Leasehold rights in land excluded from section 50C Income Tax Act provisions

The ITAT Kolkata held that leasehold rights in land do not fall within the purview of section 50C of the Income Tax Act. The tribunal distinguished between freehold and leasehold properties, noting that section 50C applies only to capital assets being "land or building or both" and does not specifically include rights in land. The tribunal observed that where the legislature intended to include rights in land, it made specific references in other sections like 54D, 54G, and 54GA, but not in section 50C. The CIT(A)'s deletion of the LTCG addition was upheld, and the revenue's appeal was dismissed.

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Issues Involved:

1. Deletion of addition made by the AO on account of long-term capital gain u/s 50C of the Income Tax Act, 1961.
2. Applicability of section 50C to leasehold rights in land.
3. Application of first and second proviso to section 50C when the date of agreement and date of registration are different.

Summary:

Issue 1: Deletion of Addition Made by AO on Account of Long-Term Capital Gain u/s 50C

The only ground raised by the revenue is in respect of deletion of addition made by the Ld. AO on account of long-term capital gain u/s 50C of the Act of Rs. 5,29,39,153/- by holding that leasehold rights on land are not within the purview of section 50C. The AO computed the long-term capital gain by taking the full value of consideration of Rs. 8,18,36,300/- to arrive at a figure of Rs. 5,29,39,153/-. Aggrieved, the assessee went in appeal before the Ld. CIT(A), who deleted the addition.

Issue 2: Applicability of Section 50C to Leasehold Rights in Land

The assessee contended that section 50C applies only to the capital asset being land or building or both and not to leasehold rights in land or building. The Ld. CIT(A) concluded that provisions of section 50C would not be applicable in the assessee's case as it has transferred only the leasehold rights in the industrial plot of land. The Tribunal agreed with the assessee, noting that section 50C(1) refers to the transfer of a capital asset, being land or building or both, and does not include leasehold rights in land or building or both. The Tribunal held that the deeming provision of section 50C cannot be extended beyond its legitimate field and thus, leasehold rights in land are not within the purview of section 50C.

Issue 3: Application of First and Second Proviso to Section 50C

The Ld. Counsel for the assessee submitted that the assessee had entered into an agreement to sell with SMI to transfer the leasehold rights in the year 2011 for a consideration of Rs. 2 Cr. and received an advance of Rs. 5 lakh through banking channel. The Tribunal agreed with the assessee, stating that in terms of the first and second proviso to section 50C, the stamp duty valuation at the time of registration of the said agreement cannot be taken for computing the capital gain. The Tribunal noted that the valuation report for valuing the property at the time of execution of the agreement to sell at Rs. 1,62,99,500/- was submitted before the AO, and thus, the AO is wrong both in law and on facts to adopt the stamp duty value relevant to the year under consideration.

Conclusion:

The Tribunal dismissed the appeal of the revenue, holding that leasehold rights in land are not within the purview of section 50C of the Act and that the assessee is adequately safeguarded by the first and second proviso to section 50C. The order was pronounced in the open court on 22nd March 2024.

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