Case Law Details
Shivdeep Tyagi Vs ITO (ITAT Delhi)
Introduction: In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Delhi, in the case of Shivdeep Tyagi vs Income Tax Officer (ITO), clarified that the deeming provisions of Section 50C of the Income Tax Act, 1961, do not apply to leasehold rights. This decision highlights the specific applicability of Section 50C to capital assets classified as land or buildings and not to leasehold interests. The ruling serves as a precedent for similar cases, offering clarity on the tax implications of leasehold property transactions.
Detailed Analysis: The case revolves around the appellant, Shivdeep Tyagi, who contested the order dated January 19, 2024, from the Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre (NFAC), New Delhi. The appeal was primarily based on two issues: the reopening of the assessment under Section 147 and the quantum addition made by the Assessing Officer (AO).
Background: Shivdeep Tyagi, a salaried employee, filed his Income Tax Return (ITR) for the assessment year 2011-12, declaring an income of INR 5,06,850. However, the AO reopened the case based on information that Tyagi sold a leasehold property for INR 60,00,000 but did not declare the capital gains. Consequently, the AO assessed the income at INR 75,94,850, considering the stamp duty value, leading to a tax dispute.
Legal Arguments: The appellant’s counsel argued that the AO failed to consider the cost of acquisition while reopening the assessment, thereby misapplying the provisions of Section 50C. They emphasized that Section 50C applies exclusively to capital assets categorized as land or buildings, not to leasehold rights. This argument was supported by various judicial precedents, including decisions in Atul G. Puranik, Ritz Suppliers (P.) Ltd., and others, which consistently held that Section 50C does not extend to leasehold properties.
Tribunal’s Observations: The ITAT, after considering the arguments and reviewing the case laws, noted that the CIT(A) did not adjudicate the validity of the reopening of the assessment. Therefore, the tribunal refrained from commenting on the merits of the reopening and remanded the issue back to the CIT(A) for fresh adjudication. Furthermore, the ITAT underscored that Section 50C’s deeming provisions are confined to land or building capital assets. Citing the Supreme Court’s ruling in Amarchand N. Shroff and Mother India Refrigeration Industries (P.) Ltd., the tribunal affirmed that legal fictions like those in Section 50C must be strictly interpreted and cannot extend beyond their explicit scope.
Judicial Precedents: The ITAT referenced the Bombay High Court’s ruling in Greenfield Hotels & Estates (P.) Ltd. and the Delhi ITAT’s decision in Noida Cyber Park (P.) Ltd., both of which supported the view that Section 50C does not apply to leasehold rights. These rulings establish that the transfer of leasehold rights is distinct from the transfer of land or buildings and thus falls outside the ambit of Section 50C.
Conclusion: The ITAT Delhi’s decision in Shivdeep Tyagi vs ITO marks a pivotal clarification in the interpretation of Section 50C of the Income Tax Act. By ruling that the deeming provisions do not apply to leasehold rights, the tribunal has provided crucial guidance for future cases involving similar disputes. This judgment reinforces the principle that legal fictions created by tax provisions must be narrowly construed, ensuring that taxpayers are not unfairly burdened by misapplied tax laws. As the case now returns to the CIT(A) for further adjudication, it remains to be seen how the principles laid down by the ITAT will influence the final outcome.
FULL TEXT OF THE ORDER OF ITAT DELHI
The instant appeal of the assessee is filed against the order dated 19.01.2024 of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (in short ‘NFAC’), New Delhi [In Short, the ‘CIT(A) ’].
2. The appellant/assessee, vide five grounds of appeal, challenged the impugned order on two core issues; the reopening of the assessment under section 147 of the Income Tax Act, 1961 (In short, the ‘Act’) and quantum addition made by the Assessing Officer (In Short, the ‘AO’).
3. The relevant facts giving rise to this appeal are that the assessee, a salaried employee, filed his Income Tax Return (In short, the ‘ITR’) of the relevant assessment year 2011-12 on 17.02.20 12 declaring income of Rs.5,06,850/- which was processed under section 143(1) of the Act. Later on; the AO, based on the AIR information that the assessee who sold a leasehold property for Rs.60,00,000/- did not offer the capital gains derived thereon for tax in the relevant year, reopened the case. Since the appellant/ assessee did not file any proof of cost of acquisition of the leasehold property during the assessment proceedings, therefore, the consequential reopened assessment was completed at income of Rs.75,94,850/-, under section 147/143(3) of the Act on 10.12.20 18, by taxing the entire sale consideration of Rs.75,94,850/- for stamp duty purposes as against the actual sale consideration of Rs.60,00,000/-. The appellant/assessee did not succeed in first appeal. Therefore, he filed this appeal before the Tribunal.
4. On legal issue, the Ld. Counsel, placing emphasis on the copy of the reasons recorded by the AO wherein the entire sale consideration was treated as income, submitted that the AO did not apply his mind while reopening the case as entire sale consideration, per se, could not be taken as income without giving credit of the cost of acquisition while working out the income/capital gains. Further, the Ld. Counsel submitted that the Ld. CIT(A) did not adjudicate the issue of validity of reopening of the assessment raised vide Ground 1-4 as per Form-35 though after filing the detailed submission in this regard. The Ld. Counsel prayed for decision on the legal matter/reopening of the assessment.
5. The Ld. Counsel, placing emphasis on the following decision; Atul G. Puranik [132 ITD 499 (Mum.), Ritz Suppliers (P.) 182 ITD 227, Sowmya Sathyan [2021] 124 taxmann.com 74/187 ITD 149, Noida Cyber Park Pvt. Ltd. (ITA No. 165/Del/2020), Bharat Bhushan Jain (ITA No. 316/Del/2020), M/s. Envair Electrodyne Ltd. (ITA No. 611/Pun/2018) Shri Kadir Ahmed (ITA No. 418/Del/2020) and Damyanti Mundhra (ITA No. 1722/Del/2019), submitted that the Section 50C of the Act, being a deeming provision, was not applicable in case of transfer of leasehold rights. The Ld. Counsel drew out attention to the provisions of section 50C of the Act, wherein it has been specifically mentioned that this Section is applicable to those capital assets only which are land or building or both.
6. The Ld. Senior Departmental Representative (In short, the ‘Sr. DR’), placing emphasis on the finding of the AO and the CIT(A), prayed for dismissal of the appeal. However, on specific query, he admitted that there is no judicial pronouncement holding that the provisions of Section 50C of the Act is applicable on the leasehold property.
7. We have heard both the parties at length and have perused the material available on the record. Since the issue of validity of reopening of the assessment has not been adjudicated by the CIT(A); therefore, we are refraining ourselves from adjudicating this issue. Therefore, in the interest of justice and considering all the afore-stated observations, we are of the considered opinion that the CIT(A) should adjudicate the issue of validity of reopening of the assessment. In view thereof, without offering any comment on merit of the issue of validity of reopening of the assessment, we deem it fit to set aside this issue to the file of the CIT(A) to decide this issue afresh after affording reasonable opportunity of being heard to the appellant/assessee. Accordingly, we order so and restore this matter/of validity of reopening of the assessment to the file of the CIT(A) to decide it afresh.
8. It is axiomatic that the leasehold right in a plot of land are neither ‘land or building or both’ as such nor can be included within the scope of ‘land or building or both’. The distinction between a capital asset being ‘land or building or both’ and any ‘right in land or building or both’ is well recognized under the Act. Section 54D of the Act deals with certain cases in which capital gains on compulsory acquisition of land and building is charged to tax. Section 54D(1) of the act opens with: “Subject to the provisions of sub-section (2), where the capital gain arises from the transfer by way of compulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking “. Thus, it is palpable from section 54D of the Act that ‘land or building’ is distinct from ‘any right in land or building’.
9. The Hon’ble Supreme Court in the case of Amarchand N. Shroff 48 ITR 59 has held that a deeming provision cannot be extended beyond the purpose for which it is enacted. Similar view was reiterated by the Hon’ble Supreme Court in the case of Mother India Refrigeration Industries (P.) Ltd. 155 ITR 711 by laying down that “legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond their legitimate field”. In view of the above decisions of the Hon’ble Supreme Court, it is clear that a deeming provision can be applied only in the scope of the law and not beyond the explicit mandate of the section. Hence, the provisions of Section 50C of the Act is applicable only in respect of ‘land or building or both’. If the capital asset under transfer cannot be described as ‘land or building or both’, then Section 50C of the Act will not apply.
10. Considering the fact that we are dealing with special provision for full value of consideration in certain cases under section 50C of the Act, which is a deeming provision, the fiction created in this section cannot be extended to any asset other than those specifically provided therein. As section 50C of the Act applies only to a capital asset, being land or building or both, it cannot be made applicable to lease rights in a land.
11. The Hon’ble Bombay High Court in the case of Greenfield Hotels & Estates (P.) Ltd. 77 com 308 held that Section 50C of the Act would not be applicable while computing capital gains on transfer of leased hold rights in Land and buildings. The Hon’ble Delhi ITAT in the case of Noida Cyber Park (P.) Ltd., 123 Taxmann.com 213, held that Section 50C of the Act covers only capital asset being land or building or both; it would not cover transfer of leasehold rights in land and building.
12. The relevant portion of Section 50C of the Act reads as under:
“50C.(1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed [or assessable] by any authority of a State Government (hereafter in this section referred to as the “stamp valuation authority”) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed [or assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer.”
13. On-going through the above provisions of section 50C of the Act, it transpires that where the full value of consideration shown to have been received or accruing on the transfer of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by stamp valuation authority, the value so adopted etc. shall, for the purposes of Section 48 of the Act, be deemed to be full value of consideration received or accruing as a result of such transfer. It is a deeming provision and it covers land or building or both. It is manifest that a deeming provision has been incorporated to substitute the value adopted or assessed or assessable by stamp valuation authority in place of consideration received or accruing as a result of transfer, in case the latter is lower than the former. It, therefore, follows that only if a capital asset being land or building or both is transferred and the consideration received or accruing as a result of such transfer is less than the value adopted or assessed or assessable by the stamp valuation authority, the deeming fiction under sub-sec. (1) of Section 50C of the Act shall be activated to substitute such adopted or assessed or assessable value as full value of consideration received or accruing as a result of such transfer in the given situation.
14. In view of the above and following decision of the coordinate bench in the case of Noida Cyber Park Pvt. Ltd. (ITA No. 165/Del/2020), it is held that the section 50C of the Act, being deeming provision inserted by the Finance Act 2002 w.e.f. 01.04.2003, is not applicable in this case. However, the AO may compute capital gains as per the Act without invoking the provisions of section 50C of the Act.
15. In the result, the appeal is partly allowed for statistical
Order pronounced in open Court on 18th June, 2024
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