2013 (1) TMI 372 - AT - Income Tax

Tribunal directs reassessment on Section 50C for leasehold rights valuation

SHAVO NORGREN (P) LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(3), MUMBAI

SHAVO NORGREN (P) LTD. Versus DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(3), MUMBAI - TMI Issues Involved:1. Applicability of Section 50C of the Income Tax Act to the transfer of leasehold rights.2. Valuation of the building and its exclusion from the total consideration.3. Cost of acquisition and its deduction in the computation of long-term capital gain.4. Date of valuation for stamp duty purposes: Memorandum of Understanding (MoU) date vs. registration date.5. Adherence to Section 50C(2) procedural requirements by the Assessing Officer (AO).Issue-wise Detailed Analysis:1. Applicability of Section 50C to Leasehold Rights:The main issue was whether Section 50C, which applies to the transfer of 'land or building or both,' extends to leasehold rights. The assessee argued that Section 50C should not apply as they transferred only leasehold rights, not ownership of the land or building. The ITAT referenced several precedents, including Atul G. Puranik vs. ITO, which held that leasehold rights are distinct from land or building and thus Section 50C does not apply. However, the Tribunal noted that the assessee had substantial rights over the property, including development rights, suggesting the transfer might involve more than mere leasehold rights. Therefore, the Tribunal directed the AO to re-examine the nature of the rights transferred to determine the applicability of Section 50C.2. Valuation of the Building:The assessee claimed that the value of the building (Rs.14,30,220) should be deducted from the total consideration. The AO had ignored this valuation due to the absence of a separate agreement. The Tribunal acknowledged that the building was part of the transfer and directed the AO to re-examine the valuation and adjust it appropriately in the block of assets under the relevant sections (Section 50 or Section 43(6)).3. Cost of Acquisition:The assessee initially did not claim the cost of acquisition but later provided a valuation as of 01.04.1981, indexed to Rs.26,88,999. The AO denied this claim, treating the rights akin to tenancy rights with no cost of acquisition. The Tribunal emphasized that the cost of acquisition should be considered, given the premium paid for the leasehold rights and its inclusion in the fixed asset schedule. The AO was directed to examine and allow the cost of acquisition as per the facts and law.4. Date of Valuation for Stamp Duty Purposes:The assessee contended that the stamp duty valuation should be based on the MoU date (09.04.2007) rather than the registration date (07.03.2008). The Tribunal noted that this issue became academic as the application of Section 50C was restored to the AO. The AO was directed to consider the relevant objections during re-examination.5. Adherence to Section 50C(2) Procedural Requirements:The Tribunal observed that the AO had not followed the procedural requirements under Section 50C(2), which mandates giving the assessee an opportunity to make submissions. The Tribunal set aside the AO's and CIT(A)'s orders on this ground, directing the AO to comply with Section 50C(2) and provide the assessee with due opportunity to present their case.Conclusion:The Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the issues of applicability of Section 50C, valuation of the building, cost of acquisition, and adherence to procedural requirements, providing the assessee with due opportunity to furnish documents and make submissions.