2020 (1) TMI 726 - AT - Income Tax

Capital gain computation - full value of consideration upon the assignment of lease rights in the shop - consideration received for the transfer of leasehold rights in the shop can attract Section 50C for computation of the capital gains as done by the AO and confirmed by the ld. CIT(A) - HELD THAT - Section 50C is a deeming fiction for substituting, adopting the valuation of land or building or both by the Stamp Valuation Authority as full value of consideration is applicable only in respect of land or building or both . If the capital asset under transfer cannot be described as 'land or building or both', then Section 50C cannot be attracted. From the facts of this case narrated above, it is seen that the assessee was allotted lease right in the unit for a period of 99 years, which right was further assigned to Shri Surya Prakash Lal in the year in question. Since in this case neither 'land or building or both' has been transferred Section 50C of the Act cannot be attracted. The distinction between a capital asset being 'land or building or both' and any 'right in land or building or both' is well recognized under the Act itself. Attention was drawn to Section 54D of the Act, which deals with certain cases in which capital gain on compulsory acquisition of land and building is charged. It is palpable from Section 54D of the Act that 'land or building' is distinct from 'any right in land or building'. Attention was drawn to the Wealth Tax Act, 1957 also. Section 5(1) of the Wealth Tax Act at the material time provided for exemption in respect of certain assets. Clause (xxxii) of Section 5(1) of the Wealth Tax Act provided that the value, as determined in the prescribed manner, of the interest of the assessee in the assets (not being any land or building or any rights in land or building or any asset referred to in any other clauses of this sub-section) forming part of an industrial undertaking shall be exempt from tax. Thus it is noted that Parliament was aware of the distinction and has used differently between 'land or building' on one hand and 'or any rights in land or building' on the other. Here it is apt to apply the legal maxim Expressio Unius Est Exclusio Alterius meaning Express mention of one implies the exclusion of another. We are dealing with special provision for full value of consideration in certain cases u/s.50C of the Act, which is a deeming provision, the fiction created in this section cannot be extended to any asset other than those specifically provided therein. As sec. 50C applies only to a capital asset, being land or building or both, it cannot be made applicable to lease rights in a land. As the assessee has transferred leasehold right for 99 years in the shop and not land itself, the provisions of sec. 50C of the Act cannot be invoked. Therefore, hold that the full value of consideration in the instant case be taken as ₹ 1,25,92,000/-. To sum up, the full value of consideration upon the assignment of lease rights in the shop on 08.04.2015 shall be taken at ₹ 1,25,92,000/- and the capital gain/loss shall be accordingly re-computed as per law by the AO. Therefore the impugned order of Ld CIT(A) is set aside and the AO is directed to re-compute the capital gains/loss as discussed. - Appeal of the assessee is allowed.

Issues Involved:
1. Applicability of Section 50C of the Income Tax Act, 1961 to the transfer of leasehold rights.
2. Computation of Long-Term Capital Gain (LTCG) and disallowance of Long-Term Capital Loss (LTCL).

Issue-wise Detailed Analysis:

1. Applicability of Section 50C of the Income Tax Act, 1961 to the transfer of leasehold rights:

The primary issue in this case was whether Section 50C of the Income Tax Act, 1961, which deals with the valuation of land or building or both for the purpose of computing capital gains, applies to the transfer of leasehold rights. The assessee contended that Section 50C should not apply as the transaction involved only the transfer of leasehold rights and not the transfer of land or building.

The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] had concluded that the provisions of Section 50C were applicable, treating the leasehold rights as equivalent to the transfer of a building. This resulted in the adoption of the stamp duty value of ?1,64,89,440/- instead of the actual consideration of ?1,25,92,000/- received by the assessee, leading to an addition of ?24,28,372/- to the total income of the assessee.

Upon appeal, the Tribunal analyzed the language of Section 50C, which specifies that the section applies to the transfer of a capital asset "being land or building or both." The Tribunal emphasized that Section 50C is a deeming provision and should be strictly construed. It noted that the section does not extend to "any right in land or building," which includes leasehold rights.

The Tribunal referred to several judicial precedents, including decisions from the Hon'ble Bombay High Court and various ITAT benches, which supported the view that Section 50C does not apply to the transfer of leasehold rights. The Tribunal concluded that since the assessee transferred only leasehold rights and not land or building, Section 50C could not be invoked.

2. Computation of Long-Term Capital Gain (LTCG) and disallowance of Long-Term Capital Loss (LTCL):

The second issue was the computation of LTCG and the disallowance of LTCL claimed by the assessee. The assessee had reported a long-term capital loss of ?14,72,545/- from the transfer of leasehold rights, which was disallowed by the AO based on the application of Section 50C.

The Tribunal, having determined that Section 50C was not applicable, directed that the full value of consideration for the transfer should be taken as ?1,25,92,000/-. Consequently, the capital gain/loss should be recomputed based on this consideration.

The Tribunal set aside the order of the CIT(A) and directed the AO to re-compute the capital gains/loss as per the law, taking the actual consideration of ?1,25,92,000/- into account.

Conclusion:

The Tribunal allowed the appeal of the assessee, ruling that Section 50C of the Income Tax Act, 1961, does not apply to the transfer of leasehold rights. It directed the AO to re-compute the capital gains/loss based on the actual consideration received by the assessee. The impugned order of the CIT(A) was set aside, and the AO was instructed to re-compute the capital gains/loss accordingly. The order was pronounced in the open court on 17th January 2020.

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