May Flower Enterprises Private Limited Vs ACIT (ITAT Chennai)
The central question
A purchaser paid for land under an agreement but never obtained a registered sale deed. Years later, the vendor paid the purchaser to give up its rights under that agreement. Was the purchaser transferring land, so that the stamp duty value could replace the agreed consideration under Section 50C? Or was it relinquishing only a contractual right to seek specific performance?
In May Flower Enterprises Pvt. Ltd. v. ACIT, the Chennai ITAT held that the company had transferred only its right under the sale agreement. Since it had never become the owner of the land, Section 50C could not be invoked. The Tribunal directed deletion of the addition arising from the Assessing Officer’s recomputation of long-term capital gain.
How the transaction unfolded
May Flower Enterprises Pvt. Ltd., a housing project developer, entered into an agreement with H. R. Ravichandra on 22 August 2005 to purchase a site. The agreement stated a total consideration of ₹1,40,40,000, divided into ₹32,40,000 towards the site and ₹1,08,00,000 towards development charges. The listed development work included drainage, sewerage, electricity, roads and other layout facilities.
The purchase did not result in a registered conveyance in the company’s favour. Under the agreement, if the vendor failed to execute a sale deed, the company’s remedy was to sue for specific performance. Subsequently, the company received ₹2 crore from the vendor in connection with giving up its rights. The receipts relied upon before the Tribunal described the payment as being towards cancellation of the 2005 agreement.
In its return for assessment year 2017–18, the company reported a long-term capital loss, after taking into account the ₹2 crore received and claiming indexed cost in relation to the amount originally paid.
Why the Assessing Officer invoked Section 50C
The Assessing Officer divided the ₹2 crore receipt into two parts. He treated ₹1.08 crore as a return of the development charges, reasoning that the contemplated development had not been carried out. That left ₹92 lakh as, in his view, consideration for the land. He also restricted the relevant acquisition cost to the ₹32.40 lakh site component.
The stamp duty value of the land was ₹2.16 crore. Applying Section 50C in place of the ₹92 lakh figure, the Assessing Officer recomputed the transaction as a long-term capital gain of ₹1,42,89,230 rather than the capital loss claimed by the company. The Commissioner (Appeals) upheld the assessment.
Before the ITAT, the company argued that this approach began with the wrong asset. It had no registered title to the site; its asset was the right acquired under the agreement to demand performance from the vendor. The ₹2 crore was received for relinquishing that right. The company also disputed the division of the receipt into land and refunded development charges, maintaining that the original agreement concerned a composite bundle of rights.
The Tribunal’s ruling: identify the asset first
The ITAT examined the agreement and found that no sale deed had ever been registered in May Flower’s favour. The vendor remained the owner throughout. Clause 4.7 of the agreement showed that, on the vendor’s default, the company could institute a suit for specific performance. What the company held, and later gave up for ₹2 crore, was therefore the right to seek specific performance, not the land itself.
The Tribunal relied on the Madras High Court decision in K. R. Srinath v. ACIT for the proposition that a right to specific performance is a capital asset, and that relinquishing it constitutes a transfer under Section 2(47). There was thus a transfer of an asset; the crucial point was which asset had been transferred.
Section 50C applies where the capital asset transferred is land or building or both. The Tribunal held that its deeming rule could not be extended to this relinquishment of a contractual right. It referred to Greenfield Hotels & Estates (P.) Ltd., which distinguished a right in land from the land itself for this purpose.
What about the contrary Bombay High Court ruling?
The Tribunal expressly considered Vidarbha Veneer Industries Ltd. v. ITO, in which the Bombay High Court had applied Section 50C to a leasehold right in land. It distinguished that decision on its facts. Vidarbha Veneer involved a registered leasehold interest, later assigned by a registered deed, that conferred possession and enjoyment. May Flower, by comparison, had an unregistered agreement and a contractual right to seek performance, which had never matured into a registered interest in the land.
On that distinction, the ITAT held that Section 50C did not apply and directed the Assessing Officer to delete the addition made by recomputing the long-term capital gain. It did not separately decide whether the ₹2 crore should have been divided between land and development charges, or whether the difference between ₹2 crore and ₹2.16 crore fell within a permissible tolerance limit. The company’s alternative argument about the year of transfer was also left open.
Author’s comments
The important step in this decision is to identify the asset that the assessee actually owned. An agreement to purchase land may give the purchaser a valuable capital asset, even before a sale deed is executed. But giving up that contractual right does not necessarily mean that the purchaser has transferred the land.
The decision also shows why cases concerning rights in immovable property require careful factual comparison. The Tribunal did not ignore Vidarbha Veneer; it distinguished a registered leasehold interest carrying possession and enjoyment from May Flower’s bare right to enforce an unregistered purchase agreement. The ruling should therefore be applied with attention to the deed, the nature of the right, and what was actually relinquished.
Finally, the outcome is specific to the Section 50C recomputation. The Tribunal removed the addition based on substituting the land’s stamp value. It did not decide the company’s alternative objection that the transfer belonged to an earlier year, despite payments having been received before assessment year 2017–18.
Cases Discussed
K.R. Srinath v. ACIT (2004) 141 Taxman 268 (Madras High Court) — Relied upon for the proposition that the right to specific performance is a capital asset under Section 2(14) and relinquishment of that right constitutes transfer under Section 2(47).
Vidarbha Veneere Industries Ltd. v. ITO [2025] 174 taxmann.com 223 (Bombay High Court) — Distinguished because that case concerned a registered leasehold interest created by a statutory development corporation and assigned through a registered deed, whereas the assessee held only a contractual right under an unregistered agreement.
CIT v. Greenfield Hotels & Estates (P.) Ltd. [2017] 389 ITR 68 (Bombay High Court) — Followed for the principle that Section 50C, being a deeming provision, cannot be extended beyond its express mandate to a right in land or building distinct from land or building itself.
CIT v. Moon Mills Ltd. [1967] 65 ITR 630 (Supreme Court) — Cited by the assessee in support of the principle governing the restricted operation of legal fictions.
CIT v. Shakuntala [1966] SCR (2) 871 (Supreme Court) — Cited by the assessee on the restricted application of a statutory legal fiction.
Mancheri Puthusseri Ahmed & Ors. v. Kuthiravattam Estate Receiver JT [1996] (8) 107 (Supreme Court) — Cited by the assessee in support of its submission that a statutory fiction cannot be extended by importing another fiction.
CIT v. Vummudi Amarendran [2020] 429 ITR 97 (Madras High Court) — Relied upon by the assessee for its alternative submission that the 10% tolerance provision under Section 50C was curative and retrospective; separate adjudication became unnecessary after Section 50C itself was held inapplicable.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal by the assessee is against the order of the Commissioner of Income-tax (Appeals) (in short “CIT(A)”), Chennai-20, passed us/. 250 of the Income-tax Act, 1961 (in short “the Act”) dated 07.11.2024 for the AY 2017-18. The assessee raised the following grounds of appeal:
“1. For that the order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and circumstances of the case to the extent prejudicial to the interests of the appellant and is opposed to the principles of equity, natural justice and fair play.
2. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the order of the Assessing Officer is without jurisdiction.
Denial of Development Charges
3. For that the Commissioner of Income Tax (Appeals) erred in upholding the disallowance of development charges of Rs.1,08,00,000/- claimed by the appellant as cost of acquisition.
4. For that the Commissioner of Income Tax (Appeals) erred in upholding the re-computation of Long Term Capital Gain.
5. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant had paid land and development charges to the seller of the property at the time of purchase.
6. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant had entered into a composite contract at the time of purchase of property.
7. For that the Commissioner of Income Tax (Appeals) erred in concluding that the development charges amounting to Rs. 1,08,00,000/- paid by the appellant has been returned by the vendor.
Invocation of Section.50C is not warranted in the facts and circumstances of the case
8. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the provision of Section 50C are not invocable in the facts and circumstances of the case.
9. For that the Commissioner of Income tax (Appeals) failed to appreciate that the appellant had entered into agreement for sale with the vendor on 22.08.2025.
10. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant in the instant case has extinguished his right over the agreement dated 22.08.2005.
11. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the appellant has neither transferred land nor building or both in the instant case.
12. For that the Commissioner of Income Tax (Appeals) failed to appreciate that the development charges paid by the appellant at the time of entering into agreement cannot be reduced from the sale consideration at the time of transfer of property.
13. Without prejudice to the above, for that the Commissioner of Income Tax (Appeals) failed to appreciate that the variance between the sale consideration and guideline value of property is less than 10% in the instant case.
14. For that the Commissioner of Income Tax (Appeals) erred in not acceding to the request of the appellant for reference to the DVO for valuation of the impugned property.”
2. The assessee is a private limited company engaged in the activities of development of housing projects. The assessee filed a return of income for assessment year 2017-18 on 07.11.2017 admitting total income of Rs.3,12,73,740/. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The AO during the course of assessment noticed that the assessee has claimed long term capital loss of Rs.1,17,80,684/- and called on the assessee to furnish the details pertaining to the same. The assessee submitted that it has entered into a sale agreement with one Shri H. R. Ravichandra towards purchase of land and has paid a consideration of Rs.1,40,40,000/-. The assessee further submitted that the impugned transaction did not materialise and therefore Shri. H. R. Ravichandra has paid a sum of Rs.2,00,00,000/- to the assessee towards giving up the right for specific performance as agreed with the assessee. The assessee also submitted that the long-term capital loss is computed after reducing the indexing the cost paid by the assessee from the amount received. The AO rejected the submissions of the assessee and held that out of the total amount received, a sum of Rs.1,08,00,000/- was received towards reimbursement of development expenses originally paid by the assessee. The AO held the balance amount received amounting to Rs.92,00,000/- as consideration towards sale of land and since the valuation of land for stamp duty purposes was Rs.2,16,00,000/- considered the same as the deemed the consideration u/s. 50C of the Act. Accordingly, the AO recomputed the long-term capital gain at Rs.1,42,89,230/- and added the same to the income of the assessee. Aggrieved the assessee filed further appeal before the CIT(A). The assessee before the CIT(A) contended that no transfer within the meaning of section 2(47) took place during the financial year relevant to the year under consideration and therefore no capital gain is arising in the hands of the assessee. With regard to the consideration deemed u/s. 50C of the Act, the assessee submitted that the said section is applicable only where there is transfer of capital asset in the form of land or building or both, whereas in the instant case the assessee has only extinguished its rights as per the agreement dated 22.08.2005. Without prejudice to the said contentions the assessee submitted that it is a composite agreement entered into by the assessee towards land and development and therefore, even assuming that section 50C is applicable, the AO ought to have considered the entire consideration of Rs. 2,00,00,000/- in which case the variance when compared to the stamp duty valuation is within the tolerance band of 10% thereby not warranting any re-computation. The CIT(A) however rejected all the contentions of the assessee and upheld the addition by holding that:
“6.12. The first issue in this appeal is that the LTCG in respect of the said transfer does not arise in the year under consideration, It is noted that the appellant itself had declared the said transfer in the return of income filed for the year under consideration and claimed Long-Term Capital Loss. It is only when the AO found that the said transfer would result in Capital Gains and not Capital Loss, the appellant has changed its stand and stated that no transfer has taken place in the year under consideration. It is also noted that the appellant has merely stated that the transfer of capital asset has not taken place in the year under consideration. However, the appellant has not stated that in which year the said transfer has taken place according to the appellant and whether the appellant had offered LTCG in that year. It is also noted that the appellant had received Rs.50,00,000/- on 02.12.2008, Rs.1,00,00,000/- on 21.01.2010 & Rs.50,00,000/- on 28.08.2013 and no amount was received in the year under consideration. Further, it is also worthwhile to note that the appellant had recognized the said receipts of Rs.2,00,00,000/- as Advance in its books of account till the year under consideration. It is only during the year under consideration that the appellant has treated the said amount as the total sale consideration in respect of the said property and also closed the Advance account in its books of account. In other words, the appellant has relinquished its rights in the said property in the year under consideration by closing the Advance account. When the appellant itself has recognized the said transfer in its books of account in the year of consideration, there cannot be any grievance on this issue. On the facts and circumstances of the case, I am of the opinion that the appellant has relinquished its right in the property in the year under consideration and hence the Capital Gain/Loss arising out of the said transfer has to be assessed in the year under consideration.
6.13. The second issue raised by the appellant is that the amount of Rs.1,08,00,000/-paid towards Development charges ought to have been included in the cost of acquisition. For ready reference, the relevant paragraphs of the sale agreement dated 22.08.2005 is reproduced as under:
“AND WHEREAS, the vendor as absolute owner of the schedule property and for certain legal necessities and also to invest in alternate property has decided to sell the schedule property for a total sale consideration amount of Rs.32,40,000/-(Rupees Thirty Two Lakhs and Forty Thousand Only) towards the site value and Rs.1,08,00,000/-(Rupees One Core Eight Lakhs Only) towards the development charges i.e., Drainage, Sewerage, Electricity, Water storage Tank, Tar Road, Plantation with Concrete Tree Guards, Club House, Swimming Pool in the layout and individual Water and Sewerage connection in respect of schedule property, in all a total sale consideration of Rs.1,40,40,000/-(Rupees One Crore Forty Lakhs and Forty Thousand Only) free from all encumbrances, charges, litigations, etc.
AND WHEREAS, the purchaser have agreed to purchase the schedule property from the vendor for the aforesaid sale consideration amount of of Rs.32,40,000/-(Rupees Thirty Two Lakhs and Forty Thousand Only) towards the site value and Rs.1,08,00,000/-(Rupees One Core Eight Lakhs Only) towards the development charges i.e., Drainage, Sewerage, Electricity, Water storage Tank, Tar Road, Plantation with Concrete Tree Guards, Club House, Swimming Pool in the layout and individual Water and Sewerage connection in respect of schedule property, in all a total sale consideration of Rs.1,40,40,000/-(Rupees One Crore Forty Lakhs and Forty Thousand Only) freed and discharged from all and every encumbrances, charges, attachments under order or decree of any Civil, Revenue or Criminal court or any other paramount claims of any kind whatsoever.”
The above agreement clearly specifies that an amount of only Rs.32,40,000/- was paid towards the site value. It can further be seen that further amount of Rs.1,08,00,000/- was paid to the Vendor towards development charges i.e. Drainage, Sewerage, Electricity, Water storage Tank, Tar Road, Plantation with Concrete Tree Guards, Club House, Swimming Pool in the layout and individual Water and Sewerage connection. Further, it is noted from the assessment order that the appellant had accepted that the vendor had not carried out any development on the said site. It is also noted that the appellant also had not carried out any development of the said property. Meaning thereby, the appellant had transferred back the same vacant site. It is also noted that the said property was transferred back to the same Vendor itself and received a total consideration of Rs.2,00,00,000/-. It is also worthwhile to note that the appellant has not furnished any document to prove that the entire amount of Rs.2,00,00,000/- was received towards the land value only. In such circumstances, it is safe to conclude that the said consideration of Rs.2,00,00,000/- includes returning of development charges of Rs.1,08,00,000/-because no development had been done by the Vendor and the balance amount of Rs.92,00,000/- is towards the land value. Once the Development Charges have been returned by the Vendor, the same cannot be claimed in the cost of acquisition. Therefore, it is held that the AO has rightly considered only Rs.32,40,000/- as the cost of acquisition.
6.14. The third issue raised by the appellant is that it has transferred only rights in the property and provisions of section 50C of the Act does not apply to transfer of rights. There is no dispute that the provisions of section 50C of the Act are applicable for transfer of a capital asset, being land or building or both. In this regard, it is noted that as per section 2(47) of the Act, “Transfer” includes the extinguishment of any rights in capital asset. Further, it is noted that the capital asset, in which the appellant has extinguished its right, is a land. Meaning thereby, the appellant has relinquished its rights in the “land” and the said transaction is covered under ‘Transfer” of capital asset. Hence, I am of the opinion that the said transfer of land is squarely covered by the provisions of section 50C of the Act. Reliance is also placed on the decision of the Hon’ble High Court of Bombay in the case of Vidarbha Veneere Industries Ltd. v. ITO in ITA No. 34/2022 dated 01.04.2025 wherein it was held that the manner in which a property was held, would be immaterial, for purpose of applicability of section 50C of the Act. The above decision is squarely applicable in the case of the appellant. Further, with regard to claim of the appellant that it was a distress sale, it is noted that as per clause 4.7 of the sale agreement dated 22.08.2005, the appellant could very well get the property registered in his name by instituting a suit for specific performance of the agreement of sale in a competent court of law. The appellant has not submitted any compelling reason for the appellant to sell the said property to the original vendor for a price lower than the guideline value. Therefore, it is held that the AO has rightly invoked the provisions of section 50C of the Act in the case of the appellant.
6.15. The fourth issue raised by the appellant is that the sale consideration is within 10% variance and hence provisions of section 50C need not be invoked. In this regard, it is noted that the appellant has considered the sale consideration as Rs.2,00,00,000/- and the value of the property as per stamp valuation authority as Rs.2,16,00,000/- and claimed that the sale consideration is within the tolerance limit of 10% as per 3rd proviso to section 50C(1) of the Act. In this regard, it is noted that I have already held in Para 6.13 above that out of Rs.2,00,00,000/- received by the appellant, Rs. 1,08,00,000/- is towards the returning of development charges. Thus, it can be seen that the sale consideration for the property is only Rs.92,00,000/-, whereas, the guideline value of the said property is Rs.2,16,00,000/-, which is clearly beyond the permissible limit of variance of 10%. Therefore, it is held that there is no merit in this issue raised by the appellant.
6.16. The last issue raised by the appellant is that the AO erred in not referring to valuation officer. The appellant has stated that the AO has made the addition u/s 50C of the Act without making reference to the Valuation Officer. To examine this issue the provisions of section 50C of the Act, as it stood for the year under consideration, are reproduced as under:
Special provision for full value of consideration in certain cases.
*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.
Provided that where the date of the agreement fixing the amount of consideration and the date of registration for the transfer of the capital asset are not the same, the value adopted or assessed or assessable by the stamp valuation authority on the date of agreement may be taken for the purposes of computing full value of consideration for such transfer:
Provided further that the first proviso shall apply only in a case where the amount of consideration, or a part thereof, has been received by way of an account payee cheque or account payee bank draft or by use of electronic clearing system through a bank account, on or before the date of the agreement for transfer.
(2) Without prejudice to the provisions of sub-section (1), where-
(a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the date of transfer,
(b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1) has not been disputed in any appeal or revision or o reference has been made before any other authority, court or the High Court,
the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such reference is made, the provisions of sub-sections (2). (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1) and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.
Explanation 1. For the purposes of this section, “Valuation Officer” shall have the same meaning as in clause (r) of section 2 of the Wealth-tax Act, 1957 (27 of 1957).
Explanation 2.-For the purposes of this section, the expression “assessable” means the price which the stamp valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp duty.
(3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds the value adopted or assessed or assessable by the stamp valuation authority referred to in sub-section (1), the value so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received or accruing as a result of the transfer.
As per sub-section (1) of section 50C of the Act, where the consideration received on transfer of a land or building or both, is less than the value adopted by the Stamp Valuation Authority for the purpose of payment of stamp duty, the value so adopted shall be deemed to be the full value of the consideration received for the purposes of section 48 of the Act. Further, as per sub-section (2) of section 50C of the Act, where the assessee claims before the Assessing Officer that the value adopted by the stamp valuation authority exceeds the fair market value of the property as on the date of transfer, the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer. Thus, it is clear from section 50C(2) of the Act, that the AO may refer the property to a Valuation Officer, provided that the assessee makes claim before the AO. However, in the present case, there is no such mention in the assessment order that the appellant had made any objection before the AO. Even during the appeal proceedings also, the appellant has neither claimed that it had made any such objection before the AO nor furnished any evidence to prove that it had made any objection before the AO. Thus, since the appellant had not made any objection during the assessment proceedings, the AO is not bound to make a reference to the Valuation Officer and may proceed to make addition as per section 50C(1) of the Act. Further, it is also noted that the appellant has also not made any submission as to explain why the value of the said property is less that the value adopted by the stamp valuation authority. Thus, it is held that this issue raised by the appellant is without any merits.
6.17. On the basis of the above discussion, it is held that the AO has rightly disallowed the Long-Term Capital Loss of Rs.1,17,80,834/- and added the Long-Term Capital Gain of Rs.1,42,89,230/- to the total income of the appellant. Accordingly, the addition made by the AO is confirmed and the grounds of appeal are dismissed.”
3. Before us, the Ld. AR submitted that the agreement dated 22.08.2005 was a composite agreement, under which the assessee acquired a bundle of rights against the vendor, comprising the right to have the site registered and the right to have the layout developed, for a total consideration of Rs.1,40,40,000/-. The Ld. AR submitted that no sale deed was ever registered in favour of the assessee, and that clause 4.7 of the agreement itself contemplated a suit for specific performance as the assessee’s only remedy on default by the vendor. In this regard the ld.AR drew our attention to the following clauses in the agreement of sale dated 22.08.2005:
4.7. If the vendor fails to execute a registered conveyance or conveyances in favour of the purchaser, the purchaser can get the sale deed of the schedule property registered in their names by instituting a suit for specific performance of this agreement of sale in a competent court of law by paying the balance sale consideration amount pursuing to this agreement.”
4. The ld.AR submitted that the assessee vide the above agreement has obtained only the right for specific performance and that the assessee has not become the owner of the impugned land. The ld.AR further submitted that the right to specific performance includes the right to get the developed land registered in favour of the assessee and the cost paid by the assessee though contains two parts has to be considered together as paid towards the right for specific performance only. The Ld. AR further submitted that the AO had erred in artificially bifurcating the sum of Rs.2,00,00,000/- received on relinquishment into Rs.92,00,000/- towards the land and Rs.1,08,00,000/- as a purported refund of development charges, and in correspondingly restricting the cost of acquisition to Rs.32,40,000/- alone, when the entire sum of Rs.1,40,40,000/- had been paid as a single, composite consideration for the bundle of rights.
5. The ld.AR also submitted that the AO has invoked the provisions of section 50C whereas, the said section would apply only where there is a transfer of land or building or both and in the given case it is the right to specific performance that is transferred to which the provisions of section 50C cannot be applied. The ld.AR also drew our attention to the receipts issued by the assessee to Shri. H. R. Ravichandra towards receipt of money where it is clearly stated that the amount is received towards cancellation of the agreement dated 22.08.2005. The ld.AR accordingly argued that the AO is not correct in invoking the provisions of section 50C for recomputing the long-term capital gain. It is submitted that right to specific performance is a capital asset as held by the Hon’ble Madras High Court in the case of K. R. Srinath vs ACIT (2004) 141 Taxman 268 (Mad), where it is held that:
“12. As seen already, the assessee had a right to insist on specific performance, gave up the right readily and received a sum referred to supra. There can be no doubt that by termination of the earlier agreement and by allowing the vendor to sell the said property to any person at any price, the assessee had given up or relinquished his right of specific performance and as consideration for relinquishing that right, the assessee was paid a sum of Rs. 6,00,000. The right, title and interest acquired under the agreement of sale clearly fall within the definition of ‘capital asset’ (section 2(14)]. Instead of assigning the right to third party/parties, the assessee relinquished those rights. We have already seen that the definition of ‘transfer in section 2(47) is wide enough to include relinquishment of an asset.”
6. As regards the decision of the Hon’ble Bombay High Court in Vidarbha Veneer Industries Ltd. vs. ITO [2025] 174 taxmann.com 223 (Bom), relied upon by the Ld. CIT(A), the Ld. AR submitted that the said decision was distinguishable, since it concerned a registered leasehold right which, being compulsorily registrable under Section 17(1)(d) of the Registration Act, 1908, carried an assessable value for stamp duty purposes, whereas the right to specific performance held by the assessee, arising under an unregistered agreement, carried no such registrable or assessable value at all. The Ld. AR further submitted that a legal fiction such as the one contained in Section 50C of the Act cannot be extended by importing a further fiction that the assessee’s contractual rights are equivalent to the underlying land, relying on the decisions in CIT vs. Moon Mills Ltd. [1967] 65 ITR 0630 (SC), CIT vs. Shakuntala [1966] SCR (2) 871, and Mancheri Puthusseri Ahmed & Ors. vs. Kuthiravattam Estate Receiver, JT [1996] (8) 107 (SC).
7. Without prejudice to the above, the Ld. AR submitted that even if Section 50C of the Act were held applicable, the variance between the actual consideration of Rs.2,00,00,000/- and the value of Rs.2,16,00,000/- adopted by the AO was only 8%, and therefore within the 10% tolerance limit prescribed under the third proviso to Section 50C of the Act, which, being curative in nature, applies retrospectively, relying on the decision of the Hon’ble Jurisdictional High Court in CIT vs. Vummudi Amarendran [2020] 429 ITR 97 (Mad). Without prejudice to the above, the Ld. AR also submitted that no transfer had in fact taken place in the year under consideration, since the entire consideration had been received across financial years 2008-09, 2009-10 and 2013-14, and that this contention would require adjudication only in the event the assessee’s other contentions did not find favour.
8. The Ld. DR on the other hand submitted that the contention of the assessee that no transfer took place during the year under consideration is not tenable since the assessee itself has declared the long-term capital loss while filing the return of income. The Ld. DR further submitted that in the agreement dated 22.08.2005 the amount paid by the assessee to the vendor is properly segregated as towards land and development charges and therefore, the argument that it is a consolidated payment cannot be accepted. The Ld. DR also argued that the assessee vide the above agreements has paid the entire consideration towards purchase of land and therefore, the amount received has been correctly considered by the AO for recomputing the long-term capital gain by invoking provisions of section 50C of the Act. Accordingly, the Ld. DR supported the orders of the lower authorities.
9. We heard the parties and perused the materials available on record. We notice that as per clause 4.7 of the agreement of sale dated 22.08.2005, the only remedy available to the assessee on default by the vendor was to institute a suit for specific performance of the agreement. We further notice that no sale deed was ever registered in favour of the assessee, and the vendor continued to remain the owner of the property throughout. We are therefore of the view that what the assessee held, and what stood extinguished upon receipt of the sum of Rs.2,00,00,000/-, was only the right to seek specific performance of the agreement, and not the land itself. We notice that the Ld. AR has rightly relied on the decision of the Hon’ble Madras High Court in K.R. Srinath (supra) wherein it has been held that the right to specific performance is a capital asset within the meaning of Section 2(14) of the Act, and that relinquishment of such right falls within the wide definition of “transfer” under Section 2(47) of the Act. We accordingly hold that what has been transferred by the assessee in the present case is only the right to specific performance, and not the land or building.
10. We now examine whether the provisions of Section 50C of the Act can be invoked in respect of the transfer of such a right. On a plain reading of Section 50C of the Act, we notice that the deeming fiction therein is attracted only where the capital asset transferred is “land or building or both”, and the said fiction cannot be extended to a transfer of any right in land or building. We notice that the Ld. AR has relied on the decision of the Hon’ble Bombay High Court in CIT vs. Greenfield Hotels & Estates (P.) Ltd. [2017] 389 ITR 68 (Bom), wherein it has been held that Section 50C, being a deeming provision, cannot be extended beyond its explicit mandate, and does not apply to a right in land or building as distinct from the land or building itself. We are of the view that the ratio of the said decisions squarely applies to the facts of the present case, since what has been transferred is only a right to specific performance and not the land itself. Having held so, we notice that the Hon’ble Bombay High Court in a recent decision in the case of Vidarbha Veneer Industries Ltd. vs. ITO [2025] 174 taxmann.com 223 (Bom), has taken a contrary view that Section 50C would extend even to a leasehold right in land. Therefore, for the purpose of completeness, we deem it appropriate to consider the same in the facts of the present case. We notice that the said decision was concerned with a registered leasehold interest created by a statutory development corporation and subsequently assigned by a registered deed of assignment, which is a right in rem carved out of the land itself, conferring possession and enjoyment. We are of the view that the said decision is distinguishable on facts, since in the present case the assessee held no registered interest in the land, but only a bare contractual right to sue for specific performance under an unregistered agreement, which never matured into any interest in the land itself. We accordingly hold that the ratio of Vidarbha Veneer Industries Ltd. (supra) does not apply to the facts of the present case.
11. In view of our findings above, we hold that in the present case the assessee has received the entire consideration only towards relinquishing the right to specific performance and the provisions of Section 50C of the Act are not applicable. Therefore, in our view the AO was not justified in invoking the said provisions for recomputing the long-term capital gain and we accordingly direct the AO to delete the addition made by recomputing the LTCG. Since we have held that Section 50C of the Act itself is not applicable, the manner in which the AO bifurcated the sum of Rs.2,00,00,000/- into a land component and a development-charges component for the purpose of that very re-computation, and the without prejudice submission of the Ld. AR that the variance between the stamp duty value and the consideration is within the tolerance limit, both stand subsumed in this finding and do not require separate adjudication. Similarly, the without prejudice contention of the Ld. AR that no transfer had taken place in the year under consideration does not survive for adjudication, since the assessee succeeds on the applicability of Section 50C of the Act, and this contention is accordingly left open.
12. In the result, the appeal of the assessee is allowed.
Order pronounced on 23rd day of September, 2026 at Chennai.
