2009 (12) TMI 48 - HC - Income Tax

Section 50C held inapplicable where property treated as business asset; sale consideration of Rs 5 crore restored

HC dismissed the appeal, holding Section 50C was not applicable because the property was a business asset, not a capital asset. The Tribunal rightly ... Applicability of provisions of section 50C on a business asset - income from sale of property - valuation for the purpose of stamp duty - Whether, the Tribunal was right in holding that the provisions of Section 50C of the Income Tax Act (Act) were not applicable in the matter of computation of the assessee's income from the sale of the property at Greams Road and the sale consideration should be taken only at Rs.5 Crores as shown in the sale deed? HELD THAT:- The Assessing Officer, in order to determine the value of the property, has invoked the provisions of Section 50C of the Act and thereby brought the entire amount. The Appellate Authority has deleted that portion of the order of the Assessing Officer having the sale consideration as against Rs.5 Crores the apparent sale consideration shown in the sale deed. The Tribunal has come to the conclusion that invocation of Section 50C of the Act is not warranted as the property was never held by the assessee as capital asset and as per the accounts also, the amount given to the owner of the property has been shown as loans and advances thereby the property has been treated as business asset and not as capital asset. The invocation of Section 50C of the Act as can be seen from the provisions of the Act can be made in order to find out the true value of the capital asset. In the very facts and circumstances of the case, the property in the hands of the assessee was treated as business asset and not as capital asset, there is no question of invoking the provisions of Section 50C of the Act, which is, as already stated, pertaining to determining the full value of the capital asset. The Tribunal has taken in aid the observation of the Mumbai Bench in the case of Interlok Hotels (P) Ltd. [2009 (2) TMI 235 - ITAT BOMBAY-I], which, in our considered view, is in consonance with the statutory provisions and is well in accordance with law. Appeal is dismissed. Issues:Applicability of Section 50C of the Income Tax Act in computation of business income.Detailed Analysis:1. Background: The case involved an appeal by the Revenue against the order of the Tribunal regarding the computation of income from the sale of a property at Greams Road for the assessment year 2004-2005. The dispute centered around the applicability of Section 50C of the Income Tax Act.2. Assessing Officer's Findings: The Assessing Officer noted that while the sale deed showed a consideration of Rs. 5 Crores, the Sub-Registrar valued the property at Rs. 6,94,45,920. The Assessing Officer treated the property as a business asset due to the assessee's engagement in property development and computed the profit accordingly.3. Appeals Process: The assessee contended that Section 50C should not apply to business income and sought reduction of certain payments from the consideration. The Commissioner of Income Tax (Appeals) agreed that Section 50C pertains to capital gains and directed the Assessing Officer to adopt the sale consideration of Rs. 5 Crores.4. Tribunal's Decision: The Income Tax Appellate Tribunal dismissed the Revenue's appeal, stating that Section 50C did not apply when the income was treated as business income. The Tribunal considered the property as a business asset based on the funds paid to the owner and the treatment in the balance sheet.5. High Court Judgment: The High Court concurred with the Tribunal's decision, emphasizing that Section 50C is meant to determine the value of capital assets. Since the property was treated as a business asset and not a capital asset, the provision was deemed inapplicable. The Court referenced a Mumbai Bench case to support this interpretation.6. Conclusion: The High Court upheld the Tribunal's decision, dismissing the appeal by the Revenue and affirming that Section 50C did not apply to the computation of business income in this case. The judgment favored the assessee's position on the matter.This detailed analysis outlines the key points and legal reasoning behind the High Court's judgment regarding the applicability of Section 50C of the Income Tax Act in the computation of business income from the sale of a property.