Whether provisions of Sec 50C come into play only when there is transfer of land or building or both but certainly not leasehold rights in land - YES: ITAT

THE issue before the Bench is - Whether provisions of Sec 50C come into play only when there is transfer of land or building or both but certainly not leasehold rights in land. And the verdict favours the assessee.

Facts of the case

A) The assessee is a steel manufacturing company. It had transferred factory land, building and shed in favour of Rishap Industries Pvt. Ltd. for a consideration for land and building and Rs.47,96,000/- for other fixed assets. During assessment, the AO accepted assessee’s contentions that the value of consideration for building be adopted at Rs.77,00,000/-. Thus, assessee had adopted the value of consideration for the transfer of land at Rs.2,35,04,000/- in its computation of income. The AO noted that the value of land and building adopted by the registering authority for the purposes of stamp duty valuation was Rs.5,75,93,000/-. As a result, the stamp duty value of the consideration for land was proposed to be taken by the AO at Rs.4,98,93,000/- (Rs.5,75,93,000 minus Rs.77,00,000). The assessee explained that it was only holding leasehold rights in the land and that it was not the owner of the land so as to attract the provisions of section 50C. The plea of the assessee that it did not transfer land as such, as it was not owning the land was rejected by the AO who proceeded to compute the capital gains by invoking section 50C. Therefore, the AO held that section 50C covered the leasehold rights in the land also and proceeded to compute the capital gains on transfer of leasehold land at Rs.4,89,89,000/- as against Rs.1,90,11,120/- computed by the assessee in the return of income.

On appeal, the CIT(A) confirmed the order of the AO. Hence, aggrieved the present appeal of the assessee.

B) Another issue was the claim of loss on sale of Dies/moulds manufactured on behalf of the customers. The claim of the assessee was that no depreciation was claimed on such value of Dies/moulds and therefore the loss on its sale was allowable as a long term capital loss. The AO did not accept the plea of the assessee on the ground that the same was already considered as a part of block assets.

The Tribunal held that,

A) ++ the moot question before us is as to whether such expression would cover the transfer of a capital asset being leasehold rights in land or building. There cannot be a dispute to the proposition that the expression land by itself cannot include within its fold leasehold right in land also. Of-course, leasehold right in land is also a capital asset and we find no fault with this stand of the Revenue. So however, every kind of a ‘capital asset’ is not covered within the scope of section 50C of the Act for the purposes of ascertaining the full value of consideration. In-fact, the heading of section itself provides that it is “Special provision for full value of consideration in certain cases”. Therefore, there is a significance to the expression “a capital asset, being land or building or both” contained in section 50C. The significance is that only capital asset being land or building or both are covered within the scope of section 50C of the Act, and not all kinds of capital assets;

++ in our considered opinion, the point made by the CIT(A) is quite fallacious. Firstly, it has to be understood that the meaning of the expression “immovable property” contained in section 269UA(d) of the Act has been referred to in section 2(47) of the Act only in relation to sub-clause (v) and (vi) thereof. Secondly, from the meaning of expression “immovable property” contained in section 269UA(d) of the Act, the only thing that can be inferred is that even leasehold rights in land is a capital asset. However, the said inference does not justify the inclusion of a transaction involving transfer of leasehold rights in land within the purview of section 50C of the Act. Quite clearly, section 50C of the Act applies only to capital asset being land or building or both. It does not apply to leasehold rights in the land or building. The stand of the CIT(A) that it was not necessary to mention ‘rights in land or building’ specifically in section 50C of the Act, in our view, is quite misconceived;

++ in view of the aforesaid legal position and in the absence of any decision to the contrary brought out by the Revenue, we conclude by holding that section 50C of the Act does not come into operation in the present facts where what is transferred by the assessee is only the leasehold rights in land which were acquired by it from Maharashtra Industrial Development Corporation (i.e. MIDC) on a 99 years lease basis. As a consequence, we set aside the order of the CIT(A) and direct the Assessing Officer to compute the long term capital gain on transfer of leasehold land by adopting the full value of consideration of Rs.2,35,04,000/- declared by the assessee in the computation of income and allow the appropriate relief to the assessee;

B) ++ we are of the view that the claim of the assessee has been rejected by the lower authorities on mere surmises and conjectures. The CIT(A) has reproduced in his order the written submissions put-forth by the assessee in this regard which clearly point out that assessee had given a detailed computation of manner in which the long term capital loss of Rs.10,15,149/- in question has been worked out. There is no repudiation to the details furnished by the assessee before the CIT(A). Nevertheless, since the matter involves a factual appreciation, we deem it fit and proper to restore it back to the file of the Assessing Officer who shall verify the claim put-forth by the assessee and allow appropriate relief in accordance with law.