2017 (2) TMI 588 - AT - Income Tax

Appeal allowed as 'Arakshan Patra' not land/building under IT Act

The Tribunal allowed the appeal, ruling that Section 50C of the I.T. Act, 1961, was not applicable to the sale of 'Arakshan Patra' as it did not qualify ... Section 50C deeming provision - application of Section 50C to transfer of land or building - transfer of right to receive allotment (Reservation Letter / Arakshan Patra) vis-a -vis capital asset - reference to Valuation Officer under Section 50C(2)Section 50C deeming provision - application of Section 50C to transfer of land or building - transfer of right to receive allotment (Reservation Letter / Arakshan Patra) vis-a -vis capital asset - Whether Section 50C applies to the sale of a Reservation Letter (Arakshan Patra) which conveys only a right to receive allotment and is not itself land or building - HELD THAT: - The Tribunal examined Section 50C, a deeming provision applicable where the transfer is of a capital asset 'being land or building or both'. The assessee sold Arakshan Patra representing the right to receive 20% residential and 5% commercial allotment (total 463 sq. m) and had acquired that right by purchase; the sale deeds recorded consideration of Rs. 9,80,000 while the stamp valuation authority's adopted value aggregated to Rs. 15,85,980. The Tribunal held that Section 50C can operate only when the asset transferred falls within the statutory description 'land or building or both'; a deeming provision cannot be extended beyond its clear legislative scope. Applying this principle to the facts, the Tribunal found that the Arakshan Patra constituted only a right to receive allotment and could not be equated with transfer of 'land or building', and therefore Section 50C did not apply. The Tribunal noted the submissions and authorities relied upon by the assessee and concluded that the additional ground raising this legal contention was sustainable. The consequent contention about reference to the Valuation Officer under Section 50C(2) became irrelevant once Section 50C was held inapplicable to the subject transfer. [Paras 3, 4]Additional ground allowed; Section 50C held not applicable to sale of Arakshan Patra and the addition confirmed by lower authorities is set asideFinal Conclusion: The appeal is allowed: the Tribunal held that Section 50C does not apply to the sale of the Reservation Letter (Arakshan Patra) as it is not a transfer of 'land or building', and the addition under Section 50C confirmed by the lower authorities is deleted. Issues Involved:1. Applicability of Section 50C of the I.T. Act, 1961 to the sale of 'Arakshan Patra'.2. Compliance with the provisions of sub-section 2 of Section 50C by the Assessing Officer (AO).Detailed Analysis:1. Applicability of Section 50C of the I.T. Act, 1961:The primary issue raised by the assessee was whether the provisions of Section 50C of the Income Tax Act, 1961, which pertains to the valuation of land or building for the purpose of calculating capital gains, were applicable to the sale of 'Arakshan Patra'. The 'Arakshan Patra' is a right to receive the allotment of land, not the land itself. The assessee argued that Section 50C is a deeming provision that applies only to the transfer of capital assets being land or building or both. Since 'Arakshan Patra' does not qualify as land or building, the provisions of Section 50C should not apply.The Tribunal agreed with the assessee's argument, noting that Section 50C can only be invoked when the capital asset in question is land or building or both. The Tribunal cited various case laws supporting the interpretation that deeming provisions should be strictly construed and cannot be extended beyond their explicit mandate. Therefore, the Tribunal concluded that Section 50C was not applicable to the sale of 'Arakshan Patra'.2. Compliance with Provisions of Sub-section 2 of Section 50C:The assessee also contended that the AO did not comply with the provisions of sub-section 2 of Section 50C, which requires the AO to refer the valuation of the capital asset to a Valuation Officer if the assessee contests the value adopted by the stamp valuation authority. The assessee had objected to the value adopted by the Sub-Registrar, arguing that it exceeded the fair market value of the property. However, the AO did not refer the matter to a Valuation Officer and instead directly adopted the value determined by the Sub-Registrar for the purpose of calculating capital gains.The Tribunal noted that the AO's failure to refer the valuation to a Valuation Officer, despite the assessee's objection, was a procedural lapse. However, since the Tribunal had already determined that Section 50C was not applicable to the sale of 'Arakshan Patra', this issue became moot. The Tribunal emphasized that for Section 50C to apply, the asset must be land or building, which was not the case here.Conclusion:The Tribunal allowed the appeal of the assessee, concluding that the provisions of Section 50C of the I.T. Act, 1961, were not applicable to the sale of 'Arakshan Patra' as it did not constitute land or building. Consequently, the addition of Rs. 6,05,980/- made by the AO on account of short-term capital gain was deleted. The Tribunal also highlighted the procedural lapse by the AO in not referring the valuation to a Valuation Officer, although this became a secondary issue given the primary finding on the inapplicability of Section 50C.Judgment:The appeal of the assessee was allowed, and the order was pronounced in the open Court on 10-02-2017.