conditions mentioned in the approval/permission. Assessing Officer did not give any finding to the fact that the assessee received additional consideration in addition to the consideration mentioned in the sale agreement and also the Assessing Officer did not gather any material to establish with cogent evidence that there was evasion of tax by suppressing or concealing the true and correct consideration of transaction - Addition made by the Assessing Officer on the basis of circle rate gathered from Sub-Registrar office of Rampur showing circle rate of properties cannot be applied as there was no application of section 50C in the case - Decided against the Revenue.

Issues Involved:
1. Applicability of Section 50C of the Income Tax Act, 1961 to the transfer of leasehold rights.
2. Treatment of the transfer of factory building as a transfer of capital assets under Sections 2(47) and 45 of the Income Tax Act.
3. Assessment of income or loss arising from the transfer as short-term capital gain.
4. Consideration of prescribed circle rates for determining fair market value.

Issue-wise Detailed Analysis:

1. Applicability of Section 50C of the Income Tax Act, 1961:
The revenue contended that the provisions of Section 50C, which deem the value assessed by the stamp valuation authority as the full value of consideration for the purpose of computing capital gains, should apply to the transfer of leasehold rights in the industrial plot. The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, noting that the leasehold rights transferred did not constitute an outright sale of land or building, and thus Section 50C was not applicable. The Tribunal upheld this view, observing that the assessee only held leasehold rights and not absolute ownership, and the actual rights remained with the General Manager of the District Industrial Center on behalf of the Government of Uttar Pradesh. The Tribunal concluded that the Assessing Officer (AO) wrongly invoked Section 50C and that the CIT(A) rightly deleted the addition made by the AO.

2. Treatment of the Transfer of Factory Building as a Transfer of Capital Assets:
The revenue argued that the CIT(A) erred in not treating the transfer of the factory building as a transfer of capital assets under Sections 2(47) and 45, which would classify the income or loss arising from such transfer as capital gains. The Tribunal, however, noted that the transfer involved leasehold rights, not ownership rights, and thus did not fall under the purview of Sections 2(47) and 45. The Tribunal agreed with the CIT(A) that the transfer did not constitute a sale of a capital asset, and therefore, the provisions related to capital gains were not applicable.

3. Assessment of Income or Loss Arising from the Transfer as Short-Term Capital Gain:
The revenue maintained that the income or loss from the transfer should be assessed as short-term capital gain. The CIT(A) and the Tribunal found that the AO had not provided any evidence that the assessee received additional consideration beyond what was mentioned in the sale agreement. The Tribunal affirmed that the CIT(A) correctly held that there was no basis for assessing the transfer as generating short-term capital gain, as the transaction did not involve the sale of a capital asset but a transfer of leasehold rights.

4. Consideration of Prescribed Circle Rates for Determining Fair Market Value:
The AO had used the circle rates prescribed by the District Magistrate to determine the fair market value of the property, resulting in an addition to the assessee's income. The CIT(A) and the Tribunal found that the circle rates were not applicable to the industrial plots in question, as confirmed by the General Manager of the District Industrial Center. The Tribunal noted that the AO did not gather any material evidence to prove that the assessee suppressed the true consideration of the transaction. Thus, the Tribunal upheld the CIT(A)'s decision to delete the addition based on the circle rates, as there was no application of Section 50C in this case.

Conclusion:
The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision that the provisions of Section 50C were not applicable to the transfer of leasehold rights, and that the AO had wrongly invoked the deeming provisions. The Tribunal concluded that the CIT(A) rightly deleted the addition made by the AO, as the transfer did not constitute a sale of a capital asset and there was no evidence of additional consideration received by the assessee. The appeal was dismissed, and the decision was pronounced in the open court on 08.08.13.

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