Section 50C Not Applicable to Tenancy Agreement Without Sale Consideration: ITAT Mumbai

Kanubhai Purshottam Merchant Vs ITO (ITAT Mumbai)

Summary: The appeal was filed by the assessee against the order dated 23.12.2025 passed by the NFAC, Delhi for Assessment Year 2018-19. The dispute concerned the applicability of section 50C of the Income-tax Act, 1961 to a registered tenancy agreement relating to Room No. 16, 4th Floor, 19/21, Lad Wadi, Hanuman Lane, Mumbai. The assessee had declared total income of Rs.22,80,877/- and stated during assessment proceedings that he had neither purchased nor sold any immovable property during the relevant previous year.

The Assessing Officer relied upon information regarding a document registered on 13.06.2017 and treated the transaction as a transfer of the immovable property. The assessee submitted that the document was a tenancy agreement under which the premises were let out on monthly rent of Rs.375/-, with three months’ rent received in advance. It was contended that the value adopted by the stamp valuation authority, stated in the material as Rs.34,38,000/-, represented the value for stamp-duty purposes and not consideration actually received. The assessee also submitted that no premium, pagadi or other consideration had been received.

The Assessing Officer held that, in the absence of a duration clause, the tenancy agreement was effectively perpetual and that the transaction amounted to transfer of the building under section 2(47)(vi) read with section 269UA(d). The stamp valuation was treated as the sale consideration and long-term capital gains of Rs.34,38,000/- were assessed after taking the cost of acquisition as nil. The CIT(A) confirmed the addition.

Before the Tribunal, the assessee submitted, among other things, that the property belonged to Purushotam Dharamshi HUF and that he had acted as Karta, that section 50C did not apply to the tenancy agreement, and that the stamp-duty valuation could not be treated as actual consideration. The Departmental Representative supported the orders of the lower authorities.

The ITAT Mumbai found that the registered document was a tenancy agreement under which monthly rent was payable and that there was no material demonstrating receipt of consideration of Rs.32,28,000/- or Rs.34,38,000/-, or any amount over and above the agreed rent. The Tribunal held that section 50C could not be invoked merely because a document had been subjected to stamp-duty valuation. It concluded that the Assessing Officer had not established a transfer covered by section 50C or consideration corresponding to the stamp valuation.

The Tribunal therefore held that the Assessing Officer was not justified in treating the stamp-duty valuation as the full value of consideration for computing long-term capital gains. The addition made under section 50C was directed to be deleted. The issue concerning ownership by the HUF and the alternative plea regarding cost of acquisition were treated as academic in view of the Tribunal’s conclusion on section 50C. The assessee’s appeal was allowed.

Background of the Assessment

The assessee, an individual, filed his return of income on 12.07.2018 declaring total income of Rs.22,80,877/- for the year under consideration. The case was selected for scrutiny and notices under sections 143(2) and 142(1) of the Income-tax Act, 1961 were issued.

The Assessing Officer sought details concerning the source of income, computation of income, sale and purchase deeds of immovable properties, capital gains or loss arising from transfer of immovable property and the statement of affairs.

In his letter dated 19.01.2021, the assessee stated that he had neither purchased nor sold any immovable property during the relevant previous year. He explained that a document had been registered on 12.06.2017 concerning the tenancy of Room No. 16, 4th Floor, situated at 19/21, Lad Wadi, Hanuman Lane.

Nature of the Tenancy Transaction

Since the assessee did not furnish the registered tenancy deed or supporting documentary evidence at that stage, the Assessing Officer relied on information available on record indicating registration of a document on 13.06.2017 for a value of Rs.32,28,000/-.

The Assessing Officer subsequently required the assessee to explain the nature of the rights transferred and whether section 50C applied.

By letter dated 15.03.2021, the assessee submitted that the document was a tenancy agreement dated 13.06.2017 under which the premises had been let out on monthly rent of Rs.375/-, with three months’ rent received in advance. The assessee stated that the stamp valuation authority had adopted a value of Rs.34,38,000/- for stamp-duty purposes under the applicable provisions governing tenancy or lease agreements.

The assessee specifically submitted that the stamp valuation did not represent consideration received by him and that no premium, pagadi or other consideration apart from the stipulated rent had been received.

Assessing Officer’s Findings

The Assessing Officer considered the assessee’s explanation that the property had come into his possession by inheritance as Karta of Purshottam Keshavji Dharamshi HUF pursuant to the partition deed dated 10.03.1972.

However, the Assessing Officer held that the assessee was the owner of the immovable property and not merely a lease holder. The Assessing Officer further observed that the tenancy agreement did not specify its duration and treated it as an agreement for tenancy rights entered into for perpetuity.

On that basis, the Assessing Officer held that the rights in the immovable property had been transferred to the tenant and invoked section 2(47)(vi) read with section 269UA(d).

The Assessing Officer further held that the transaction amounted to transfer of the building and that section 50C applied. The stamp value of Rs.34,38,000/- was treated as the sale consideration.

Since the assessee had not furnished the cost of acquisition, the Assessing Officer took the cost as nil. As the period of holding was stated to be more than 36 months, long-term capital gains of Rs.34,38,000/- were computed and added to the assessee’s income.

The assessment order also stated that penalty proceedings under section 270A(9) were initiated for under-reporting of income consequent to mis-reporting of income.

CIT(A)’s Decision

The CIT(A) noted that the transaction had been registered on 13.06.2017 and that the stamp value was stated to be Rs.34,38,000/-. The CIT(A) also noted the tenancy agreement relating to the 242-square-foot property and the monthly rent of Rs.375/-, together with the advance of Rs.1,125/- representing three months’ rent.

The CIT(A) observed that the agreement did not specify its duration and accepted the Assessing Officer’s view that the tenancy rights could therefore be considered to have been granted for perpetuity.

The CIT(A) held that the transaction amounted to a transfer within the meaning of section 2(47)(vi), and that the Assessing Officer had rightly adopted the fair market value as consideration. The addition made by the Assessing Officer was accordingly confirmed.

Submissions Before the ITAT

Assessee’s Submissions

The Ld. AR submitted that the authorities below had proceeded on the erroneous assumption that the property belonged to the assessee in his individual capacity.

Referring to the partition deed dated 10.03.1972, the Ld. AR submitted that the property originally belonged to Late Shri Keshavji Dharamshi and, following his demise, devolved upon the HUFs of Shri Purushotam Dharamshi and Shri Parmanand Keshavji. According to the submission, the property fell to the share of Purushotam Dharamshi HUF pursuant to the partition.

The Ld. AR further submitted that the property continued to be owned by the members and coparceners of the HUF and that the property card supported this position. It was contended that the assessee appeared before the Tribunal only as Karta of the HUF and not as individual owner.

Without prejudice, the Ld. AR challenged the invocation of section 50C in relation to the tenancy agreement. It was submitted that the stamp valuation adopted for stamp-duty purposes could not be treated as consideration received for transfer of tenancy rights when no such consideration had actually been received.

The Ld. AR submitted that the assessee was entitled only to monthly rent of Rs.375/- under the tenancy agreement and had received no premium, salami, pagadi or other consideration. The value of Rs.34,38,000/- was stated to have been adopted solely by the stamp valuation authority for determining stamp duty.

Revenue’s Submissions

Per contra, the Ld. DR relied upon the orders of the Assessing Officer and the CIT(A) and submitted that the addition had been rightly made on the basis of the material available on record.

Alternative Plea on Cost of Acquisition

In rejoinder, the Ld. AR alternatively submitted that if the Tribunal held that the transaction gave rise to taxable capital gains in the hands of the assessee, the benefit of substitution of the fair market value of the asset as on 01.04.2001 as the cost of acquisition should be granted in accordance with the Act while computing the capital gains.

The supplied material states that the date in this alternative submission appeared to have been inadvertently mentioned as 01.04.2021 and records that, for assets acquired prior thereto, the relevant statutory date was 01.04.2001.

ITAT Mumbai’s Findings on Section 50C

The Tribunal identified the primary controversy as whether the authorities below were justified in invoking section 50C merely on the basis of the stamp-duty valuation adopted for registration of the tenancy agreement and treating that valuation as the full value of consideration for computing long-term capital gains.

The Tribunal found that the Revenue had proceeded on the premise that the assessee had transferred immovable property for consideration equivalent to the value adopted by the stamp valuation authority.

However, on the material before it, the Tribunal found that the document registered on 13.06.2017 was a tenancy agreement under which the premises were let out on monthly rent of Rs.375/-.

The Tribunal further found that, apart from the value adopted by the stamp valuation authority for stamp-duty purposes, there was no material brought on record by the Assessing Officer demonstrating that the assessee had received consideration of Rs.32,28,000/- or Rs.34,38,000/-, or any amount whatsoever, over and above the agreed rent.

Stamp Valuation and Deeming Provision

The Tribunal observed that section 50C creates a legal fiction under which the value adopted by the stamp valuation authority may be substituted as the full value of consideration in respect of the transfer of a capital asset being land or building or both where the actual consideration declared is less than that value.

The Tribunal held that the provision could not be invoked in isolation merely because a document had been subjected to stamp-duty valuation. According to the Tribunal, before invoking the deeming fiction, the Revenue had to establish that there had been a transfer covered by the provision and that consideration had arisen on account of such transfer.

In the present case, the Tribunal found that the Assessing Officer had not brought evidence on record establishing that the assessee had transferred ownership rights in the property or that any consideration, other than the stipulated monthly rent, had accrued or been received by him.

The Tribunal therefore found merit in the assessee’s contention that the value adopted by the stamp valuation authority for registration of the tenancy agreement was for the limited purpose of determining stamp-duty liability and could not, by itself, be presumed to represent actual consideration received by the assessee.

For context concerning the statutory provision relied upon in the appeal, TaxGuru’s publication Section 50C – Tax Provisions, Assessment, Case Laws discusses section 50C and related case law.

HUF Ownership Issue

The assessee had specifically contended that the property belonged to Purushotam Dharamshi HUF and that he had executed the tenancy agreement in his capacity as Karta of the HUF.

The Tribunal noted that the assessee had relied upon the partition deed dated 10.03.1972 and property records in support of this contention. However, since the Tribunal had concluded that invocation of section 50C was unsustainable on the facts of the case, it held that adjudication of the ownership issue was rendered academic and did not call for a separate finding.

Cost of Acquisition Plea

The assessee’s alternative plea concerned adoption of the fair market value as on 01.04.2001 as the cost of acquisition for computing capital gains.

The Tribunal held that, in view of its conclusion that the addition made by invoking section 50C could not be sustained, the alternative plea concerning the cost of acquisition had become academic and required no adjudication.

Final Decision of ITAT Mumbai

The Tribunal held that the Assessing Officer was not justified in treating the stamp-duty valuation as the full value of consideration for computing long-term capital gains.

The addition made by invoking section 50C was held to be unsustainable and was directed to be deleted.

The grounds raised by the assessee were allowed and the appeal filed by the assessee was allowed. The order was pronounced in the open court on 15.07.2026.

Cases Discussed

• Kishori Sharad Gaitonde Vs. ITO (ITAT Mumbai), ITA No. 1561/M/09
• Atul G. Puranik Vs. ITO (ITAT Mumbai), [2011] 11 com 92 (Mumbai)
• Fleurette Marine Hatam (ITAT Mumbai), [2015] 61 com 362 (Mumbai Tribunal)
• Greenfield Hotels & Estates Put. Ltd. (Bombay HC), [2017] 77 com 308

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The present appeal filed by the assessee arises out of order dated 23.12.2025 passed by the NFAC, Delhi for Assessment Year 2018-19 on following grounds of appeal:

Ground No.1

1) The Learned CIT(A) erred in confirming the order of the Assessing Officer without considering the facts of the case that the Appellant had not transferred any part of Land and/or Building and that the Provisions of Sec. 50C of the I.T.Act, 1961 are not applicable to transfer of Tenancy rights.

(a) Jurisdictional Error:

The CIT(A) erred in law and on facts in confirming addition of X34,38,000/- as LTCG by invoking Sec. 50C, ignoring that the transaction was a tenancy agreement and not transfer of land/ building.

(b) Misapplication of Section 50C:

The CIT(A) failed to appreciate that Sec. 50C applies only to transfer of capital asset being land or building or both. Tenancy rights, though capital assets, are distinct and outside the ambit of Sec. 50C. Reliance is placed on:

a. Greenfield Hotels & Estates Put. Ltd. (Bombay HC), [2017] 77 com 308

b. Atul G. Puranik (ITAT Mumbai), [2011] 11 com 92 (Mumbai)

c. Fleurette Marine Hatam (ITAT Mumbai), [2015] 61 com 362 (Mumbai Tribunal)

d. Kishori Sharad Gaitonde (ITAT Mumbai), IT Appeal No.1561 (Mum) of 2009

(c) Nature of Transaction Misinterpreted:

The CIT(A) erred in holding that absence of duration clause in tenancy agreement implied perpetual transfer of ownership. The agreement clearly stipulates monthly rent, advance deposit, and landlord’s continuing rights, which are inconsistent with ownership transfer.

Ground No.2

The Learned CIT(A) erred in confirming the order of the Assessing Officer by not considering the facts of the case and not following the judgment of Bombay High Court in CIT v. Greenfield Hotels & Estates Put. Ltd. 245 Taxman 125 [ 2016 389 ITR 68) (BOM) and not following judgment of ITAT, Mumbai in case of (a) Fleurette Marine Novelle Hatam v. ITO (ITA No. 7468/ Mum 213) (b) Smt. Kishori Sharad Gaitonde v. ITAT (Mumbai) ITA No. 1561/ M/ 09 (Mum)

a. Denial of Natural Justice:

The CIT(A) erred in dismissing the appeal without properly considering detailed submissions, judicial precedents, and documentary evidence filed. The AO also denied adjournment and completed assessment hurriedly.

b. Notional Income Taxed:

The CIT(A) erred in confirming taxation of notional capital gains when no consideration was received by the appellant other than nominal rent. Sec. 45 taxes only real income arising from transfer, not hypothetical gains.

Ground No.3

Ownership Misattributed:

The CIT(A) erred in taxing alleged capital gains in the hands of the Appellant as individual, ignoring documentary evidence (Partition Deed, Property Card) that the property belongs to HUF of Purshottam Keshavji Dharamshi. Any income, if at all, is assessable in HUF’s hands.

Ground No. 4

Cost of Acquisition Wrongly Taken as NIL:

The AO and CIT(A) erred in treating cost of acquisition as NIL, ignoring Sec. 49(1) which mandates substitution of cost to previous owner in case of inheritance.

Ground No. 5

The Appellant reserves right to add, amend or alter any of the Grounds of Appeal.

Brief facts of the case are as under:

2. The assessee, an individual, filed his return of income for the year under consideration on 12.07.2018 declaring a total income of 22,80,877/-. The case was selected for scrutiny, and notices under sections 143(2) and 142(1) of the Income-tax Act, 1961 were issued from time to time calling upon the assessee, inter alia, to furnish details regarding the source of income, computation of income, copies of sale and purchase deeds of immovable properties, details of capital gains or loss arising from any transfer of immovable property, and the statement of affairs.

2.1. In response, the assessee, vide letter dated 19.01.2021, submitted that he had neither purchased nor sold any immovable property during the relevant previous year. However, it was explained that a document had been registered on 12.06.2017 in respect of the tenancy of Room No. 16, 4th Floor, situated at 19/21, Lad Wadi, Hanuman Lane. Since the assessee did not furnish the registered tenancy deed or any supporting documentary evidence, the Assessing Officer relied upon the information available on record indicating that a document had been registered on 13.06.2017 for a value of 232,28,000/-. Consequently, the Assessing Officer issued a further notice requiring the assessee to explain the nature of the rights transferred under the said document and to clarify whether the provisions of section 50C of the Act were attracted.

2.2. In response, vide letter dated 15.03.2021, the assessee submitted that the document in question was merely a tenancy agreement dated 13.06.2017 under which the premises had been let out on a monthly rent of 2375/-, with three months’ rent received in advance. It was further explained that the value adopted for the purpose of levy of stamp duty was 234,38,000/-, being the value determined by the stamp valuation authority in accordance with the applicable stamp duty provisions governing tenancy/lease agreements, and that such valuation did not represent the consideration received by the assessee. The assessee categorically submitted that no premium, pagadi, or any other consideration, apart from the stipulated rent, had been received under the tenancy agreement. It was, therefore, contended that there was no transfer of a capital asset for consideration and, consequently, the deeming provisions of section 50C of the Act were not applicable to the transaction.

2.3. The Ld.AO after considering the submissions of the assessee observed and held as under:

“6. During the course of assessment proceedings, the assessee submitted that the immovable property Room No. 16, 4 th Floor, 19/21, Ladwadi, Hanuman Lane, Mumbai-400 002 came to the assessee’s possession by way of inheritance as a Karta of HUF of Purshottam Keshavji Dharamshi vide the partition deed dated 10.03.1972. From the above it is evidently clear that the assessee is a owner of the immovable property as mentioned above and not merely, a lease holder. Further, vide the notice issued u/ s 142 dated 11.03.2021, the assessee was asked specifically for the duration of the agreement, in absence of any duration of the agreement, it is considered as if the agreement for tenancy rights is entered into with the tenant for perpetuity. In other words, the rights of immovable property i.e. an capital assets have been transferred to the tenant. The assessee vide in his reply dated 15.03.2021 has not contested for duration of the agreement and also no clarification or reply was furnished on this issue. Therefore, it can be clearly seen that this transfer of immovable property is not a transfer of tenancy rights, it is a transfer of ownership, as the owner i.e. the assessee has transferred its rights to the tenant for perpetuity which invokes the section 2(47)(vi) r. w. s. 269UA(d), for the sake of clarity, the provisions of section 2(47) and 269Ua is reproduced as under for ready reference:

2 (47)………………..

(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation 1.—For the purposes of sub-clauses (v) and (vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA…………..

269UA………………..

(d) “immovable property” means— (i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. Explanation.—For the purposes of this sub-clause, “land, building, part of a building, machinery, plant, furniture, fittings and other things” include any rights therein ;………………

7. As discussed above, the immovable property having 242 sq ft area at Room No. 16, 4 th Floor, 19/21, Ladwadi, Hanuman Lane, Mumbai-400 002 has been transferred by way of entering into an agreement of lease which does not put any restriction on the buyer for enjoyment of the said immovable property for indefinite time. Also, the agreement does not contain any remaining rights in the property for the assessee nor it creates any liabilities/ restrictions what so ever in the case of buyer. Thus, in view of the provisions of section 2(47)(vi) r.w.s 269UA it is clearly a transfer of building and therefore the provisions of section 50C definitely applies to the case.

8. The assessee also relied on the judicial pronouncements of Bombay High Court and ITAT Mumbai, it is noteworthy to mention that these judicial orders are about transfer of tenancy rights. But in the instant case, as discussed above, it is a transfer of ownership of capital assets. Hence the ratio of above judgements does not apply to the facts of the case of the assessee.

9. In view of the section 2(47)(vi) r.w.s. 269UA(d) it is a transfer of building having 242 sq ft area at Room No. 16, 4 th Floor, 19/21, Ladwadi, Hanuman Lane, Mumbai-400 002 and the value of the property adopted for the purpose of calculating the stamp value is taken as the sale consideration and the same is adopted at Rs. 34,38,000/ -. Vide the notice issued u/s 142(1) dated 11.03.2021, the assessee was asked to furnish the cost of acquisition, in response the assessee chose not to furnish cost of acquisition and remained silent on it. Since the assessee has not furnished, the cost of acquisition is taken as NIL for the purpose of computation of capital Gain. In the instant case, the period of holding is more than 36 months, hence the profit has to be treated as long term capital gains accordingly the long term capital gains is worked out as under:

Sale Consideration- Rs.34,38,000/ -(As discussed above)

Less: Cost of acquisition- NIL

Long Term Capital Gains= Rs. 34,38,000/ –

As such, the above worked out long term capital gains of Rs. 34,38,000/ – is brought to tax and added to the return income of the assessee.

Addition on account of LTCG: Rs. 34,38,000/ –

Penalty proceedings u/s 270A(9) for under reporting of income which is in consequent of mis-reporting of income is initiated as the assessee failed to declare the above long term capital gains in the return of income filed.”

Aggrieved by the order of the Ld.AO assessee preferred appeal before the Ld.CIT(A).

3. Ld.CIT(A) after considering the submissions of the assessee observed and held as under:

“5.1 The brief facts of this case are that information was received by the AO thatthe appellant had been involved in a immovable property transaction which was registered on 13.06.2017 for a consideration of Rs. 32,28,000/- having stamp value of Rs. 34,38,000/ -. Appellant had furnished a copy of tenancy agreement entered with Smt. Anusuiya Ravi Mishra before AO in respect of a property admeasuring 242 square feet and the monthly rent as per the said agreement was Rs. 375/- and it was also stated that appellant was given Rs. 1,125/ – (three months’ rent) as advance. It was noticed by the AO that the duration of the agreement was not mentioned and under these conditions, it is considered as if the agreement for tenancy rights is entered into with the tenant for perpetuity. It was held that the rights of immovable property /capital asset had been transferred to the tenant i.e. Smt. Anusuiya Ravi Mishra. The property under reference was Room No-16, 4th Floor, 19/21, Ladwadi, Hanuman Lane, Kalbadevi, Mumbai-400002, which was an immovable property coming into appellant’s possession by way of inheritance as a Karta of HUF of Purshottam Keshavji Dharamshi. In this regard a partition deed dated 10.03.1972 was furnished by appellant before AO. It was held that the appellant is a owner of the immovable property and not merely, a lease holder and in absence of any duration of the agreement, the agreement for tenancy rights can be held to be entered into with the tenant for perpetuity. In other words, the rights of immovable property i.e. an capital assets have been transferred to the tenant.

5.2 Before the AO, appellant has not contested duration of the agreement and no clarification was furnished on this issue. Therefore, it was held that this transfer of immovable property is not a transfer of tenancy rights, it is a transfer of ownership, as the owner i.e. the appellant has transferred its rights to the tenant for perpetuity. Invoking the provisions of section 2(47)(vi) r.w.s. 269UA(d) AO had worked out long term capital gains of Rs. 34,38,000/ -.

5.3 During the appellate proceedings, no fresh arguments were put forth by the appellant. It was submitted by the appellant that the tenancy agreement dt. 13.6.2017 was Registered with the Registrar of Assurances and for the purposes of stamp duty the value was taken by the Stamp Authority at Rs. 34,38,000/ -. The provisions of Sec. 50C are not applicable as no transfer of Land and/or Building/ Premsies has taken place.

5.4 I have perused the assessment order and the submissions of the appellant. It is clearly brought on records by the AO that the source of acquisition of the said property with the appellant was through inheritance. Appellant has not disputed the payment of stamp duty on the valuation at Rs. 34,38,000/- and entered into a transaction that amounted to transfer within the meaning of section 2(47)(vi) of the Act. The consideration reported by the appellant is much below the Fair Market value of the said property and therefore the AO has rightly adopted the fair market value as consideration in this case. Appellant has also not disputed the finding of AO on perpetual enjoyment of rights in the said property. Accordingly, I do not find any infirmity in the order of the AO and the additions made by the AO are hereby confirmed.

Aggrieved by the Ld.CIT(A) assessee filed appeal before this Tribunal.

4. The Ld.AR submitted that the authorities below proceeded on an erroneous assumption that the property in question belonged to the assessee in his individual capacity. Inviting our attention to the partition deed dated 10.03.1972, the Ld.AR submitted that the property originally belonged to Late Shri Keshavji Dharamshi and, upon his demise, devolved upon the HUFs of Shri Purushotam Dharamshi and Shri Parmanand Keshavji. Pursuant to the partition effected under the deed dated 10.03.1972, the property in question fell to the share of Purushotam Dharamshi HUF.

4.1. The Ld.AR further submitted that the property continues to be owned by the members and coparceners of the said HUF, as is also evident from the property card. It was contended that the assessee appears before the Tribunal only in his capacity as the Karta of the HUF and not as the individual owner of the property. Therefore, any income arising from the property, including rental income or capital gains, if any, is assessable only in the hands of the HUF and not in the hands of the assessee in his individual capacity. It was, therefore, submitted that the addition made in the individual assessment of the assessee deserves to be deleted on this ground alone.

4.2. Without prejudice to the above, the Ld.AR submitted that the authorities below have erroneously invoked the provisions of section 50C of the Act in respect of a tenancy agreement. It was argued that the Assessing Officer has incorrectly treated the value adopted by the stamp valuation authority for the purpose of levy of stamp duty on the tenancy agreement as the full value of consideration received by the assessee for transfer of tenancy rights, despite there being no such consideration in fact.

4.4. Elaborating further, the Ld.AR submitted that under the tenancy agreement the assessee was entitled only to monthly rent of 2375/-, and no premium, salami, pagadi or any other consideration was received. The value of 234,38,000/- was adopted solely by the stamp valuation authority for the limited purpose of computation of stamp duty payable on the registration of the tenancy agreement and did not represent the actual consideration received by the assessee. It was, therefore, contended that there was neither any transfer of land or building nor any transfer attracting capital gains under the Act. Consequently, the deeming fiction contained in section 50C could not be invoked, and no capital gains were liable to be assessed in the hands of the assessee.

4.5.Per contra, the Ld.DR strongly relied upon the orders of the Assessing Officer and the learned Commissioner of Income-tax (Appeals) and submitted that the addition has been rightly made on the basis of the material available on record. The Ld.DR particularly placed reliance on the findings recorded by the Ld.CIT(A), as reproduced hereinabove, and contended that the same do not call for any interference.

4.6. In rejoinder, and without prejudice to his primary submissions, the Ld.AR alternatively contended that, in the event this Tribunal were to hold that the transaction gives rise to taxable capital gains in the hands of the assessee, the benefit of substitution of the fair market value of the asset as on 01.04.2001 as the cost of acquisition ought to be granted in accordance with the provisions of the Act while computing the capital gains. (The date appears to have been inadvertently mentioned as 01.04.2021; for assets acquired prior thereto, the relevant statutory date is 01.04.2001.)

We have perused the submissions advanced by both sides in the light of the records placed before us.

5. We have heard the rival submissions and perused the material placed before us. The primary controversy arising for our consideration is whether the authorities below were justified in invoking the provisions of section 50C of the Act merely on the basis of the stamp duty valuation adopted for registration of the tenancy agreement and treating the same as the full value of consideration for the purpose of computing long-term capital gains.

5.1. At the outset, we find that the Revenue has proceeded on the premise that the assessee had transferred an immovable property for a consideration equivalent to the value adopted by the stamp valuation authority. However, from the material placed on record, it emerges that the document registered on 13.06.2017 is a tenancy agreement under which the premises were let out on a monthly rent of 2375/-. Except for the value adopted by the stamp valuation authority for the purpose of levy of stamp duty, there is no material brought on record by the Assessing Officer to demonstrate that the assessee had received any consideration of 232,28,000/- or 234,38,000/-, or any amount whatsoever, over and above the agreed rent.

5.2. Section 50C creates a legal fiction whereby the value adopted by the stamp valuation authority may be substituted as the full value of consideration only in respect of the transfer of a capital asset, being land or building or both, where the actual consideration declared is less than such value. The provision cannot be invoked in isolation merely because a document has been subjected to stamp duty valuation. Before invoking the deeming fiction, the Revenue must first establish that there has been a transfer covered by the provision and that consideration has arisen on account of such transfer. In the present case, the Assessing Officer has not brought any evidence on record to establish that the assessee had transferred ownership rights in the property or that any consideration, other than the stipulated monthly rent, had accrued or been received by him.

5.3. We further find merit in the contention of the assessee that the value adopted by the stamp valuation authority for registration of the tenancy agreement is only for the limited purpose of determination of stamp duty liability and cannot, by itself, be presumed to represent the actual consideration received by the assessee. In the absence of any material establishing receipt of consideration corresponding to the stamp duty valuation, the deeming provisions of section 50C cannot be extended beyond their legitimate scope.

5.4. We also note that the assessee has raised a specific contention that the property belongs to Purushotam Dharamshi HUF and that the assessee has executed the tenancy agreement only in his capacity as the Karta of the HUF. Although the assessee has placed reliance upon the partition deed dated 10.03.1972 and the property records in support of this contention, in the view we have taken that the very invocation of section 50C is unsustainable on the facts of the present case, adjudication of the said issue is rendered academic and does not call for any separate finding.

5.5. Accordingly, we hold that the Ld.AO was not justified in treating the stamp duty valuation as the full value of consideration for the purpose of computing long-term capital gains. The addition made by invoking section 50C, therefore, cannot be sustained and is directed to be deleted. In view of this conclusion, the alternate plea of the assessee regarding adoption of the fair market value as on 01.04.2001 for computing the capital gains has become academic and requires no adjudication.

Accordingly grounds raised by the assessee stands allowed. In the result, appeal filed by the Assessee stands allowed.

Order pronounced in the open court on 15.07.2026