ITO 8(2)(4), MUMBAI V. PRADEEP STEEL RE-ROLLING MILLS P. TD, MUMBAI

ITA 341/MUM/2010

• Counselvise Citation: 34119914 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 23-06-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 13-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V S SAMUEL
• Keywords: Sale consideration of property below Jantri Value; Capital asset
• Section: 50C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, C, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI B RAMAKOTAIAH, ACCOUNTANT MEMBER I T A NO: 341/MUM/2010 (ASSESSMENT YEAR: 2003-04) INCOME TAX OFFICER 8(2)(4), MUMBAI APPELLANT VS M/S PRADEEP STEEL RE-ROLLING MILLS PVT. LTD. RESP ONDENT MUMBAI (PAN: AACCP8697B) ASSESSEE BY: MR V S SAMUEL REVENUE BY: MR ASHISH MEHTA O R D E R R V EASWAR, PRESIDENT: THIS IS AN APPEAL BY THE DEPARTMENT RELATING TO TH E ASSESSMENT YEAR 2003-04 AND THE FOLLOWING GROUND H AS BEEN TAKEN: - ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITIONS MADE IN VIEW OF SECTION 50C AND SUBSEQUENT DISALLOWANCE OF LTCG OF RS.39,63,195/- AND STCG OF RS.22,74,094/- WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. THE BRIEF FACTS GIVING RISE TO THE APPEAL MAY BE NOTED. THE ASSESSEE IS A PRIVATE LIMITED COMPANY. IN THE RETU RN OF INCOME THE ASSESSEE DID NOT DECLARE ANY CAPITAL GAINS ON ACCOU NT OF TRANSFER OF CERTAIN LEASEHOLD RIGHTS IT HAD IN A PLOT OF LAND. THE RIGHTS WERE TRANSFERRED TO ONE SMT RADHADEVI ON 21.11.2002 UNDE R A COMPROMISE SETTLEMENT. THE ASSESSING OFFICER THERE FORE CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY CAPITAL G AINS ON THE ITA NO: 341/MUM/2010 2 TRANSFER SHOULD NOT BE COMPUTED AND INCLUDED IN THE ASSESSMENT. THE ASSESSEE SUBMITTED THAT SINCE THE COST OF THE L EASEHOLD RIGHTS WAS INCAPABLE OF VALUATION, THE CHARGE OF CAPITAL G AIN FAILED AND THEREFORE THERE IS NO QUESTION OF COMPUTING THE CAP ITAL GAINS. THIS CONTENTION OF THE ASSESSEE WAS OVERRULED AND THE AS SESSING OFFICER PROCEEDED TO COMPUTE THE CAPITAL GAINS. IN DOING S O, HE INVOKED SECTION 50C OF THE INCOME TAX ACT, 1961. THIS SECT ION MADE SPECIAL PROVISIONS FOR ASCERTAINING THE FULL VALUE OF CONSIDERATION FOR THE PURPOSE OF COMPUTING THE CAPITAL GAINS ON TRANS FER OF A CAPITAL ASSET, BEING LAND OR BUILDING OR BOTH. IT PROVIDED THAT IF THE CONSIDERATION RECEIVED OR ACCRUING IS LESS THAN THE VALUE ADOPTED OR ASSESSED OR ASSESSABLE BY THE STAMP VALUATION AUTHO RITY OF THE STATE GOVERNMENT FOR SUCH TRANSFER, THE VALUE SO AD OPTED OR ASSESSED OR ASSESSABLE SHALL BE DEEMED TO BE THE FU LL VALUE OF CONSIDERATION AND THE CAPITAL GAINS WILL BE COMPUTE D ACCORDINGLY. THE ASSESSEES OBJECTION TO THE INVOCATION OF SECTI ON 50C WAS THAT THE SECTION WOULD APPLY ONLY TO A CAPITAL ASSET, BEING LAND OR BUILDING OR BOTH AND THAT IT DID NOT APPLY TO ANY LEASEHOLD RIGHTS IN THE LAND OR BUILDING AND THEREFORE THE SECTION WAS NOT APPLICABLE TO THE PRESENT CASE WHERE ONLY LEASEHOLD RIGHTS IN THE LAND AND BUILDING WERE TRANSFERRED. THIS OBJECTION WAS OVER RULED BY THE ASSESSING OFFICER, WHO HELD THAT THE WORD LAND INCLUDED FREEHOLD AS WELL AS LEASEHOLD LAND AND SINCE THE ASSESSEE HE LD LEASEHOLD RIGHTS, THEY WERE ALSO COVERED BY THE SECTION. IN THIS VIEW OF THE MATTER HE ADOPTED THE STAMP DUTY VALUATION RECEIVED FROM THE STAMP DUTY AUTHORITIES OF LUCKNOW, WHICH AMOUNTED T O ITA NO: 341/MUM/2010 3 ` 62,78,195/- AND PROCEEDED TO COMPUTE THE CAPITAL GA INS ACCORDINGLY. 3. THE ASSESSEE APPEALED TO THE CIT(A), WHO EXAMINE D THE FACTS AND RECORDED THE FOLLOWING FINDINGS: - (1) THE ASSESSEE HAD TAKEN A LOAN FROM LATE SMT RADHADEVI VAID AMOUNTING TO ` 1,82,501/- WHICH WAS SECURED BY A MORTGAGE OF THE ENTIRE PROPERTY TAKEN ON LEASE. (2) THE ASSESSEE COULD NOT REPAY THE LOAN WITH INTEREST. THE HONBLE BOMBAY HIGH COURT AWARDED A DECREE THAT THE ASSESSEE SHOULD PAY ` 1,93,539/- TO SMT RADHADEVI IN EQUAL MONTHLY INSTALMENTS OF ` 10,000/- FROM JULY 1984. (3) THE ASSESSEE COULD NOT COMPLY WITH THE ORDERS OF THE HONBLE BOMBAY HIGH COURT. (4) IN ORDER TO RETRIEVE ITS LEASEHOLD RIGHTS, THE ASSESSEE ENTERED INTO A COMPROMISE SETTLEMENT ON 21.11.2002 WITH SMT RADHADEVI, UNDER WHICH THE LEASEHOLD RIGHTS IN THE PLOT ADMEASURING 19301 SQ. FT. AND THE BUILDING MEASURING 7350 SQ. FT. WERE TRANSFERRED TO SMT RADHADEVI. (5) THE PROPERTY WAS HANDED OVER TO SMT RADHADEVI IN APRIL 2003 AND SHE RELEASED ITA NO: 341/MUM/2010 4 ALL HER CLAIMS AGAINST THE COMPANY BY LETTER DATED 24.04.2003. (6) THE ASSESSEE HAD ACQUIRED 1/3 RD LEASEHOLD RIGHTS ON THE PROPERTY FROM NAGAR MAHAPALIKA, LUCKNOW IN 1950. THE LEASE WAS ORIGINALLY FOR A PERIOD OF 30 YEARS AND WAS RENEWED FOR A FURTHER PERIOD OF 30 YEARS, WHICH WAS TO EXPIRE ON 28.07.2010. IN THE YEAR OF TRANSFER OF THE RIGHTS TO SMT RADHADEVI, THE LEASEHOLD REMAINING WAS 6 TO 7 YEARS. AFTER RECORDING THE AFORESAID FACTS THE CIT(A) HELD THAT SECTION 50C CANNOT BE INVOKED TO THE PRESENT CASE BECAUSE WHAT THE ASSESSEE TRANSFERRED WAS ONLY THE LEASEHOLD RIGHTS IN THE LA ND AND THE BUILDING AND NOT THE LAND OR BUILDING PER SE. THE ASSESSEE WAS NOT THE OWNER OF THE LAND AND BUILDING BUT WAS ONLY THE HOLDER OF LEASEHOLD RIGHTS AND ON THE DATE OF TRANSFER THE LE ASEHOLD PERIOD REMAINING WAS ONLY 6 TO 7 YEARS. IN SUPPORT OF HIS CONCLUSION THAT SECTION 50C CANNOT COME INTO OPERATION ON THESE FAC TS, THE CIT(A) REFERRED TO AN ORDER OF THE JODHPUR BENCH OF THE TR IBUNAL IN THE CASE OF NAVNEET KUMAR THAKKAR VS. ITO (2007) 112 TT J (JD) 76. HE FURTHER NOTED THAT THE SETTLEMENT DEED FOR TRANS FER OF LEASEHOLD RIGHTS HAS NOT BEEN REGISTERED NOR HAS THERE BEEN A N ASSESSMENT BY THE STAMP VALUATION AUTHORITY FOR PAYMENT OF STA MP DUTY REGARDING THE TRANSFER. IN THIS VIEW OF THE MATTER HE HELD THAT THE ASSESSING OFFICER WRONGLY INVOKED SECTION 50C AND D IRECTED HIM TO ITA NO: 341/MUM/2010 5 ADOPT ` 81,254/- AS CAPITAL GAINS AS PER THE ENTRIES MADE I N THE ASSESSEES BOOKS OF ACCOUNT. 4. THE REVENUE IS IN APPEAL. WE ARE UNABLE TO FIND FAULT WITH THE DECISION OF THE CIT(A) THAT SECTION 50C CANNOT BE INVOKED TO A TRANSFER OF LEASEHOLD RIGHTS. THE SECTION APPLIES ONLY TO CAPITAL ASSETS BEING LAND OR BUILDING OR BOTH. IT DOES NOT IN TERMS INCLUDE LEASEHOLD RIGHTS IN THE LAND OR BUILDING WITHIN ITS SCOPE. THE ASSESSING OFFICERS CONCLUSION TO THE CONTRARY IS B ASED ON SECTION 27(IIIB) OF THE ACT, WHICH SAYS THAT A PERSON WHO A CQUIRES ANY RIGHTS, EXCLUDING ANY RIGHTS BY WAY OF A LEASE FROM MONTH TO MONTH OR FOR A PERIOD NOT EXCEEDING ONE YEAR, IN OR WITH RESPECT TO ANY BUILDING OR PART THEREOF, BY VIRTUE OF ANY SUCH TRA NSACTION AS IS REFERRED TO IN CLAUSE (F) OF SECTION 269UA, SHALL B E DEEMED TO BE THE OWNER OF THAT BUILDING OR PART THEREOF. FIRSTLY, T HIS PROVISION HAS BEEN EXPRESSLY LIMITED IN ITS APPLICATION TO SECTIO NS 22 TO 26 OF THE ACT, WHICH DEAL WITH THE COMPUTATION OF THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. IT HAS NOT BEEN MADE APPLICABLE TO THE COMPUTATION OF CAPITAL GAINS. SECONDLY, THE RI GHTS MENTIONED IN THE PROVISION ARE RIGHTS OVER THE BUILDING AND ANY RIGHTS OVER THE LAND HAVE NOT BEEN INCLUDED IN THE SECTION. IN ANY CASE, SINCE THE SECTION 27(IIIB) HAS NOT BEEN EXTENDED TO THE COMPU TATION OF CAPITAL GAINS UNDER SECTION 45 AND IS LIMITED TO THE COMPUT ATION OF THE INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY, THE CONCLUSION OF THE CIT(A) THAT SECTION 50C CANNOT BE INVOKED WHERE LEASEHOLD RIGHTS IN LAND OR BUILDING ARE TRANSFERRE D, SEEMS TO US, TO ITA NO: 341/MUM/2010 6 BE CORRECT. WE ACCORDINGLY AFFIRM THE DECISION OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE WITH NO ORD ER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH JULY 2011. SD/- SD/- (B RAMAKOTAIAH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI, DATED 15 TH JULY 2011 SALDANHA COPY TO: 1. M/S PRADEEP STEEL RE-ROLLING MILLS PVT. LTD. 108/C, MONTANA, LOKHANDWALA COMPLEX ANDHERI (WEST), MUMBAI 400 058 2. ITO 8(2)(4), MUMBAI 3. CIT-8, MUMBAI 4. CIT(A)-17, MUMBAI 5. DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI