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Facts
The assessee, a textile machinery manufacturer, sold leasehold rights of a property for Rs. 2,82,50,000/-. The CPC adjusted the income under Section 50C based on the stamp duty value, alleging a difference of Rs. 37,19,500/-. The assessee contended that Section 50C is not applicable to leasehold rights.
Held
The Tribunal held that Section 50C of the Income Tax Act, 1961, is applicable only to the transfer of land or building or both, and not to the transfer of leasehold rights. Therefore, the adjustment made by the CPC was not valid.
Key Issues
Whether Section 50C of the Income Tax Act, 1961, is applicable to the transfer of leasehold rights in a property?
Sections Cited
143(1), 50C, 50CA, 55A, 54D
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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
(Assessment Year: 2019-20) Teckmen Systems ITO Ward 27(3)(1) C/o. G. P. Mehta & Co. CAS, 807, Room No. 422, Tower – 6, Vashi Tulsiani Chambers, Nariman Point, Railway Station, Commercial Vs. Mumbai – 400021. Complex, Vashi, New Bombay – 400 703. PAN/GIR No. AAAFT3969K (Appellant) : (Respondent) Assessee by : Shri G. P. Mehta, CA Respondent by : Shri Ajit Pal Singh, SR. DR. Date of Hearing : 17.04.2025 Date of Pronouncement : 30.06.2025 O R D E R Per Kavitha Rajagopal, J M: This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals), ADDL/JCIT(A)-3, Bengaluru (‘ld. CIT(A)’ for short), passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2019-20.
The assessee has raised the following grounds of appeal: “1. The orders passed by the learned lower authorities are bad in law and bad in facts.
2. Intimation issued u/s 143 (1) of the I.T. Act, 1961, by making an adjustment to the returned income at Rs.37,19,500/- in the context of Sec. 50C of the I.T. Act, 1961, is beyond the scope and ambit of Sec. 143(1) of the I.T. Act, 1961. Consequently, impugned adjustment to returned income is void ab-initio.
(A.Y. 2019-20) Teckmen Systems 3. Learned lower authorities have grossly erred in making /upholding impugned adjustment of Rs.37,19,500/- by recourse to Section 50C of the I. T. Act, 1961, even though the property transferred by the appellant was a leasehold property and Sec. 50C of the I.T. Act, 1961, has no application in case of transfer of leasehold property.
4. Learned lower authorities have grossly erred in not following the decision of Hon'ble Jurisdictional High Court / Hon'ble Income Tax Appellate Tribunal and have further erred in making /upholding impugned addition of Rs. 37,19,500/- in transgression of judicial propriety.
Having regard to the facts of the case, provisions of law and settled legal position, impugned adjustment u/s 143 (1) of the 5 I.T. Act, 1961 at Rs.37,19,500/- is wholly uncalled for and unsustainable in law.”
Brief facts of the case are that the assessee is a partnership firm engaged in the business of manufacturing of textile machinery and had filed its return of income dated 21.03.2020, declaring total income at 1,92,56,600/- and the same was processed u/s. 143(1) of the Act and notice u/s. 143(1)(a) of the Act dated 20.10.2020 was issued to the assessee, where the ld. AO/CPC had proposed the adjustment pertaining to the difference of Rs. 34,69,500/- being the different amount as per the ready reckoner value which is Rs. 3,17,19,500/- and the actual consideration of Rs. 2,82,50,000/- towards property (land and building) located in (Bhosari, MIDC, Pune) which leasehold rights were sold by the assessee during the year under consideration. The assessee contended that the leasehold rights in the property were sold for the consideration as per the fair market value, where the ready reckoner value does not indicate the fair market price. The CPC vide intimation dated 03.01.2021, u/s. 143(1) of the Act made an adjustment of Rs. 37,19,500/- towards the difference between the ready reckoner rate and the actual sale consideration, thereby determining total income at Rs. 2,29,76,100/-.
Aggrieved the assessee was in appeal before the first appellate authority, who vide order dated 04.12.2024, upheld the addition made by the CPC/AO u/s. 50C of the Act by (A.Y. 2019-20) Teckmen Systems holding that the adjustment made by CPC towards the difference in the stamp value and actual sale consideration is within the jurisdiction of CPC.
5. The assessee is in appeal before us, challenging the impugned order of the ld. CIT(A).
We have heard the rival submissions and perused the materials available on record. It is observed that the assessee vide registered deed of assignment of lease dated 07.05.2018 had sold the leasehold rights in the property for a sale consideration of Rs. 2,82,50,000/- which according to the AO/CPC is valued at Rs. 3,17,19,500/- as per the stamp duty value for which the CPC made an addition u/s. 50CA of the Act amounting to Rs. 37,19,500/- being the difference between the ready reckoner rate and the actual sale consideration. The assessee has challenged the order of CPC before the first appellate authority on the ground that the CPC had no jurisdiction to make an adjustment u/s. 50C of the Act on the difference value and further, the ld. AO/CPC has erred in not making reference to the Valuation Officer u/s. 55A of the Act.
The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the assessee has transferred its leasehold rights and interest in the said property for a sale consideration of Rs. 2,82,50,000/- and further contended that Section 50C is not applicable in case of transfer of leasehold rights. The ld. AR has relied on the following decisions, wherein it has been held that Section 50C is not applicable in case of transfer of leasehold rights. a. Commissioner of Income-tax, Central-II, Mumbai vs. Greenfield Hotels and Estate (P.) Ltd. [2017] 77 taxmann.com 308 (Bombay), (A.Y. 2019-20) Teckmen Systems b. Shivdeep Tyagi vs. Income-tax Officer [2024] 163 taxmann.com 614 (Delhi - Trib.) c. Atul G. Puranik vs. Income-tax Officer, 12(1)(1) [2011] 11 taxmann.com 92 (Mumbai). d. Ritz Suppliers (P.) Ltd. vs. Income-tax Officer, Ward - 12(3), Kolkata [2020] 113 taxmann.com 349 (Kolkata - Trib.) e. CIT vs. Mother India Refrigeration Industries (P.) Ltd. (1985) 155 ITR 711 (SC) 8. The learned Departmental Representative ('ld. DR' for short) for the revenue on the other hand controverted the said fact and relied on the order of lower authorities.
In the above factual matrix of the case, the moot issue that requires adjudication is whether Section 50C is applicable in case of transfer of leasehold rights of a property. It is an undisputed fact that the assessee has transferred the leasehold rights of the property vide a deed of assignment of lease, where the recitals of the said deed was to transfer the leasehold rights and interest in the demised plot with constructions and that the transferee has purchased/acquired the leasehold rights, claim, interest and title of the transferor. It is also not the case of the revenue that the said transfer is not a transfer of leasehold rights but is an absolute sale of the said property. In the absence of any such argument by the revenue, to that extent, we deem it fit to consider the same as transfer of leasehold rights. On that note, we would like to place our reliance on the decision relied upon by the ld. AR were the Jurisdictional High Court of Bombay in the case of Greenfield Hotels and Estate (P.) Ltd. (supra) has held that Section 50C of the Act shall not be applicable while computing capital gains on transfer of leasehold rights (A.Y. 2019-20) Teckmen Systems in land and buildings and the same is supported by the Tribunal’s decision in the case of Atul G. Puranik (supra) and Shivdeep Tyagi (supra). The relevant extract in the case of Atul G. Puranik (supra) is cited herein under for ease of reference: 11.4 In view of the aforenoted judgments rendered by the Hon'ble Apex Court and that of the Hon'ble jurisdictional High Court, it is clear that a deeming provision can be applied only in respect of the situation specifically given and hence cannot go beyond the explicit mandate of the section. Turning to sec. 50C, it is seen that the deeming fiction of substituting adopted or assessed or assessable value by the stamp valuation authority as full value of consideration is applicable only in respect of "land or building or both. If the capital asset under transfer cannot be described as 'land or building or both', then sec. 50C will cease to apply. From the facts of this case narrated above, it is seen that the assessee was allotted lease right in the Plot for a period of sixty years, which right was further assigned to M/s. Pathik Construction in the year in question. It is axiomatic that the lease right in a plot of land are neither 'land or building or both' as such nor can be included within the scope of 'land or building or both'. The distinction between a capital asset being 'land or building or both' and any 'right in land or building or both' is well recognized under the I.T. Act. Sec. 54D deals with certain cases in which capital gain on compulsory acquisition of land and building is charged. Sub-sec.(1) of sec. 54D opens with : "Subject to the provisions of sub- section (2), where the capital gain arises from the transfer by way of compulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking…..". It is palpable from sec. 54D that 'land or building' is distinct from 'any right in land or building'. Similar position prevails under the W.T. Act, 1957 also. Section 5(1) at the material time provided for exemption in respect of certain assets. Clause (xxxii) of sec. 5(1) provided that "the value, as determined in the prescribed manner, of the interest of the assessee in the assets (not being any land or building or any rights in land or building or any asset referred to in any other clauses of this sub-section) forming part of an industrial undertaking" shall be exempt from tax. Here also it is worth noting that a distinction has been drawn between 'land or building' on one hand and 'or any rights in land or building' on the other. Considering the fact that we are dealing with special provision for full value of consideration in certain cases u/s.50C, which is a deeming provision, the fiction created in this section cannot be extended to any asset other than those specifically provided therein. As sec. 50C applies only to a capital asst, being land or building or both, it cannot be made applicable to lease rights in a land. As the assessee transferred lease right for sixty years in the Plot and not land itself, the provisions of sec.50C cannot be invoked. We, therefore, hold that the full value of consideration in the instant case be taken as Rs.2.50 crores.”