S. 50C

Kancast Pvt. Ltd v ITO (ITA No.1265/PN/2011 dated 19.01.2015) – Pune ITAT  Background: The assessee transferred factory land, building and shed for a consideration of Rs.3,12,04,000/- for land and building and Rs.47,96,000/- for other fixed assets. Out of the consideration of Rs 3,12,04,000 for land and building, amount of Rs 77,00,000 pertained to leasehold rights in land. The Assessing Officer noted that the value of land and building adopted by the registering authority for the purposes of stamp duty valuation under section 50C for the purpose of computing capital gains based on the Ready Reckoner rates of the State Government was Rs.5,75,93,000/-. The assessee  contended that section 50C of the Act was not applicable as the assessee was only holding leasehold rights in the land and was not owner of the land.  However, the Assessing Officer considered the stamp duty value of the consideration for land under section 50C at Rs.4,98,93,000/- (Rs.5,75,93,000/- minus Rs.77,00,000/-).  In the first level appellate proceedings, the assessee reiterated that it did not transfer any land because it was not owning the land and therefore transfer of leasehold rights in land did not invite the provisions of section 50C of the Act. Reliance was placed on the ruling of Mumbai ITAT in the case of Atul G. Puranik vs. ITO vide ITA No.3051/Mum/2011 dated 13.05.2011. The CIT(A) dismissed the submission of the assessee and held that the Explanation below section 269UA(d)(i) of the Act makes it clear that the land, building, etc. included in the phrase ‘immovable property’ also includes any rights therein. Therefore, he upheld that the order of Assessing Officer was justified in applying the provisions of section 50C. 

Provisions of section 50C not applicable on leasehold rights in land – Pune ITAT

ACIT v Sunland Metal Recycling (ITA NO.6454/Mum/2011 dated 10.12.2014) Mumbai ITAT Background: The assessee sold office premises to its sister concern for a sale consideration of Rs. 1.55 crores. The Assessing Officer considered the full sale consideration as per stamp duty authority valuation at Rs. 2,00,08,000/- in accordance with the provisions of section 50C of Income Tax Act. Accordingly, the Assessing Officer made an addition to the Short term Capital Gain. Subsequently, the Assessing Officer initiated penalty proceedings u/s 271(1)(c) for levy of penalty against the addition made to the Short term Capital Gain and levied a penalty of Rs. 22,12,069. The CIT(A) deleted the penalty by following the various decisions of Mumbai  Tribunal on the point and held that there is no concealment of any particulars of income on the part of the assessee. 

Penalty not applicable for addition on account of deeming provisions of section 50C – Mumbai ...

M/s BHORUKA ENGINEERING INDS LTD vs DCIT ITA No.120 of 2011 dated 9.4.2013 – Karantaka HC Background: Bhoruka Steel Limited (BSL) was incorporated in the year 1969. The company became a sick industrial company within the meaning of SICA.It was proposed that 30 acres of land along with building and structure to be disposed of. The valuers vide their valuation report dated 15.3.2002 valued the said land at Rs.25 Lakhs per acre. The company had received an offer from Bhoruka Financial Services Limited (BFSL), a public limited company and also one of the group Companies offered to purchase 30 acres of land for Rs.25 Lakhs per acre. Land measuring 15 acres was sold in favour of BFSL. The assessee company is a limited company whose shares are quoted in the stock exchange. The assessee is holding shares in BFSL. The assessee and other promoter shareholders are holding 98.73% shares in BFSL, whereas the public shareholders are holding the remaining shares. The assessee in the financial year related to the relevant assessment year 2006-07 sold its shareholdings in BFSL to the extent of 45,350 shares for a net consideration of Rs.20,29,08,626/- after paying Security Transaction Tax. The shares were sold to DLF Commercial Developers Limited. The assessee claimed the gain on sale of shares as exempt from taxation under Section 10 (38) of the Act.

Tax planning within 4 corners of law is not tax avoidance – Karnataka HC

Shri Irfan Abdul Kader Fazlani vs ACIT I.T.A. NO.8831/M/2011 (Mum ITAT) Background: Assessee is a shareholder in M/s. Kamala Mansion Pvt. Ltd (KMPL). Along with other shareholders of this company, the assessee sold his shares for a consideration of Rs. 37.51 lakhs and capital gains were offered on that basis. KMPL owns two flats in a building known as Om Vikas Apartments situated at Walkeshwar Road, Mumbai and the said flats are regularly given on rent and the rent is declared by KMPL as ‘income from the house property’. Assessee sold his 306 shares for a sum of Rs. 37,51,369/­ and earned  long term capital gains. AO held that by engineering the sale of the shares of all other shareholders of M/s. KMPL, the assessee effectively transferred the immovable property belonging to the assessee, therefore, it is an indirect way of transferring the immovable properties for lesser consideration and, therefore, the provisions of section 50C of the Act have application to the facts of the case and consequently, AO applied the guideline prices of the flats and worked out the capital gains. Further, AO treated this case as an eligible case for piercing of corporate veil. He accordingly ‘pierced the corporate veil, invoked s. 50C and computed the capital gains by adopting the stamp duty value of the flats.

50C is not applicable where property is indirectly sold by way of trf of shares ...

Shavo Norgren (P) Ltd Vs DCIT ITA No.8101/Mum/2011 dtd 14.12.2012 [Mumbai ITAT] Background: Assessee had taken a plot of land on lease from MIDC in the year 1967 for a lease of 95 years commencing from 1st January, 1967. Assessee had also paid premium to MIDC as per their rules prevalent at that time. In the previous year 2007-08 assessee entered into a MOU for transfer of part of the said land on 9th April 2007, received an advance of Rs.30 lacs and applied to MIDC for their consent. The two plots together with Building thereon were transferred for a total sum of Rs.2,01,57,606. Assessee worked out capital gain of Rs.1,60,38,687 after deducting the value of building at Rs.14,30,220/- and the market value as on 1/4/1981 increased by indexation cost to Rs.26,88,699. The AO applied Sec. 50C of the Income tax Act and considered the market value of the plot of land at Rs.2,39,91,000 and considered this as long term capital gain for the purpose of computation of income.

Section 50C applicable on transfer of leasehold rights over land – Mumbai ITAT

Rallis India Ltd v Additional CIT [IT APPEAL NO. 2464 (MUM.) OF 2010] (Mumbai ITAT) Background: The assessee-company declared short term capital gains on sale of flats u/s. 50 of the Act. Out of the flats sold, a flat was sold for a consideration of Rs. 1,65,00,000. The AO addressed a letter, u/s. 50C of the Income Tax Act, to Joint Sub-Registrar, Department of Stamp and Registration, Worli to furnish the value adopted by the Stamp Valuation Authority. The Joint Sub-Registrar informed that the stamp value of the said property was Rs. 1,86,01,380/-. Since section 50C of the Act speaks of the value adopted for stamp duty purposes, the addition of Rs. 21,01,380/- was made by the AO and the same was confirmed by learned CIT(A).

Stamp duty valuation u/s 50C applicable even in cases of depreciable assets – Mum ITAT