Monday, 20 February 2012

Section 50C of the Income Tax Act not applicable in case the property held as business asset

 


Background
  • The assessee was engaged in the business of property development and the activities of the assessee were treated as business.
  • The assessee has obtained power of attorney from the owner of the property (primarily land) and the same was shown under the head “Current assets” and not under the head “Fixed assets” in the balance sheet.
  • Such property was sold by the assessee for a consideration through a deed of conveyance. The assessee claimed a loss on the sale of such property in the return filed for the relevant assessment year.
  • While registering sale deed, the Sub-Registrar took the guideline value which was much higher than the actual consideration for sale and levied stamp duty / registration charges on higher value.
  • The Assessing Officer (AO?) invoked section 50C of the Income Tax Act (the Act?) and held that the higher guideline value as fixed by the Sub-registrar for the purpose of levying stamp duty / registration charges should be taken as the sale consideration and computed the profit on the sale of the property accordingly.
  • Aggrieved by the order of AO, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT (A)?] contending that the AO is not correct in invoking the provisions of section 50C of the Act since that section would apply only to the computation of income under the head capital gains and not for the computation of business income. CIT (A) agreed with the contention of the assessee.
  • Aggrieved by the order of CIT (A), the Revenue filed an appeal before the Income Tax Appellate Tribunal ├žITAT?). The ITAT held that the provisions of section 50C of the Act are not applicable when the income was treated as business income and on that ground dismissed the appeal. The revenue preferred an appeal before the High Court.
Issue
Whether, on the facts of the case, the provisions of section 50C of the Act are applicable when the property is held as business asset?
Ruling of the High Court
It is not in dispute that the activity of the assessee is of property promoter. As 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. Section 50C of the Act pertains to determining the full value of the capital asset. The appeal is, therefore, dismissed.
Source: CIT v. Thiruvengadam Investments Private Limited, Appeal No. 1329 of 2009 (Madras High Court)



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