Case Law Details
Mahoharlal Jiwandas Sachani Vs CIT (Appeals) (ITAT Nagpur)
The ITAT Nagpur considered an appeal against the order of the Commissioner of Income Tax (Appeals)/NFAC for Assessment Year 2018-19 concerning the taxability of a 50-year lease of agricultural land. The Assessing Officer had invoked Section 269UA(f) of the Income-tax Act, treating the lease as a transfer of immovable property and, consequently, applied Section 50C to adopt the stamp duty value for computing capital gains under Section 45. The CIT(A) upheld the addition, not under Section 2(47)(v), but by treating the long-term lease as a transfer under Section 2(47)(vi), relying on judicial precedents and the provisions of Section 53A of the Transfer of Property Act, 1882.
The assessee contended that the transaction was a lease creating tenancy rights and not a perpetual lease or an agreement to sell. It was argued that the invocation of Section 269UA(f) itself was erroneous and that the transaction could not be regarded as a transfer merely due to the duration of the lease.
The Tribunal observed that where the Department invokes deeming provisions to tax income on the basis of alleged tax avoidance, it must establish through substantive evidence the facts giving rise to such a presumption. It noted that the Assessing Officer had treated the lease as a transfer under Section 269UA(f), whereas the CIT(A) accepted that Section 2(47)(v) was inapplicable but invoked Section 2(47)(vi) by treating the lease as an arrangement amounting to transfer.
The Tribunal held that the CIT(A) had incorrectly relied upon Section 53A of the Transfer of Property Act. It observed that Section 53A applies to agreements to sell property, protecting a purchaser in possession under the doctrine of part performance. In the present case, there was no agreement to sell; the transaction was purely a lease. The lease deed had been stamped under Article 36 of the Maharashtra Stamp Act, 1958, which specifically governs leases, sub-leases, agreements to let or sub-let, and renewals of lease. Therefore, there was an erroneous presumption in treating the lease as an agreement to sell.
The Tribunal further observed that if a transaction falls within Section 53A of the Transfer of Property Act, the Income-tax Act specifically addresses such cases under Section 2(47)(v). Since the CIT(A) had himself held Section 2(47)(v) to be inapplicable, the lease could not be brought within Section 2(47)(vi) merely on account of its long duration. It held that a long-term lease does not become an agreement or arrangement constituting a transfer under Section 2(47)(vi) solely due to its tenure. The deeming provision under Section 2(47)(vi) can apply to transactions such as leases, family settlements, memoranda of understanding, collaborations, or joint ventures only where the surrounding facts demonstrate that the arrangement was intended to circumvent capital gains.
Examining the facts, the Tribunal noted that the land was jointly owned by the assessee and his son, and the lease was executed in favour of a registered partnership firm in which the son and other family members were partners. The lease deed itself recorded that it had been executed for establishing a family business. These circumstances did not indicate any intention to alienate the rights, title, or interest in the property to an outsider or to effect a transfer of the capital asset.
Accordingly, the Tribunal held that the lease deed did not fall within the definition of “transfer” under Section 2(47) of the Income-tax Act. The capital gains addition made by invoking Section 50C was held to be unsustainable. The appeal was allowed, and the addition was deleted.
FULL TEXT OF THE ORDER OF ITAT NAGPUR
This appeal filed by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)/NFAC, Delhi, (for short, “CIT(A)”), dated 30/01/2025 passed under section 250 of the Income Tax Act, 1961 (for short, “Act”) which is emanating from the assessment order dated 30.04.2021 passed u/s. 143(3) r.w.s. 144B of the Act by the ITO, for the Assessment Year (AY) 2018-19.
2. On hearing both the sides, we find that the controversy involved in the appeal of the assessee is the addition made by Ld. Assessing Officer („in short AO’) invoking provisions of Section 269 UA(F) of the Act by considering the lease granted by the assessee to a partnership firm M/s Kisan Sampada Food Path Industries Ltd. of the agricultural land which the assessee has claimed was owned by assessee as the co–owner along with son Shri Piyush Sachani. Ld. CIT(A) has sustained the same by relying on various judicial decisions and considering the transaction to be a nature of sale and sustaining the invocation of Section 50C of the Act by Assessing Officer to take the stamp value of the property for consideration of the capital gain.
3. AR has primarily submitted that the nature of transaction was not a perpetual lease, but in a form of tenancy and submitted that rather invocation of provisions of Section 269 UA(F) of the Act itself is vitiated.
4. DR has heavily relied on the impugned orders.
5. After giving thoughtful consideration to the material on record and the submissions, we are of the considered view that when Department is invoking provisions of the Act wherein deeming income is taxed on the basis that the assessee had tried to evade the tax liability, the Ld. Tax Authorities should sufficiently establish on the basis of substantive evidences, the facts which give rise to such a presumption and in the case in hand, we find that the Assessing Officer had questioned the lease deed on the basis that as per Section 269 UA(f) of the Act, the transaction has to be considered as transfer of immovable property and thus the total income of the assessee arising out of the stamp value of the property be considered as a capital gain under Section 45 of the Act.
6. We find that the assessee‟s case was selected for limited scrutiny assessment on the issue of investment in immovable property and capital gains/income on sale of property and while examining the issue under Section 56(2)(X) of the Act in para 4.1 onwards, the Assessing Officer had made relevant discussions.
7. Then as we appreciate the impugned order of Ld. CIT(A), we find that Ld. CIT(A) observes in para 9.1 that the impugned transaction does not fall in the scope of transfer of capital asset under Section 2(47)(v) of the Act and instead Ld. CIT(A) invoked provisions of Section 2(47)(vi) of the Act and concluded that as lease was for over a long period of 50 years, it should be considered to be a transfer of property for the purpose of Section 2(47)(vi) of the Act. Thereafter, in para 11.1 had observed that provisions of Section 53A of the Transfer of Property Act have been duly applied by the Assessing Officer. To support this in para 11.3, reliance has been placed on the decision of this Tribunal in K.V. Satish Babu [HUF] [2023] 152 taxmann.com 396 (Bangalore – Trib), Chandrashekar Naganagouda Patil, [2020] 117 taxmann.com 520 (Bangalore – Trib) and Super Poly Fabriks Ltd. v. Commissioner of Central Exise, Punjab (2008) 217 CTR (SC) 107, which are in regard to deemed transfer arising out of transactions in which Section 53A of the Act is applicable.
8. However, we are of the considered view that Ld. CIT(A) has erroneously relied provisions of Section 53A of the Transfer of Property Act 1882 which codifies the equitable doctrine of part performance wherein it protects a buyer in possession of an immovable property from being evicted by seller even if the formal sale deed is unregistered or incomplete. However, there should be an agreement, enforceable under law to sell the property.
9. What is relevant in the case in hand is that there was no agreement to sell property, but contract of lease, wherein as per Article 36 of the Maharashtra Stamp Act 1958, the valuation of the stamp duty has been done.
10. Ld. Counsel has drawn our attention to the relevant schedule–I of the Maharashtra Stamp Act, 1958, wherein as per Article 36, the stamp duty has to be ascertained in case of lease including under lease or sub lease or any agreement to let or sublet or any renewal of lease.
11. Thus, there appears to be erroneous presumption to consider the contract to lease to be an agreement to sell and thereby taking recourse to Section 53A of the Act to hold that the nature of transaction is one which falls in the scope of Section 2(47)(vi) of the Act.
12. Rather for such transactions referred to in Section 53A of the Transfer of Property Act, 1882. The Act provides for deemed transfer under sub–clause (v) to 2(47) of the Act which Ld. CIT(A) has himself found to be not applicable in para 9.1 of impugned order. If the intention was to consider the contract of lease to be an arrangement under Section 2(47)(vi) of the Act, then the valuation of the lease deed in terms of Article 36 of the Maharashtra Stamp Act, 1958 establish that it was merely a transfer of possession under lease hold rights, in lieu of lease rent. We are of considered view that only because the lease of the immovable property is for a long period, the same will not make the transaction an “agreement” or any “agreement” falling in the scope of „transfer‟ for the purpose of Section 2(47)(vi) of the Act. The deemed transfer provisions for the purpose of Section 2(47)(vi) of the Act can be applied on transaction of specific nature like lease or family settlement, memorandum of understanding, collaboration or joint venture, only if the facts and circumstances surrounding the transaction make the same look line an „arrangement‟ or „agreement‟ which intends to circumvent the capital gains.
13. In the case in hand what is material is that the impugned lease is executed by two lessors who are Shri Manoharlal Jeevandas Sachani and Shri Piyush Manoharlal Sachani, who is the son of assessee, they are both co–owners of the property which they had purchased jointly by sale deed dated 19th May, 2012. The copy of which is available at page 10–18. The lease deed is executed in favour of M/s. Kisan Sampada Food Park Industries, a registered partnership wherein one of the co–sharers Shri Piyush s/o Manoharlal Sachani is a partner along with one Shri Himanshu s/o Manoharlal Sachani and Smt. Jiya Piyush w/o Piyush Sachani as partners. The lease deed mentions that for the purpose of establishing a family business under partnership in which one of the lessors is also a partner, the lease deed was executed.
14. Now, these circumstances, in no way indicate that there was an intention to alienate the rights, title and interest in the land to a person outside the family perpetually and thus allege that this “agreement” or “arrangement” in the form of lease was in any way a transfer of capital asset for the purpose of further invoking provisions of Section 50C of the Act and to thereby consider the stamp value of the property as a capital gain earned by the assessee during the year.
15. Thus, regardless to the fact that Assessing Officer has merely relied Section 269 (U)(A)(f) of the Act to consider the lease deed to be a transfer and that Ld. CIT(A) has instead considered it to be an agreement or arrangement falling in the definition of transfer for the purpose of Section 2(47)(vi) of the Act, we are of considered view on facts as discussed above, the lease deed as executed does not fall in the definition of transfer u/s. (2)(47) of the Act and thereby the impugned capital gain as calculated is not sustainable under law. Accordingly, we sustain the ground.
16. The appeal is allowed. The impugned addition is deleted.
Order pronounced in open Court on 19.06.2026
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