2025 (4) TMI 545 - HC - Income Tax

Applicability of Section 50C to a property held under a leasehold right - HELD THAT - What is material to note is that the expression is held by an assessee and not owned by an assessee. Insofar as the immovable property i.e. land or building is concerned there are number of ways in which it can be held. The holding can be either as an owner lessee sub-lessee allottee tenant licensee gratuitous licensee or any other mode permissible or recognized by law. The expression held by an assessee therefore does not restrict the manner in which the land or building can be held. The holding of land is merely a method in which rights to the land can be held or acquired by a person. That cannot be in any manner equated with land or building but rather would be a species of the right to hold it which as indicated above are of multiple nature. We therefore find that merely because the land was originally allotted by the MIDC by way of a lease to the predecessor of the appellant who in turn has received the same by way of an assignment that being one of the modes of transfer of land or building the mere use of a particular mode of transfer cannot create any exception vis-a-vis the holding of the land or building by the Assesee. The word transfer as used in Section 50C (1) of the IT Act also cannot be used in a restricted sense and will have to be given widest amplitude considering the nature and purpose of the section and thus would include all modes and methods of transfer as are permissible and recognizable in law. Appeal dismissed.

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment was whether Section 50C of the Income Tax Act, 1961 (IT Act) applies to a property held under a leasehold right. Specifically, the question was whether the transfer of leasehold rights in certain plots of land would attract the provisions of Section 50C, which pertains to the deemed full value of consideration for the purpose of calculating capital gains tax.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

Section 50C of the IT Act is central to this case. It stipulates that if the consideration received from the transfer of a capital asset, being land or building, is less than the value assessed by the stamp valuation authority for stamp duty purposes, the latter value is deemed the full value of consideration for computing capital gains. The definition of 'Capital Asset' under Section 2(14) of the IT Act includes "property of any kind held by an assessee," emphasizing the term "held" rather than "owned."

The appellant relied on the precedent set in Atul G. Puranik v. Income Tax Officer, which suggested that leasehold rights do not equate to ownership of land or building and thus should not attract Section 50C. The respondent countered that the manner of holding the property is immaterial for Section 50C's applicability.

Court's Interpretation and Reasoning

The Court interpreted the term "held by an assessee" in Section 2(14) to encompass various forms of holding rights, including leasehold, sub-lease, allottee, tenant, or licensee. The Court emphasized that the expression "held by an assessee" does not restrict the manner of holding and includes all legally permissible methods. Therefore, the transfer of leasehold rights falls within the ambit of Section 50C.

The Court also addressed the appellant's reliance on Atul Puranik, stating that the case did not adequately consider the conjunction of Section 2(14) and Section 50C. The Court found that Atul Puranik did not address the statutory language or the broader interpretation of "property" and "transfer" under the IT Act.

Key Evidence and Findings

The appellant's argument was based on the lease agreement and subsequent deed of assignment, which transferred leasehold rights. The Court found that these documents indicate a transfer of rights in the property, thereby falling within the scope of Section 50C. The Court dismissed the appellant's argument that the leasehold nature of the property exempts it from Section 50C.

Application of Law to Facts

The Court applied the statutory definitions and interpretations to the facts, concluding that the transfer of leasehold rights in the plots constitutes a transfer of a capital asset under Section 50C. The Court held that the method of holding the property, whether leasehold or otherwise, does not affect the applicability of Section 50C.

Treatment of Competing Arguments

The Court considered the appellant's reliance on Atul Puranik and Greenfield Hotels and Estates Pvt. Ltd. but found these precedents unpersuasive. The Court noted that these cases did not fully address the statutory language or the comprehensive interpretation required by the IT Act. The Court favored a broader interpretation that includes leasehold rights within the scope of Section 50C.

Conclusions

The Court concluded that Section 50C applies to the transfer of leasehold rights in the property in question. The appeal was dismissed, affirming the Tribunal's decision that the leasehold nature of the property does not exempt it from the provisions of Section 50C.

SIGNIFICANT HOLDINGS

The Court established that the term "held by an assessee" in Section 2(14) includes various forms of property holding, such as leasehold rights. This interpretation broadens the scope of Section 50C to encompass transfers of leasehold interests.

The Court held that the transfer of leasehold rights is a "transfer of a capital asset" under Section 50C, and thus subject to capital gains tax based on the stamp valuation authority's assessment.

The Court rejected the applicability of Atul Puranik as a precedent, emphasizing the need for a comprehensive interpretation of the statutory language that considers both Sections 2(14) and 50C of the IT Act.

The final determination was that the appeal lacked merit, and the Court upheld the Tribunal's decision, dismissing the appeal with no order as to costs.

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