Recently, the Mumbai bench of Income-tax Appellate Tribunal (the Tribunal) in the case of Arif Akhatar Husssain (ITA No. 541/Mum/2010) held that the provisions of Section 50C of the Income-tax Act, 1961 (the Act) is applicable to the capital gains arising on transfer of Development Rights by the taxpayer.
Section 50C of the Act, provides that if the consideration received or accruing to a taxpayer on transferring of any land or building is less than the value adopted by any Stamp Valuation Authority for the purpose of payment of stamp duty in respect of such transfer, the value so adopted shall be considered as full value of consideration.
Facts of the case
• Brief facts of the case are that during the year under consideration, the taxpayers along with other co-owners transferred the development rights to a developer for development of a inherited property for the consideration of INR 63 lakhs. The tax payer offered the gains arising thereof based on share allocable in the sale consideration of INR 63 lakhs.
• The Stamp Valuation Authority valued the property at INR 4,73,48,000. The Assessing Officer (AO) invoked the provisions of section 50C of the Act and applied the sale consideration as per the valuation made by Stamp Valuation Authority for computing capital gains. The same was revised downward considering the value assigned by the DVO of INR 1,81,34,749 under section 50C(2) of the Act.
• The Commissioner of Income-tax (Appeals) upheld the order of the AO.
• The taxpayer contended that the provisions of Section 50C of the Act are not applicable as the capital gains earned were due to transfer of ‘development rights’ and not from sale of land or building.
• The taxpayer contended that stamp duty was charged as per the rate prescribed for development agreement and not for any sale of land or building or both.
• The taxpayer argued that he is still owner of the property since as per the Municipal Records, the property tax is still in the name of the taxpayer.
• The stamping Valuation Authority had levied stamp duty at the rate of 1 percent (applicable to development agreements) vis-à-vis 5 percent rate applicable to conveyances relating to the transfer of land.
• The Tribunal observed that as the taxpayers themselves had offered the capital gains against the transfer of property in the relevant year.
• The Tribunal has observed that the Act does recognize situations of “deemed transfer” under section 2(47)(v) of the Act. Under section 2(47)(v) of the Act, part performance of contract under section 53A of the Transfer of Property Act is considered as a taxable transfer of property and results in capital gains to the taxpayer irrespective of transfer of title.
• The Tribunal dismissing the assessee’s appeal has held that When the assessee (taxpayer) has received the sale consideration and handed over the possession of the property in question vide development agreement then the condition prescribed under section 53A of the Transfer of Property Act are satisfied and accordingly, as per the provisions of section 2(47)(v) of the IT Act the transaction of transfer is completed. Merely because the name of the assessee still stands in the record of the municipal record does not change the nature of the transaction.
This decision creates uncertainty for the real estate industry where only right in the land or building is transferred without transfer of land or building.
The Tribunal order is not a very well reasoned order and does not provide the complete facts of the case and the reason for applying section 53A of the transfer of property Act. However, the tax authorities could propose to rely on this decision to instances where the land is eventually not transferred such as sale of transferable development rights (TDR) or transfer of development rights in redevelopment scheme etc.