2017 (1) TMI 1325 - AT - Income Tax

LTCG on sale of rights in land - whether the lower authorities were justified in substituting the sales consideration with the amount for deemed sales consideration by invoking provisions of section 50C for computing long term capital gains with respect of sale of rights in land made by the assessee during the year under consideration? - Held that - Since in the facts of the case before us the transaction was carried out by the assessee prior to 01.10.2009 therefore provisions of section 50C could not have been applied. Since the impugned agreement was not registered therefore there was no occasion for any assessment of stamp valuation. Under these circumstances the AO was not empowered to adopt any valuation in place of actual sales consideration on the basis of his own notions or calculations. Thus we find that action of the lower authorities in invoking the provisions of section 50C and in substituting some other valuation was clearly beyond the provisions of law as applicable upon the impugned transaction. Under these transactions we hereby delete the addition made by the AO. - Decided in favour of assessee

Summary

Issues:
1. Application of section 50C for computing long term capital gains on the sale of rights in land.

Analysis:

Issue 1: Application of section 50C for computing long term capital gains on the sale of rights in land

The appellant contested the order of the Ld. Commissioner of Income Tax, Mumbai-32, challenging the assessment of long term capital gains against the returned long term capital loss. The primary contention was the incorrect application of section 50C to the sale of undetermined beneficial rights in the land at Chembur. The appellant argued that section 50C is only applicable to the sale of land and building, not rights in land and building. Additionally, it was highlighted that the Sale Agreement dated 28/7/2007 was unregistered, thus, the provisions of section 50C did not apply to the transaction before 1/10/2009. The appellant also emphasized that no possession was given to the Assignee, raising doubts on the accrual of long term capital gains. The appellant further challenged the adoption of Ready Reckoner value without a valuation by the DVO, citing legal impediments in transferring the asset and pending litigations on the land.

The Tribunal deliberated on whether the lower authorities were justified in substituting the sales consideration with the deemed sales consideration under section 50C for computing long term capital gains. The facts revealed that the agreement to sell the land was made in July 2007, and full payment was received during the year under consideration. However, the agreement was unregistered, and possession was not transferred. The AO applied section 50C, substituting the sales consideration based on Stamp Duty Ready Reckoner rates, resulting in a significant long term capital gain. The appellant argued that the amendment to section 50C introduced in 2009 was not applicable to transactions completed before that date, relying on legal precedents.

After detailed arguments, the Tribunal found merit in the appellant's contentions. It was established that the transaction was completed before the amendment to section 50C in 2009, making the amended provisions inapplicable retrospectively. Referring to CBDT circulars and judicial decisions, the Tribunal concluded that the AO's application of section 50C was incorrect. The unregistered agreement and lack of stamp valuation assessment precluded the AO from substituting the valuation. Consequently, the Tribunal allowed the appeal, deleting the addition made by the AO, and ruled in favor of the appellant based on the transaction's timeline and legal provisions.

In conclusion, the Tribunal's decision highlighted the importance of assessing the applicability of statutory provisions based on transaction timelines and legal interpretations, ensuring fair treatment and adherence to the law in determining capital gains on property transactions.