Section 50C not apply to sale of right in property-ITAT deleted addition as what was sold was not land or building

Section 50C not apply to sale of right in property-ITAT deleted addition as what was sold was right in property not land or building

ABCAUS Case Law Citation:
ABCAUS 2398 (2018) 07 ITAT

The appellant assessee had challeneged the order passed by the CIT(A) in upholding the addition made by the Assessing Officer (AO) under section 50C of the Income Tax Act, 1961 (the Act) to the sale of rights in property.

The assessee was a company which entered into an agreement for purchase of unconstructed flats. In other words, the assessee acquired certain rights to purchase the said flats. However, before the flats were complete, the assessee sold his rights so acquired to purchase the flats by nominating the purchaser for registration of the flats.

In accordance with the nomination, the flats were registered in the name of these ultimate purchasers and the assessee was the confirming party to the transaction.  The assessee received consideration for sale of such rights and the profit from sale was declared as long term capital gains. The ultimate purchases received possession of the flats directly from the Vendors.

However, the AO invoked the provision of Section 50C of the Act on ground that the assessee sold flats and therefore market value as determined by Registration authority should be applied.

The CIT-Appeals upheld the action of the AO.

Before the Tribunal, the assessee submitted that it had not transferred any land or building and hence the provision of Section 50C of the Act did not apply.

The Tribunal noted that the issue was no more res integra. The Coordinate Bench of the ITAT under similar facts and circumstances had held that Section 50C is a deeming provision and it extends to only to land or building or both. The settled legal proposition is that deeming provision can be applied only in respect of the situation specifically given and hence cannot go beyond the explicit mandate of the section. Therefore, it is essential that for application of Sec. 50C that the transfer must be of a capital asset, being land or building or both. If the capital asset under transfer cannot be described as “land or building or both” then section 50C will cease to apply.

The Coordinate Bench observing that the assessee had transferred booking rights and received back the booking advance held that such advance could not be equated with the capital asset and therefore section 50C could not be invoked.

Following the decision of the Coordinate Bench, the Tribunal held that Section 50C of the Act did not apply under the facts and circumstances of the case as what was sold was right in property but not land or building.

Accordingly the appeal of assessee was allowed.

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