Applicability of Section 50C of Income Tax Act 1961

[Tax DEPTT]

As assessee has entered into an agreement to sell his agricultural land to a builder in FY 2011-12. Immediately, after agreement to sell, the builder applied for CLU (conversion for land use) and the land was approved for conversion into residential property.  Now, at the time of registration of land, the  Revenue authorities are insisting for registration of land as per applicable circle rates for residential property instead of agricultural land. Therefore, the builder will get the land registered as per circle rates applicable for residential property, but actual consideration is being paid as per rate decided for agricultural land.  

My query is whether in the hands of assessee, for the purpose of computation of capital gain, whether provision of Section 50C (Special Provision for full value of consideration in certain cases) will be applicable or not.

[CAGOPALJI AGRAWAL]

You have to ensure whether the agreement was in writing, registered and what is the time gap between the two events. If the facts are in favor, the it might hold good in test of appeal. Of course, the AO can take the stand of Section 50C.

AI Summary

Section 50C valuation rule may apply where registration value reflects changed land use affecting capital gains computation. Whether the special valuation provision applies where an agreement to sell agricultural land was executed before conversion approval but registration occurs after conversion and the registration value is based on residential circle rates while actual consideration follows agricultural rates; key factors are whether the agreement was written and registered and the timing between agreement, conversion approval and registration, since the assessing officer can invoke the provision based on registration value reflecting changed use.