Section 50C was not applicable on sale of property to tenant who occupied it on a meager rent for fifty years -ITAT

Section 50C was not applicable on sale of property to tenant who occupied it on a meager rent for fifty years which itself amounted to encumbrance on the property-ITAT

The Appellant assessee had filed the instant appeal challenging that the Assessing Officer (AO) had wrongly and illegally calculated the long term capital gain u/s 50C of the Income Tax Act, 1961 (the Act) without following the provisions of section 50C.

ABCAUS Case Law Citation:
ABCAUS 2327 (2018) (05) ITAT

Important Case Laws Cited/relied upon by the parties:
CIT vs. Chandra Narain Chaudhri’, 1989 UPTC 791 (PB 98/1- 98/10).
Shri Prafulla Kumar Bhose vs. ITO

Section 50C was not applicable on sale to tenant occupying property

The Income Tax Department (Revenue) received information that during the relevant financial year the assessee had sold a residential property for consideration four times lower than the stamp value.

A notice under section 148 of the Act was issued to the assessee after recording the reasons for belief of escapement of taxable income. Finally, after taking into account the assessee’s explanation in this regard, the AO assessed long-term capital gain on sale of the said residential property invoking the provisions of section 50C against the income declared by the assessee in his return of income filed in response to the notice under section 148 of the Act.

The CIT(A) confirmed the assessment order and dismissed the assessee’s appeal, observing that the assessee could not submit the documents, details and information as required by the DVO for determining the market value of the property. Neither the assessee had filed any writ in the court challenging the stamp valuation.

The assessee inter alia contended that the the DVO never valued the property which was on rent for the last fifty years and could never be got vacated.

The ITAT observed that as per the copy of notice issued u/s 50C, the DVO had stated that the property would be inspected ‘later on’, which, as per the assessee was never done. It was noted that as per the assessee’s reply to the DVO in response to the aforesaid notice under section 50C, the assessee had filed copies of municipal tax receipt, sale deed and rent receipt. Thus the Tribunal opined that the the assessee did file the information required by the DVO. Also, on the facts of the case, the observation that the assessee not filed any Court case concerning the property was not determinative of the matter.

It was further observed that as stated, the assessee has sold land to the tenant on who had constructed the house on the land about fifty years earlier. The possession of the property was with the tenant from the beginning, i.e., about for more than 50 years. The assessee had wanted to sell the property for necessicity, but due to the possession of the tenant, nobody was interested to purchase the property specially the construction had been made by the tenant and the tenant’s family was living in property since long. Due to these peculiar circumstances, the assessee was bound to sell the property to the tenant.

The Tribunal opined that undisputedly the property was on rent with the purchaser for more than fifty years on a meager rent of Rs. 45 per month. In such a circumstance, obviously, vacation thereof was not possible and the assessee sold it to the tenant. Then, the adverse position through the tenancy on a meager rent was itself and encumbrance on the property

Thus the Tribunal opined that under such an encumbrance, the property could not have attracted the same value as compared to that of the case of a vacant or unencumbered property.

It was observed that in a case it was held that the Stamp Valuation Authority does not take into consideration the attributes of the property, such as encumbrance, for determining the fair market value in case, as in the present one, it is offered for sale and is purchased. The Authority is required to value the property in accordance with the Circle rate. The object of the valuation by the Stamp Valuation Authority is to secure revenue on such sale and not to determine the true, correct and fair market value on which it may be purchased by a willing purchaser subject to and taking into consideration its situation, condition and other attributes such as its occupation by tenant. This was not done by the DVO.

The Tribunal further opined that for the determination of the value u/s 50C, it is incumbent on the AO to make reference for valuation to the DVO and the DVO’s valuation is to be considered for the purposes of section 48. This, in the instant case, had not come about and so, recourse to section 50C(1) of the Act was not as per law.

Accordingly, the matter was remitted to the file of the AO to be decided afresh in accordance with law, in view of the provisions of the complete section 50C.

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