Consideration for transfer of tenancy or leasehold rights -section 50C is not applicable.

[C.A. DEV KUMAR KOTHARI]

Relevant links:

Section 50C of the Income-tax Act, 1961.

Dy. Commissioner of Income Tax Versus Tejinder Singh  2012 -TMI - 211050 - ITAT, KOLKATA

Section 50C of the Income-tax Act, 1961.

This section was inserted by the Finance Act, 2002, w.e.f.01.04.2003. The section has  also been amended afterwards. The section as it sand now is reproduced below with highlights and foot notes  about amendments:

¹[Special provision for full value of consideration in certain cases.

50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted ²[or assessed or assessable] by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted ²[or assessed or assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

(2) Without prejudice to the provisions of sub-section (1), where—

      (a) the assessee claims before any Assessing Officer that the value adopted ²[or assessed or assessable] by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer;

       (b) the value so adopted ²[or assessed or assessable] by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or no reference has been made before any other authority, court or the High Court,

      the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 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).

      ³[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.]

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Notes :-

1. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003.

2. Substituted vide Finance (No. 2) Act, 2009, w.e.f. 1-10-2009, before it was read as, "or assessed"

3. Inserted vide Finance (No. 2) Act, 2009, w.e.f. 1-10-2009

 A reading  of the section suggests the following broad aspects of the provisions:

that  the provision will apply only where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both.

This means that the provision will apply to a person who transfer a capital asset , being land or building or both. Therefore, transfer of ownership of land or building or both is a pre-condition.

When a person transfer or surrender his tenancy or leasehold rights, there is no transfer of  capital assets of the nature of land or building or both. Even in case tenant has constructed building on leasehold land, the ownership of building being inseparable to land will belong to the owner of land. Therefore, when a tenant surrenders his tenancy or leasehold right he receives consideration for transfer or surrender of his leasehold rights or tenancy and not on transfer of land or building or both. Because he is not owner of land or building or both.

Different situations of transfer of tenancy or leasehold rights:

Normally on termination of lease the tenant should vacate the property and should not ask for any money from landlord. However, due to complicated legal proceedings, even after termination of lease, we find cases where tenant demands, and landlord has to pay consideration for surrender of tenancy or possession. In that case tenant does not transfer any property in natur e of land and /or building.

A tenant can transfer  his tenancy at the time when owner sells property  and get some consideration for transfer or surrender of tenancy. This happens when landlord agrees to transfer property as vacant.

A tenant may not  transfer  his tenancy at the time when owner sells property . The owner can sell property subject to tenancy, in that case tenant does not transfer his tenancy, he will continue tenant under new owner. He may or may not transfer his tenancy rights.

Similarly  a tenant may surrender his tenancy rights in favour of land lord or some other party.

When he surrender his tenancy rights in favour of landlord, there is no need of transfer deed.

When he surrenders his leasehold rights, and execute a surrender deed in favour of landlord, he merely surrenders his leasehold rights and not ownership of land or building or both.

Suppose a tenant surrender or transfer his tenancy in favour of other party, by creation of sub-tenancy or otherwise, what is transfers is his tenancy rights and not any ownership of land or building.

Therefore, when there is no transfer of land and / or building, section 50C will not be applicable. On plain reading of section 50C this is clear. However, revenue is not leaving any scope of dispute even in such cases where revenue has no case. We have a recent case decided by the Tribunal on an appeal preferred by revenue against order of CIT(A). The judgment is reproduced below with necessary highlights for analysis: