2017 (1) TMI 731 - AT - Income Tax

Transfer u/s. 45(2) - scope of deeming provisions u/s.50C - CIT(A) held that deeming provisions of Section 50C being a legal fiction cannot be invoked for the purpose of valuation of transfer of tenancy rights - whether mere letting out of property by assessee to the tenant does not envisage any transfer u/s. 45(2)? - Held that - AO has not disputed the fact that assessee was in receipt of any consideration other than monthly rent. CIT(A) has also considered the scope of deeming provisions u/s.50C on the basis of decision of Mumbai Tribunal in case of Atul G Puranik 2011 (5) TMI 576 - ITAT, Mumbai . The CIT(A) has also deliberated on the judicial pronouncements laid down in case of Munsons Textiles 2012 (2) TMI 520 - ITAT MUMBAI for the applicability of provisions of Section 50C. After going through the entire material placed on record, we also found that there is no transfer or alienation of the said assets, therefore, provisions of capital gain is not applicable. We also found that no finding has been recorded by the AO to the effect that any sale consideration was received by the assessee other than rent and maintenance charges. The detailed findings so recorded by CIT(A) are as per material on record, therefore, do not require any of our interference. Accordingly, grounds taken by the Revenue are dismissed.

Summary

Issues:
1. Whether the creation of tenancy can be considered a "transfer" under IT Act, and if such transfer can be taxed as capital gains under Section 50C.
2. Whether Section 50C applies to the transfer of tenancy rights for valuation purposes.

Issue 1 - Creation of Tenancy as Transfer:
The appellant, in the business of letting out property, rented a property to a tenant. The AO applied Section 50C, considering stamp duty value as full consideration, resulting in a capital gains addition. The CIT(A) deleted the addition, emphasizing that the tenant had limited rights, with the landlord retaining possession and development rights. The tenancy agreement did not grant the tenant ownership rights, and the tenant merely had commercial exploitation rights. The Tribunal concluded that there was no transfer of asset as per Section 45(2) of the IT Act, ruling in favor of the appellant.

Issue 2 - Applicability of Section 50C to Tenancy Rights:
The Tribunal analyzed Section 50C, which applies to land or building transfers. Citing precedents, it clarified that the provision's legal fiction cannot extend beyond the specified asset classes. Referring to the Atul G Puranik case, it held that Section 50C does not apply to tenancy rights transfers. The decision in Munsons Textiles reinforced this stance, stating that market value cannot replace sale consideration for tenancy rights transfers. The Tribunal reiterated that Section 50C's valuation substitution does not apply to tenancy rights transfers. Consequently, the Tribunal allowed the appeal, emphasizing that Section 50C does not govern tenancy rights transfers.

Conclusion:
The Tribunal dismissed the Revenue's appeal and the Cross Objection filed by the assessee, upholding the CIT(A)'s decision. It affirmed that no transfer of assets occurred, capital gains provisions were inapplicable, and Section 50C did not govern tenancy rights transfers. The judgment clarified the limited applicability of Section 50C to specific asset classes and highlighted that tenancy rights transfers are not subject to valuation under this provision.