2018 (8) TMI 1560 - AT - Income Tax

Applicability of provisions of section 50C - assessee acquired certain rights to purchase the flats - assessee received consideration for sale of such rights and the profit from sale was declared as long term capital gains - whether the Assessing Officer was right in invoking the provision of Section 50C of the Act on ground that the assessee sold flats and therefore market value as determined by Registration authority should be applied? - Held that - The issue is no more res integra. The ITAT in the case of Income Tax Officer vs. Shri Yasin Moosa Godil 2012 (4) TMI 380 - ITAT, AHMEDABAD held that the assessee has transferred booking rights and received back the booking advance. Booking advance cannot be equated with the capital asset and therefore section 50C cannot be invoked. Respectfully following the same, hold that Section 50C of the Act does not apply under the facts and circumstances of the case as what was sold was right in property but not land or building. Decided in favour of assessee

Summary

Issues:
Application of Section 50C of the Income Tax Act on sale of unconstructed flats.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income-tax (Appeals) under Section 258 of the Income Tax Act, 1962. The main issue for consideration was whether Section 50C of the Act would apply in the case where the assessee sold rights to purchase unconstructed flats. The assessee had entered into an agreement to purchase unconstructed flats and later sold the rights to purchase these flats to other parties. The Assessing Officer invoked Section 50C, claiming that the market value determined by the Registration authority should be applied since the assessee had sold the flats. However, the assessee argued that Section 50C should not apply as no land or building was transferred, only rights in the property were sold.

The Tribunal referred to a previous decision by the ITAT 'B' Bench of Ahmedabad Tribunal in a similar case and held that Section 50C is a deeming provision that applies only to land or building or both. It emphasized that for Section 50C to apply, the transfer must be of a capital asset, being land or building or both. Since the assessee had transferred booking rights and received booking advance, which cannot be equated with a capital asset like land or building, Section 50C could not be invoked. Therefore, the Tribunal concluded that Section 50C does not apply in this case as what was sold was the right in the property and not land or building. Consequently, the appeal of the assessee was allowed, and the order was pronounced in open court on 04/07/2018.