AI Drafter 
TaxTMI 
TaxTMI 
2024 (4) TMI 740
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.... manufacturing of sulphonates having its manufacturing unit at Thane, Maharastra. For expansion of its business it had applied for leasehold land for plot no. N72 of Maharastra Industrial Development Corporation (MIDC) for 9800 sq. mtr. of land. The said leasehold land was allotted to the assessee by MIDC on 11.04.2008 for a total consideration of Rs. 1,74,35,231/- for setting up a manufacturing unit. Subsequently, assessee decided to transfer the said land to one partnership firm M/s. S. M. Industries (SMI). 3.1. Agreement to sale was executed with partners of SMI on 28.04.2011 whereby the assessee agreed to transfer the said leasehold land for a consideration of Rs. 2 Cr. Against this agreement to sale, assessee received an advance of Rs. 5 lacs by account payee cheque and the balance was to be received on or before the execution of conveyance deed. Assessee had handed over possession of the said land to the partners of SMI on the date of execution of agreement to sale i.e. 28.04.2011. Since the said land was acquired on lease by the assessee from MIDC, it sought a permission from MIDC to transfer the leasehold rights in the land. 3.2. The permission from MIDC got delayed w....
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....s allotted right to use the leasehold property by MIDC. The property was neither transferred in the name of the assessee nor owned by it. It was only the right to use the land which was taken on lease by the assessee and only the right to use the land was transferred to the assessee. 3.6. According to the assessee, right in the leasehold property is not a capital asset being land or building or both as contained in sec. 50C of the Act. Assessee also contended that sec. 50C is a deeming provision and it should be applied only in respect of situation specifically mentioned therein. Ld. AO cannot go beyond the explicit mandate of the deeming provision for which the section is enacted. Assessee cited and gave reference to certain sections under the Act whereby "land or building" and "rights in land or building" have been recognised separately. He referred to sec. 54D where "land or building" and "rights in land or building" are recognized separately. Similar is the case in section 5(1) of the Wealth Tax Act, 1957. 3.7. Assessee thus, distinguished between "land or building" and "rights in land or building". Assessee submitted that it has transferred leasehold rights in the plot o....
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....ement dated 07.12.2010 between MIDC as the guarantor and assessee as the licensee for granting of leasehold rights in the impugned industrial plot of land, copy of agreement for assignment dated 28.04.2011 between the assessee as the transferor/assignor and the partners of SMI as the transferees/assignees agreeing on the terms for transfer of leasehold rights granted by MIDC and copy of order dated 23.02.2016 by MIDC granting its approval in favour of licensee for the transaction of transfer of lease from the assessee to the partners of SMI. 6. The contentions of the Ld. Counsel for the assessee are twofold, first relating to application of section 50C which applies only on a capital asset being land or building or both and not on leasehold rights in land or building. The second being applicability of first and second proviso to sec. 50C of the Act where the date of agreement and date of registration are different and part amount has been paid through banking channel on or before the date of agreement. 6.1. To deal with the above two contentions, provisions of section 50C(1) are reproduced as under: "[50C. Special provision for full value of consideration in certain ....
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....provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, subsection (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. [Explanation 1.]-For the purposes of this section, "Valuation Officer" shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). [Explanation 2.-For the purposes of this section, the expression "assessable" means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.] (3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted 2 [or assessed or assessable] by the stamp valuation authority referr....
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....ly dealt with various parameters highlighting the differences between leasehold and freehold property furnished in his written submissions. The distinguishing features between leasehold and freehold property as submitted by the Ld. Counsel is tabulated below: SN Point Leasehold Property Freehold Property 1 Ownership Duration Ownership is for a fixed term as stated in the lease agreement Ownership is indefinite and typically lasts until the owner decides to sell or transfer the property. 2. Ownership Rights The lessee holds the rights to use and occupy the property for the lease duration. The owner holds complete ownership rights to the property, including the land and any structures on it. 3 Land Ownership The land is owned by the landlord or freeholder. The lessee only owns the rights to the property for the lease duration. The owner owns both the land and any structures on it, giving them complete ownership of the property. 4 Lease Agreement The lessee and the lessor sign a lease agreement specifying the terms, conditions, and duration of the lease. No lease agreement is required since the owner has complete owners....
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....asehold properties offer limited security of tenure as the lease term has a defined end date. Freehold properties provide greater security of tenure as long as the owner continues to hold the property. 16 Financing Options Financing leasehold properties may have limitations compared to freehold properties, as lenders may have stricter criteria. Financing options are generally more accessible for freehold properties, as they provide greater security for lenders. 17 Control over Costs The lessee may be subject to rent increases or additional charges as specified in the lease agreement. The owner has control over costs and can make decisions about expenses related to the property. 18 Inheritance The leasehold rights Freehold properties can may not be inheritable, and the property reverts to the landlord at the end of the lease term. be inherited by the owner's heirs, who become the new owners. 19 Landlord's Consent The lessee may require the landlord's consent for various activities, such as making structural changes or running a business on the premises. The owner does not require anyone's co....
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....on India Pvt. Ltd. 155 ITR 711 wherein, inter alia, it was held that legal fictions are only for a definite purpose. They are limited to the purpose for which they are created and should not be extended beyond their legitimate field. 7.5. On the second leg of his contention, ld. Counsel referred to the first and second proviso to section 50C to submit that assessee had entered into an agreement to sale 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, upon signing of the said agreement to sale. Accordingly, in terms of first and second proviso to section 50C, stamp duty valuation at the time of registration of the said agreement in the impugned year cannot be taken for computing the capital gain, rather the value adopted by the stamp valuation authority on the date of agreement to sale be taken for the purpose of computing full value of consideration for such transfer. In this respect, he pointed out that valuation report for valuing the property at the time of execution of agreement to sale at Rs. 1,62,99,500/- issued by the competent authority was submitted before the AO in....
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....2.2016 is in respect of granting of approval for the transfer of lease from the assessee to SMI in absence of which the entire transaction of transfer would have failed. Thus, taking into consideration all these three documents, it is evidently demonstrated by the assessee that the leasehold rights are limited and restrictive in nature as compared to the ownership rights. 8.2. The moot point before us to be considered is whether the transfer of leasehold rights in land falls within the purview of section 50C or not. In this respect, from section 50C(1) itself, we have already noted that it refers to transfer of a capital asset, being land or building or both. Whether this land or building or both would include the leasehold rights in the said land or building or both is what we need to consider. 8.3. In the written submission made by the Ld. Sr. DR, while referring to the pre-requisite of charging long term capital gain u/s. 50C, it is stated that existence of capital asset as land or building is one of the important prerequisite. In this statement, Ld. Sr. DR has also used the word "immovable property" which in our understanding does not find place in section 50C(1). By refe....
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.... on a property which is freehold and the one which is leasehold. In this respect, we do find force in the submission made by the Ld. Counsel exhaustively dealing with several parameters to distinguish between the features of leasehold property and a freehold property, already tabulated above. Accordingly, the capital asset being land or building or both referred to in sec. 50C(1) do not include leasehold rights in land or building or both. 9.2. Further, we take note of the fact that wherever legislature intended to include specific reference to "rights in land or building or part thereof" which is included in certain sections such as section 54D, section 54G, sec. 54GA, sec. 27(iiib), sec. 5(1) of Wealth Tax Act, 1957 and explanation to sec. 269UAD. Such a reference to "rights in land or building or part thereof" does not find place in sec. 50C(1) which sets it apart from the inference to be drawn that capital asset being, land or building or both would also include rights in land or building or part thereof, to cover leasehold rights which are limited in nature and cannot be equated with ownership of land or building or both. The Act has given separate treatment to land or buil....