2022 (7) TMI 333 - AT - Income Tax

Capital gain in respect of sale of only one property - addition u/s 50C - transfer of leasehold rights in a plot/land - assessee has acquired the impugned property on lease from Kanpur Development Authority vide lease deed for a period of 99 years - As per AO assessee has failed to prove that the sale of the impugned property and capital gains thereon had been declared in the return of income - CIT(Appeals) dismissed the appeal of the assessee by holding that what the assessee was sold was not a leasehold property, but the ownership rights in the property had been transferred under the impugned sale deed and therefore tenancy right of the buyer had been converted into ownership rights by the sale deed under consideration, where the assessee was shown to the landlord property - HELD THAT - What the assessee has transferred are leasehold rights in the property which vested in him, to the tenant of the property. The same is evident from the terms of Agreement of Ownership In view of the consistent position taken by various Courts/Tribunals on this issue, we hold that Ld. CIT(Appeals) erred in facts and law in holding that what the assessee transferred were ownership rights in the property in question and therefore provisions of section 50C of the Act applied to transfer of rights in the impugned property. What we note is that the assessee itself had leasehold rights in the said property and hence in instant facts, the assessee cannot transfer/confer ownership rights in the said property in favour of the tenant. Further, the assessee has also produced before us a list of 50 properties in respect of which leasehold rights were transferred by the assessee in the same premises i.e. Sitaram building. The Department has only questioned the transfer value in respect of one single property while accepting the sale/transfer value respect of all the other properties. Therefore, considering the above facts and the consistent position taken by various Courts/Tribunals on the issue of applicability of section 50C of the Act on transfer of leasehold rights in the property, we allow the appeal of the assessee.

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 147 of the Income Tax Act, 1961.
2. Applicability of section 50C on addition made to the capital gains.

Analysis:

Issue 1: Validity of reassessment proceedings under section 147:
The assessee's original assessment was reopened under section 148 of the Act due to alleged suppression of sale value of a property. The assessing officer contended that the provisions of section 50C were applicable to the transfer of leasehold rights, despite the assessee's argument to the contrary. The CIT(A) upheld the reopening of the assessment, stating that the sale value had not been fully disclosed in the return of income. The CIT(A) also observed that the assessee had failed to prove the declaration of capital gains on certain properties. The Tribunal noted the assessee's submission that the capital gains were reflected in the return of income and that the property transferred involved leasehold rights. The Tribunal referenced a previous ITAT decision that held section 50C does not apply to the transfer of leasehold rights. Ultimately, the Tribunal allowed the appeal, emphasizing that the assessee had only transferred leasehold rights, not ownership rights, and that section 50C did not apply.

Issue 2: Applicability of section 50C on addition to capital gains:
The CIT(A) had confirmed the addition made under section 50C to the capital gains. However, the Tribunal disagreed with this decision. It cited various judicial precedents and a recent Delhi Tribunal case to support its position that section 50C does not cover the transfer of leasehold rights in a property. The Tribunal highlighted that the consistent position taken by Courts/Tribunals on this matter supported the assessee's argument that section 50C was not applicable to the transfer of leasehold rights. The Tribunal noted that the assessee had transferred leasehold rights in multiple properties and that the Department's questioning was limited to one property. Consequently, the Tribunal allowed the appeal of the assessee, concluding that section 50C did not apply to the transfer of leasehold rights in the property.

In conclusion, the Tribunal allowed the assessee's appeal, emphasizing that the transfer involved leasehold rights, not ownership rights, and that section 50C was not applicable. The judgment highlighted the importance of fully disclosing material facts and the consistent position of Courts/Tribunals on the issue of section 50C's applicability to the transfer of leasehold rights.