2014 (1) TMI 1230 - AT - Income Tax

Tribunal clarifies scope of section 50C on shares transfer under Income Tax Act

The Tribunal partly allowed the appeals by overturning the decisions of the CIT(A) concerning the interpretation of section 50C of the Income Tax Act. It ... Applicability of section 50C of the Act – Addition made in sale consideration – Nature of payment made - Assessee is a shareholder in company along with other shareholders and sold his shares for a consideration – Held that:- The decision in Irfan Abdul Kader Fazlani Versus Assistant Commissioner of Income-tax, Central Circle-44, Mumbai [2013 (2) TMI 350 - ITAT MUMBAI] followed - The assessee transferred the shares in the company and not the land or building or both - Assessee does not have full ownership on the flats which are owned by the company - The transfer of shares was never a part of the assessment of the Stamp duty Authorities of the State Government - The company was deriving income, taxable under the head ‘income from property’ for more than a decade – thus, the AO’s decision to invoke the provisions of section 50C to the tax planning adopted by the assessee is not proper and it does not have the sanction of the provisions of IT Act - The provisions of section 50C are deemed provisions which are required to be strictly interpreted - The addition made by the AO and confirmed by the Ld. CIT(A) on account of Long Term Capital Gain by enhancing the value of sale consideration set aside – Decided in favour of Assessee. Issues Involved:- Interpretation of section 50C of the Income Tax Act for computation of Long Term Capital Gain.- Applicability of section 50C on transfer of shares in a company.- Addition of separate payments for repayment of loans in sale consideration.- Treatment of capital gains as short term or long term based on the nature of the transaction.- Consideration of alternative claims for indexed cost of immovable property in capital gains computation.Analysis:Issue 1: Interpretation of section 50C for Long Term Capital Gain Computation- The appeals were against orders passed by the CIT(A) for assessment years 2007-08 and 2008-09 regarding the computation of Long Term Capital Gain.- The AO invoked section 50C based on the stamp duty valuation for the transfer of shares in a company, deeming it a transfer of immovable property.- The Tribunal analyzed the provisions of section 50C, emphasizing that it applies to land or building transfers, not share transfers.- The Tribunal held that the provisions of section 50C were not applicable to the transfer of shares, as the shares did not represent direct ownership of the immovable property.- Following a similar decision in other cases, the Tribunal allowed the appeals, overturning the CIT(A)'s decision on this issue.Issue 2: Addition of Separate Payments in Sale Consideration- The AO added a separate payment made for loan repayment to the sale consideration, affecting the computation of Long Term Capital Gain.- The Tribunal, following its interpretation of section 50C, concluded that such separate payments did not alter the nature of the transaction as a share transfer.- Grounds challenging the addition of separate payments were allowed, aligning with the decision on the applicability of section 50C.Issue 3: Treatment of Capital Gains as Short Term or Long Term- The nature of the transaction determined whether the capital gains were short term or long term.- When the transaction was considered a share transfer, the capital gains were treated as long term, as reflected in the returns of income.- The Tribunal allowed the grounds related to the treatment of capital gains, ensuring consistency with the decision on the primary issues.Issue 4: Consideration of Alternative Claims for Indexed Cost- The Tribunal dismissed alternative claims for indexed cost of immovable property in capital gains computation as they became irrelevant due to the primary decisions made on the main issues.- Grounds related to alternative claims were considered infructuous following the resolution of the primary issues.Conclusion:- The appeals were partly allowed, with the Tribunal overturning the decisions of the CIT(A) based on the interpretation of section 50C and the nature of the transaction involving the transfer of shares in a company. The treatment of capital gains and consideration of alternative claims were also addressed in favor of the appellant.