Deeming Provisions Of Section 50C Can't Be Applied For Leasehold Rights: Delhi ITAT

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that deeming provisions of Section 50C of the Income Tax Act cannot be applied for leasehold rights.

The bench of Kul Bharat (Judicial Member) and Avdhesh Kumar Mishra (Accountant Member) has observed that only if a capital asset, be it land, a building, or both, is transferred and the consideration received or accruing as a result of such transfer is less than the value adopted, assessed, or assessable by the stamp valuation authority, the deeming fiction under Section 50C (1) shall be activated to substitute the adopted, assessed, or assessable value as the full value of the consideration received or accruing as a result of the transfer.

Section 50C applies only to land, buildings, or both. It uses the value adopted by the Stamp Valuation Authority (SVA) to levy stamp duty on the registration of properties as guidance value to determine the undervaluation of land or buildings, if any, in the sale agreement.

The appellant/assessee, a salaried employee, filed his Income Tax Return (ITR) for the relevant assessment year 2011–12 on February 17, 2012, declaring income, which was processed under Section 143(1). Later on, the AO, based on the AIR information, found that the assessee who sold a leasehold property did not offer the capital gains. Since the appellant or assessee did not file any proof of the cost of acquisition of the leasehold property during the assessment proceedings, the consequential reopened assessment was completed at income under Section 147/143(3) by taxing the entire sale consideration for stamp duty purposes as against the actual sale consideration. The appellant or assessee did not succeed in the first appeal. Therefore, the assessee filed the appeal before the Tribunal.

The assessee contended that Section 50C, being a deeming provision, was not applicable in the case of the transfer of leasehold rights. As per the provisions of Section 50C, it has been specifically mentioned that Section 50C is applicable to capital assets only, which are land, buildings, or both.

The department admitted that there is no judicial pronouncement holding that the provisions of Section 50C are applicable to leasehold property.

The tribunal noted that the leasehold rights 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 Act. Section 54D of the Act deals with certain cases in which capital gains on compulsory acquisition of land and buildings are charged to tax. Section 54D(1) of the act 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...". Thus, it is apparent from Section 54D that 'land or building' is distinct from 'any right in land or building'.

The tribunal, while partly allowing the appeal, held that as Section 50C applies only to a capital asset, be it land, a building, or both, it cannot be made applicable to lease rights in land.

Counsel For Appellant: Sahil Sharma

Counsel For Respondent: Anuj Garg

Case Title: Shivdeep Tyagi Versus ITO

Case No.: ITA No.484/Del/2024, A.Y.2011-12

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