2016 (4) TMI 1052 - AT - Income Tax

Addition u/s 50C - Computation of capital gain - difference in sale price in sale deed and valuation by the stamp valuation authorities - Held that - No doubt section 50C contemplates replacement of full value of consideration received as a result of such transfer. But a transfer of capital asset should be either land or building. It does not authorize the AO to replace the full value of the consideration in each and every case, where capital gain is to be computed. This deeming fiction is applicable only when the land or building is being transferred. Whatever compensation received would be for relinquishment of right to obtain a sale deed, which is also a capital asset within the meaning of section 2(14) of the Income Tax Act but not akin to land or building. Therefore, in this case, no addition can be made with the aid of section 50C in the hands of the assessee - Decided in favour of assessee

Summary

Issues:
Appeal against addition of ?12,92,568 under section 50C for computing capital gain.

Analysis:
The assessee contested the addition of ?12,92,568 as per section 50C for computing capital gain. The assessee argued that the land in question was agricultural and not equivalent to a capital asset like land or building. Citing various decisions, the assessee contended that section 50C does not apply to all kinds of capital assets. The Tribunal referred to the case of CIT Vs. Tata Services Ltd., where the court held that the consideration received for assigning rights under an agreement for obtaining a sale deed constitutes a transfer of a capital asset. Another case, CIT Vs. Vijay Flexible Containers, affirmed that gain from the extinguishment of rights acquired under an agreement for property purchase is assessable as capital gain. Similarly, in CIT Vs. Smt. Laxmidevi Ratani, it was held that compensation received for relinquishing the right to obtain a sale deed qualifies as a capital asset. The Tribunal clarified that section 50C applies only to land or building transfers, not every capital asset. Using an illustrative example, the Tribunal explained how the relinquishment of rights in a land transaction should be treated for capital gains assessment. Consequently, the Tribunal allowed the appeal, ruling out the addition under section 50C.

In conclusion, the Tribunal decided in favor of the assessee, emphasizing that section 50C applies specifically to land or building transfers and not to all capital assets. The Tribunal's detailed analysis of relevant case laws clarified the treatment of compensation received for relinquishing rights in property transactions. As a result, the addition of ?12,92,568 was deemed inappropriate under section 50C, leading to the allowance of the assessee's appeal.