M/S. RAMESH BABURAO VELANKAR,SANGLI vs. INCOME-TAX OFFICER, WARD - 1(3), SANGLI

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ITA 2516/PUN/2017Status: DisposedITAT Pune06 June 2018AY 2009-106 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that Section 50C of the Income Tax Act cannot be applied to leasehold land. The addition of Rs. 8,50,000/- made by the Assessing Officer and confirmed by the CIT(A) was therefore incorrect.

What were the facts?

The assessee, engaged in manufacturing Ayurvedic medicine, sold leasehold rights in land allotted by MIDC for Rs. 14 lakhs. The Assessing Officer issued a notice under Section 148 to bring capital gains to tax based on this transaction.

What were the issues?

Whether Section 50C of the Income Tax Act is applicable to the transfer of leasehold rights in land. Whether the addition made by the Assessing Officer based on the stamp duty valuation of leasehold land is valid.

Which sections of the Income-tax Act were involved?

Section 50C,Section 148

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, SMC BENCH, PUNE

Before: SHRI D. KARUNAKARA RAO, AM

For Appellant: Smt. Deepa Khare
For Respondent: Shri Pankaj Garg
Hearing: 15.05.2018Pronounced: 06.06.2018

आदेश आदेश / ORDER आदेश आदेश

PER D. KARUNAKARA RAO, AM :

This is the appeal filed by the assessee against the order of CIT(A)-1,Kolhapur 07-09-2017 for the Assessment Year 2009-10.

2.

Grounds raised by the assessee are extracted as under :

“1. The Ld.CIT(A) erred in law and on facts in confirming addition of Rs.8,50,000/- u/s.50C in respect of lease land rights of MIDC, Sangli. 2. The Ld.CIT(A) erred in not appreciating that the subject matter of transfer was leasehold rights in respect of land owned by MIDC to Rajesh Aluminium and in view of the decision of Hon’ble Mumbai High Court in case of CIT Vs. Greenfield Hotels & Estates Pvt. Ltd. 389 ITR 0068 (Bom) the provisions of section 50C cannot be applied to leasehold land. 3. The appellant craves to add, alter, modify or substitute any ground of appeal at the time of hearing.”

3.

Briefly stated relevant facts are that the assessee is an individual

and is engaged in the business of manufacturing of Ayurvedik medicine

in the name of ‘Velankar Aurvedik Aushadhi Nirmate’ at MIDC,

Kupwad. Assessee filed the return declaring loss of Rs.26,15,488/-.

Subsequently, the assessee revised the return of income declaring total

income of Rs.1,45,920/-. Taking cue from the transaction of sale of

land/building/furniture to M/s. Rajesh Aluminium, for bringing the

capital gains to tax, a notice u/s.148 was issued in this regard. During

the course of assessment proceedings, assessee submitted that the

assessee got allotment of land in Industrial Development, MIDC, Sangli

in the year on 29-01-1986 and the same is now sold to M/s. Rajesh

Aluminium for a sum of Rs.14 lakhs. The valuation of the land as per

the Sub registrar’s office is Rs.22,22,500/-. The sale agreement is

dated 24-11-2018. Assessee made a prayer stating that the assessee is

not an absolute owner of the land. The land is only a leasehold land

and therefore, the provisions of section 50C of the Act do not apply to

the leasehold land sale transaction. Further, he submitted that the

agreement is signed between MIDC and M/s. Rajesh Aluminium and

therefore, the assessee is not a party to the agreement. In this regard,

assessee filed the written submissions as per his letter dated 09-08-

2016. He also argued that the undertaking was sold as a going concern

and therefore, the gains if any should constitute “long term capital

gains”. AO issued letter dated 17-08-2016 proposing to calculate the

short term capital gains of Rs.12,56,575/- taking the cost of the asset

at Rs.9,65,925/-. In reply, the assessee vide letter dated 08-09-2016

repeated the arguments stating that the capital gains do not arise on

the assessee and the provisions of section 50C do not apply to the

leasehold land. Without prejudice, assessee submitted that the asset

sold is of 4 years old and therefore, the same constitute long term

assets unused for business purposes for the past 3 years due to closure

of the undertaking. He also demanded for grant of indexation benefit

on the said land and building. According to his calculation, the capital

loss worked out to Rs.41,617/-. Assessee considered the sale proceeds

of Rs.14 lakhs and indexed cost of Rs.14,41,617/-. Assessee

considered the same and computed the long term capital gains as

against the short term capital gains of Rs.12,56,575/-. Para No.6 of the

assessment order is relevant and the same is extracted as under :

“6. I have carefully gone through the submission furnished by the assessee and the same is not acceptable as on going the return for A.Y. 2008-09 and other details furnished it is found that the assessee had obtained loan from MSFC for construction of the building and also it is seen that the assessee has claimed depreciation on the said property, therefore, the said factor building is a business asset. Thus this being a business asset short term capital gain is attracted on the sale of this asset. In view of the above short term capital gain is computed as under: Sale price as per section 50C Rs.22,22,500 Less : Cost as per books Rs. 9,65,925 --------------------- SHORT TERM CAPITAL GAIN Rs.12,56,575 (As per provisions of section 50 of the I.T. Act, 1961) --------------------

In view of the above short term capital gain of Rs.12,56,575 is adopted while computing the total income of the assessee for the A.Y. 2009-10 instead of Long term capital loss of Rs.26,15,488/- declared by the assessee for the year under consideration. As the assessee concealed the particulars of income to the extent of Rs.12,56,575/- penalty proceedings u/s.271(1)(c) is initiated separately.”

4.

During the First Appellate proceedings, assessee raised the legal

issues on the validity of the assessment and also the applicability of

provisions of section 50C of the Act and other relates issues on merits.

At the end of the proceedings, the CIT(A), Kolhapur dismissed the core

issue relating to application of the provisions of section 50C of the Act

and also other aspects on validity of reopening as well as sale of

undertaking. Eventually, the CIT(A) partly allowed the appeal of the

assessee.

5.

Aggrieved with the same, the assessee is in appeal before the

Tribunal with the grounds extracted above and the core issue raised in

the grounds relates to the applicability of provisions of section 50C of

the Act in respect of transfer of leasehold rights of land of MIDC to M/s.

Rajesh Aluminium. Assessee relied on the judgment of Bombay High

Court in the case of CIT Vs. Greenfield Hotels & Estates Pvt. Ltd. 389

ITR 0068 (Bom.). CIT(A) dealt with this issue in para 5 of the appellate

order in general and the contents of Para No.5.3 in particular.

6.

Before me, Ld. Counsel for the assessee drew my attention to the

undisputed fact that the land in question is a leasehold one and in that

case the provisions of section 50C of the Act has no application. For

the proposition, he brought my attention to the decisions of Coordinate

Bench of the Tribunal in the case of Yeshwant Engineering Pvt. Ltd. &

Anr Vs.ITO 51 CCH 0260 (Pune Trib.) and in the case of Kancast Pvt.

Ltd. Vs. ITO 43 CCH 0435 (Pune Trib.) and submitted that the latter

case is very close to the facts of the present case.

7.

Ld. DR relied on the order of the AO.

8.

On hearing both the parties on the limited issue of the

applicability of provisions of section 50C of the Act, I find this issue now

stands covered by the decision of Pune Bench of the Tribunal in the

case of Kancast Pvt. Ltd. Vs. ITO, dated 19-01-2015 (supra) and the

same was not considered by the CIT(A) at the time of adjudication of the

issue before him. Further, the order of the Tribunal in the case of

Yeshwant Engineering Pvt. Ltd. and another Vs. ITO, dated 09-10-2017

(supra) is also relevant for the similar proposition (subsequent to the

order of CIT(A) order dated 07-9-2017). For the sake of completeness,

the relevant conclusions of the above decisions are extracted here as

under :

Conclusion in the case of Kancast Pvt. Ltd. Vs. ITO :

“When Assessee transferred only leasehold rights in land which were acquired by it from Maharashtra Industrial Development Corporation (i.e. MIDC) on 99 years lease basis, S.50C shall not come into operation.”

Conclusion in the case of Conclusion in the case of Kancast Pvt. Ltd. Vs. ITO

“Provisions of section 50C were not applicable to transfer of land and building being a leasehold property.”

8.1 Further, I have examined the judgment of Hon’ble Bombay High

Court in the case of CIT Vs. Greenfield Hotels and Estates Pvt. Ltd. 389

ITR 0068 (Bom.) and find the same is decided in favour of the assessee

and consequently, the provisions of section 50C of the Act are not

applicable to the case of transaction of transfer of land/building, being

a leasehold property.

Considering the above settled legal proposition, I am of the

opinion that the order of CIT(A) is required to be reversed on the legal

issue. Accordingly, the grounds raised by the assessee are allowed.

9.

In the result, the appeal of the assessee is allowed.

Order pronounced on this 06th day of June, 2018.

Sd/- (D.KARUNAKARA RAO) लेखा सद� / ACCOUNTANT MEMBER पुणे / Pune; �दनांक Dated : 06th June, 2018. Satish

आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to : अ�ेिषत

अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. आयकर आयु�(अपील) / The CIT(A)-1, Kolhapur 3. आयकर आयु� / The CIT-1, Kolhapur 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “SMC” / 5. DR ‘SMC’, ITAT, Pune; गाड� फाईल / Guard file. 6.

आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार

स�यािपत �ित //True Copy// //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

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