Section 50C not applicable to sale of property through Power of Attorney – ITAT

Section 50C not applicable to sale of property through Power of Attorney. Provisions at best could be invoked only in the hands of the original owner-ITAT 

ABCAUS Case Law Citation:
ABCAUS 2426 (2018) 07 ITAT

The instant appeal had been filed by the assessee against the order of the CIT(A) in sustaining the addition made by the Assessing Officer (AO) invoking the provisions of Section 50C of the Income Tax Act, 1961 (the Act).

During the course of scrutiny assessment, it was observed that the assessee had sold his land his wife for a sale consideration which was less than stamp duty value of the land. It was further noticed that the assessee had purchased the land from the seller by executing a sale agreement and on the same date, executed a Power of Attorney in his favour. Subsequently, on the basis of PoA, the assessee sold the land to his wife and the sale deed was executed by the original owner in favour of the wife of the assessee .

The AO opined that the actual seller of the property to spouse of the assessee was the assessee himself, because the General Power of Attorney which was in his favour was used as a disguise for the transaction. Hence, the AO invoked the provisions of Section 50C of the Act and added the difference of the value in the hands of the assessee.

On appeal, the CIT(A) opined that the act of the assessee to operate through the POA route and then register the property in the name of his wife was a conscious and deliberate decision. The rigors of section 50C(1) get automatically attracted when a capital asset is registered below the guideline value. It was undeniable that he was the owner of the capital asset, and chose to transfer and register his property to another person, albeit his wife, for a consideration below the guideline value. Accordingly, the CIT(A) confirmed the order of the AO.

The assessee contended that the actual sale deed was executed by the original owner of the property and therefore, if at all addition has to be made by invoking the provisions of Section 50C of the Act the same had to be made in the hands of the original owner of the property and not the assessee.

It was also submitted that the assessee had paid the entire sale consideration and took possession of the property by executing the sale agreement and obtaining the Power of Attorney in his name. Thereafter, transferring the property in his wife’s name was only an internal adjustment and no consideration was passed.

The Tribunal opined that it was apparent that the assessee had entered in to a sale agreement with the seller by making payment of the entire sale consideration to her. Further on the same day, the seller had also executed a General Power of Attorney in favour of the assessee authorizing the assessee to sell her property. In this situation, as per Section 2(47) of the Act, the elements required for treating the transaction as transfer of immovable property was completed. Therefore as per the provisions of the Act, the property vested with the assessee.

It was further observed that thereafter in order to strengthen the legal title of the property, the assessee had managed with original owner of the property to execute the sale deed in favour of his spouse.

The Tribunal opined that the entire transactions when viewed in a holistic manner, it was apparent that the seller of the property was the original seller and the buyer of the property was the assessee / assessee’s spouse. Therefore if at all provisions of Section 50C was applicable , it could be invoked only in the hands of the original owner of the property and not the assessee.

The ITAT directed the AO to delete the addition.

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