2024 (6) TMI 881 - AT - Income Tax

Section 50C doesn't apply to transfer of leasehold rights in land, only to land or building assets

ITAT Delhi held that Section 50C of the Income Tax Act does not apply to transfer of leasehold rights in land. The tribunal ruled that Section 50C, being ... Capital gain computation - Applicability of Section 50C - transfer of leasehold rights - HELD THAT:- Considering the fact that we are dealing with special provision for full value of consideration in certain cases u/s 50C of the Act, which is a deeming provision, the fiction created in this section cannot be extended to any asset other than those specifically provided therein. As section 50C of the Act applies only to a capital asset, being land or building or both, it cannot be made applicable to lease rights in a land. The Hon'ble Bombay High Court in the case of Greenfield Hotels & Estates (P.) Ltd. [2016 (12) TMI 353 - BOMBAY HIGH COURT] held that Section 50C of the Act would not be applicable while computing capital gains on transfer of leased hold rights in Land and buildings. The Hon'ble Delhi ITAT in the case of Noida Cyber Park (P.) Ltd., [2020 (10) TMI 563 - ITAT DELHI] held that Section 50C of the Act covers only capital asset being land or building or both; it would not cover transfer of leasehold rights in land and building. Deeming provision has been incorporated to substitute the value adopted or assessed or assessable by stamp valuation authority in place of consideration received or accruing as a result of transfer, in case the latter is lower than the former. It, therefore, follows that only if a capital asset being land or building or both is transferred and the consideration received or accruing as a result of such transfer is less than the value adopted or assessed or assessable by the stamp valuation authority, the deeming fiction under sub-sec. (1) of Section 50C of the Act shall be activated to substitute such adopted or assessed or assessable value as full value of consideration received or accruing as a result of such transfer in the given situation. Thus is held that the section 50C of the Act, being deeming provision inserted by the Finance Act 2002 w.e.f. 01.04.2003, is not applicable in this case. However, the AO may compute capital gains as per the Act without invoking the provisions of section 50C of the Act. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the reopening of assessment under section 147 of the Income Tax Act, 1961 was validly made in the facts of the case. 2. Whether section 50C of the Income Tax Act, 1961 (deeming provision for full value of consideration where stamp valuation exceeds consideration) applies to transfer of leasehold rights in land/building. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of reopening under section 147 Legal framework: Section 147 authorises reopening of an assessment where income has escaped assessment; validity involves sufficiency and application of mind to the reasons recorded by the Assessing Officer and compliance with statutory requirements and principles of natural justice. Precedent treatment: Parties raised submissions and relied upon authorities in support of challenge to reopening; the Commissioner (Appeals) did not adjudicate the validity issue despite the assessee raising it in grounds of appeal and filing detailed submissions. Interpretation and reasoning: The Tribunal observed that the issue of validity of reopening had not been decided by the Commissioner (Appeals) and that the Assessing Officer's reasons (as recorded) required fresh adjudication at the appellate stage after affording opportunity to the assessee. Accordingly, the Tribunal refrained from expressing any view on the merits of reopening and considered it appropriate, in the interest of justice, to remit the matter to the Commissioner (Appeals) for fresh decision. Ratio vs. Obiter: The directive to remand for fresh adjudication is ratio as applied to the facts - the Tribunal's refusal to decide the reopening issue and its instruction for fresh consideration is an operative dispositive act rather than obiter. Conclusion: The question of validity of reopening under section 147 is remitted to the Commissioner (Appeals) for fresh adjudication after affording the assessee a reasonable opportunity of being heard; the Tribunal made no comment on the substantive merit of the reopening. Issue 2 - Applicability of section 50C to transfer of leasehold rights Legal framework: Section 50C is a deeming provision which, where applicable, substitutes the value adopted/assessed/assessable by stamp valuation authority as the full value of consideration for the purposes of computing capital gains under section 48, but its operation is expressed to be limited to transfers of a 'capital asset, being land or building or both.' Precedent treatment: The Tribunal relied upon binding principles that deeming provisions must be confined to their explicit purpose and cannot be extended beyond the legislative mandate. The decision followed coordinate and higher court pronouncements holding that section 50C is confined to 'land or building or both' and does not extend to mere rights in land/building such as leasehold rights. Interpretation and reasoning: The Tribunal analysed the statutory language and related provisions (including the distinction drawn elsewhere in the Act between 'land or building' and 'any right in land or building') to conclude that leasehold rights are not the same as the capital asset described as 'land or building or both.' It applied the principle that legal fictions and deeming provisions are to be limited to their legitimate field and not stretched to cover assets outside the text. On that basis, the deeming fiction in section 50C cannot be invoked for transfer of leasehold rights. Ratio vs. Obiter: The holding that section 50C does not apply to transfer of leasehold rights is ratio with respect to the issue adjudicated and is dispositive of the substantive quantum issue insofar as the AO invoked section 50C to substitute stamp valuation for consideration in computing capital gains. References to other statutory distinctions (e.g., section 54D language) and authorities reinforcing the limited scope of section 50C serve as supporting ratio; statements of general principle regarding legal fictions are not mere obiter but form part of the legal foundation for the decision. Conclusion: Section 50C is not applicable to transfer of leasehold rights; the Assessing Officer may compute capital gains under the Act on actual consideration and admissible cost of acquisition without invoking section 50C. The Tribunal set aside the invocation of section 50C in the assessment and allowed the appeal partly for statistical purposes, while remitting the reopening validity to the Commissioner (Appeals) as noted above.