TMI Blog2024 (4) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of capital assets being, land or building or both , contained in section 50C(1). We need to understand the nature of rights accruing on a property which is freehold and the one which is leasehold. In this respect, we do find force in the submission made by the Ld. Counsel exhaustively dealing with several parameters to distinguish between the features of leasehold property and a freehold property, already tabulated above. Accordingly, the capital asset being land or building or both referred to in sec. 50C(1) do not include leasehold rights in land or building or both. Wherever legislature intended to include specific reference to rights in land or building or part thereof which is included in certain sections such as section 54D, section 54G, sec. 54GA, sec. 27(iiib), sec. 5(1) of Wealth Tax Act, 1957 and explanation to sec. 269UAD. Such a reference to rights in land or building or part thereof does not find place in sec. 50C(1) which sets it apart from the inference to be drawn that capital asset being, land or building or both would also include rights in land or building or part thereof, to cover leasehold rights which are limited in nature and cannot be equated with ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s manufacturing unit at Thane, Maharastra. For expansion of its business it had applied for leasehold land for plot no. N72 of Maharastra Industrial Development Corporation (MIDC) for 9800 sq. mtr. of land. The said leasehold land was allotted to the assessee by MIDC on 11.04.2008 for a total consideration of Rs. 1,74,35,231/- for setting up a manufacturing unit. Subsequently, assessee decided to transfer the said land to one partnership firm M/s. S. M. Industries (SMI). 3.1. Agreement to sale was executed with partners of SMI on 28.04.2011 whereby the assessee agreed to transfer the said leasehold land for a consideration of Rs. 2 Cr. Against this agreement to sale, assessee received an advance of Rs. 5 lacs by account payee cheque and the balance was to be received on or before the execution of conveyance deed. Assessee had handed over possession of the said land to the partners of SMI on the date of execution of agreement to sale i.e. 28.04.2011. Since the said land was acquired on lease by the assessee from MIDC, it sought a permission from MIDC to transfer the leasehold rights in the land. 3.2. The permission from MIDC got delayed which was eventually given on 23.02.2016, wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The property was neither transferred in the name of the assessee nor owned by it. It was only the right to use the land which was taken on lease by the assessee and only the right to use the land was transferred to the assessee. 3.6. According to the assessee, right in the leasehold property is not a capital asset being land or building or both as contained in sec. 50C of the Act. Assessee also contended that sec. 50C is a deeming provision and it should be applied only in respect of situation specifically mentioned therein. Ld. AO cannot go beyond the explicit mandate of the deeming provision for which the section is enacted. Assessee cited and gave reference to certain sections under the Act whereby land or building and rights in land or building have been recognised separately. He referred to sec. 54D where land or building and rights in land or building are recognized separately. Similar is the case in section 5(1) of the Wealth Tax Act, 1957. 3.7. Assessee thus, distinguished between land or building and rights in land or building . Assessee submitted that it has transferred leasehold rights in the plot of land allotted by MIDC and not the land itself and, therefore, provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned industrial plot of land, copy of agreement for assignment dated 28.04.2011 between the assessee as the transferor/assignor and the partners of SMI as the transferees/assignees agreeing on the terms for transfer of leasehold rights granted by MIDC and copy of order dated 23.02.2016 by MIDC granting its approval in favour of licensee for the transaction of transfer of lease from the assessee to the partners of SMI. 6. The contentions of the Ld. Counsel for the assessee are twofold, first relating to application of section 50C which applies only on a capital asset being land or building or both and not on leasehold rights in land or building. The second being applicability of first and second proviso to sec. 50C of the Act where the date of agreement and date of registration are different and part amount has been paid through banking channel on or before the date of agreement. 6.1. To deal with the above two contentions, provisions of section 50C(1) are reproduced as under: [50C. Special provision for full value of consideration in certain cases. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act. [Explanation 1.] For the purposes of this section, Valuation Officer shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957). [Explanation 2. For the purposes of this section, the expression assessable means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.] (3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted 2 [or assessed or assessable] by the stamp valuation authority referred to in sub-section (1), the value so adopted 2 [or assessed or assessable] by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.] 7. Ld. Counsel submitted that section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Point Leasehold Property Freehold Property 1 Ownership Duration Ownership is for a fixed term as stated in the lease agreement Ownership is indefinite and typically lasts until the owner decides to sell or transfer the property. 2. Ownership Rights The lessee holds the rights to use and occupy the property for the lease duration. The owner holds complete ownership rights to the property, including the land and any structures on it. 3 Land Ownership The land is owned by the landlord or freeholder. The lessee only owns the rights to the property for the lease duration. The owner owns both the land and any structures on it, giving them complete ownership of the property. 4 Lease Agreement The lessee and the lessor sign a lease agreement specifying the terms, conditions, and duration of the lease. No lease agreement is required since the owner has complete ownership rights. 5 Renewal At the end of the lease term, the lessee may have the option to renew the lease or negotiate a new lease agreement. No renewal is required as the owner has perpetual ownership of the property. 6 Control over Property The lessee has certain restrictions and obligations as specified in the lease agreement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osts The lessee may be subject to rent increases or additional charges as specified in the lease agreement. The owner has control over costs and can make decisions about expenses related to the property. 18 Inheritance The leasehold rights Freehold properties can may not be inheritable, and the property reverts to the landlord at the end of the lease term. be inherited by the owner's heirs, who become the new owners. 19 Landlord's Consent The lessee may require the landlord's consent for various activities, such as making structural changes or running a business on the premises. The owner does not require anyone's consent for activities related to the property. 20 Risk of Property Loss The lessee may bear the risk of losing the property if they violate lease terms or fail to renew the lease. The owner has full protection and ownership rights, reducing the risk of losing the property. 21 Legal Protection Leasehold properties are subject to specific laws and regulations governing leases and tenant rights. Freehold properties are protected by general property laws and regulations. 22 Land Use Restrictions The lessee may be subject to certain restrictions on land use as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 50C, stamp duty valuation at the time of registration of the said agreement in the impugned year cannot be taken for computing the capital gain, rather the value adopted by the stamp valuation authority on the date of agreement to sale be taken for the purpose of computing full value of consideration for such transfer. In this respect, he pointed out that valuation report for valuing the property at the time of execution of agreement to sale at Rs. 1,62,99,500/- issued by the competent authority was submitted before the AO in the course of assessment proceedings itself, along with copy of agreement to sale. The facts in respect of this proposition are undisputed and, therefore, Ld. AO is wrong both in law and on facts, to adopt the stamp duty value relevant to the year under consideration and make the addition to that effect. 8. We have heard the rival contentions and perused the material on record. We have carefully gone through the submissions of both the parties as well as agreements and judicial precedents referred before us. When we refer to the agreement dated 07.12.2016 by which MIDC as guarantor of leasehold right has transferred the lease rights to the assessee as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether this land or building or both would include the leasehold rights in the said land or building or both is what we need to consider. 8.3. In the written submission made by the Ld. Sr. DR, while referring to the pre-requisite of charging long term capital gain u/s. 50C, it is stated that existence of capital asset as land or building is one of the important prerequisite. In this statement, Ld. Sr. DR has also used the word immovable property which in our understanding does not find place in section 50C(1). By referring to immovable property , ld. Sr. DR has gone into the provisions of section 269UA(d) wherein this term immovable property is defined which refers not only to land or building or part of a building but by way of explanation, also includes any rights therein which has a restrictive application as the explanation mentions for the purpose of this sub clause . Ld. Sr. DR has also referred to the definition of transfer in section 2(47)(vi) according to which any transaction which has the effect of transferring or enabling the enjoyment of any immovable property is also covered by the definition of transfer. Again in this definition by way of explanation (1), the term i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of Wealth Tax Act, 1957 and explanation to sec. 269UAD. Such a reference to rights in land or building or part thereof does not find place in sec. 50C(1) which sets it apart from the inference to be drawn that capital asset being, land or building or both would also include rights in land or building or part thereof, to cover leasehold rights which are limited in nature and cannot be equated with ownership of land or building or both. The Act has given separate treatment to land or building or both and the rights therein. 9.3. Considering the exhaustive discussion made above on various aspects of the issue before us, and the factual matrix corroborated by relevant documentary evidence, we are in agreement with the submissions made by the Ld. Counsel for the assessee to hold that leasehold rights in land are not within the purview of section 50C of the Act. Accordingly, we concur with the finding arrived at by Ld. CIT(A) in deleting the addition of Rs. 5,29,39,153/- on account of long term capital gain for transfer of leasehold industrial plot u/s. 50C of the Act. 10. On the alternate plea made by the Ld. Counsel as to application of first and second proviso to section 50C, we do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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