2025 (1) TMI 1343 - AT - Income Tax

Short Term Capital Gain - assessee purchased and transferred development rights in her personal capacity - HELD THAT - As in the case of Sowmya Sathyam 2020 (12) TMI 101 - ITAT BANGALORE had held that the scope of section 50C was restricted only to two types of capital asset i.e. land or building or both. It was further held that the development rights in the land were not the land itself and therefore the provision of section 50C of the Act was not applicable on transfer of development rights in the land. An identical view was taken in the case of Smt. Vimal Baburaa Jadhav 2021 (9) TMI 860 - ITAT PUNE wherein it was held that section 50C of the Act applied only in the case of transfer of land and does not apply to the case of rights in land. We are of the considered view that the Ld. CIT(A) had rightly deleted the addition on account of STCG on deemed transfer of development rights in land. No such addition was called for as the land belonged to the partnership firm only and the development rights was only notionally transferred by the assessee. Therefore the order of the Ld. CIT(A) is upheld and the appeal of the revenue is rejected.

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

1. Whether the CIT(A) erred in deleting the Short Term Capital Gain (STCG) of Rs. 3,16,37,500/- computed by the Assessing Officer (AO) by not appreciating that the assessee purchased and transferred development rights in her personal capacity.

2. Whether the CIT(A) erred in deleting the STCG without the assessee establishing the reasons for involving Smt. Hemlataben N Parmar, a non-partner, in the transaction.

3. Whether the CIT(A) erred in deleting the STCG without considering that the transaction was undertaken by the assessee in her personal capacity, thus liable for Capital Gain tax.

ISSUE-WISE DETAILED ANALYSIS

1. Legal Framework and Precedents

The case revolves around the application of Section 50C of the Income Tax Act, which deals with the consideration of the sale of a capital asset being land or building or both. The AO applied this section to the transfer of development rights by the assessee and the co-owner to the partnership firm.

2. Court's Interpretation and Reasoning

The Tribunal noted that the land was purchased in the name of the assessee and Smt. Hemlataben N Parmar, but the entire payment was made by the partnership firm, M/s. Sumangal Reality Creators. The land was registered in their names to benefit from reduced stamp duty rates applicable to female owners. The Tribunal found that the assessee was merely a name-lender, and the actual ownership and investment were with the partnership firm.

3. Key Evidence and Findings

The Tribunal considered the statement of the landowner and the financial transactions involved. The landowner confirmed that the land was initially sold to the husband of Smt. Hemlataben N Parmar, who had made substantial payments. The partnership firm compensated Smt. Hemlataben N Parmar for her husband's initial investment by paying her Rs. 50,00,000/- and allocating four flats.

4. Application of Law to Facts

The Tribunal applied the law by determining that the provision of Section 50C was not applicable to the transfer of development rights, as these rights do not constitute a transfer of land or building. The Tribunal relied on precedents from the ITAT Bangalore and Pune, which held that Section 50C applies only to the transfer of land or building, not to development rights.

5. Treatment of Competing Arguments

The Revenue argued that the assessee should be taxed on the STCG as she acquired and transferred the development rights in her personal capacity. However, the Tribunal found that the partnership firm was the actual investor, and the assessee was a nominal owner. The compensation to Smt. Hemlataben N Parmar was justified due to her husband's prior investment.

6. Conclusions

The Tribunal concluded that the CIT(A) was correct in deleting the STCG addition, as the land belonged to the partnership firm, and the development rights were only notionally transferred. The Tribunal upheld the CIT(A)'s decision, rejecting the Revenue's appeal.

SIGNIFICANT HOLDINGS

The Tribunal established the principle that Section 50C of the Income Tax Act does not apply to the transfer of development rights, as these do not constitute a transfer of land or building. This holding aligns with prior decisions by other ITAT benches.

Final Determinations on Each Issue

The Tribunal determined that:

- The CIT(A) did not err in deleting the STCG addition as the land and development rights were effectively owned by the partnership firm, not the assessee individually.

- The involvement of Smt. Hemlataben N Parmar was justified due to her husband's prior financial commitment to the land purchase.

- The transaction was not liable for Capital Gain tax in the hands of the assessee, as the actual ownership and investment were with the partnership firm.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order and establishing that the provisions of Section 50C were not applicable in this case. The appeal by the Revenue was dismissed, and the CIT(A)'s decision was upheld.

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