Vanraj Ranchhoddas Merchant Vs ITO (ITAT Mumbai)
Section 50C Can’t Tax Life Interest: ITAT Mumbai Deletes Addition on Assignment of Trust-Based Life Interest
Mumbai ITAT allowed the appeal of Vanraj Ranchhoddas Merchant (through legal heir) for AY 2011-12 and held that section 50C is not applicable to transfer of a mere life interest in immovable property held under a trust
The Assessee had assigned 10% undivided life interest in an ancestral trust property at Colaba, Mumbai, for ₹28 lakh. While the AO invoked section 50C based on stamp-duty valuation and the CIT(A) sustained the addition by adopting the DVO value of ₹80.04 lakh, the Tribunal examined the true legal nature of the interest transferred.
On detailed analysis of the assignment deed, the Tribunal held that what was transferred was only a limited, determinable life interest, and not land or building or both. The ownership of the property continued to vest in the trust, and the Assessee had no dominion over the corpus. Relying on principles under the Transfer of Property Act and Indian Trusts Act, the Bench held that a life interest is non-heritable, extinguishable on death, and fundamentally distinct from ownership or leasehold rights.
The Tribunal distinguished the Bombay High Court ruling in Vidarbha Veneer Industries Ltd. (leasehold rights) and followed the Karnataka High Court judgment in V.S. Chandrashekar v. ACIT, reiterating that section 50C, being a deeming provision, must be strictly construed and cannot be extended to transfer of rights or life interest in property.
Accordingly, the ITAT directed deletion of the entire addition of ₹80.04 lakh made u/s 50C, holding that the provision is attracted only when the capital asset transferred is land or building itself, and not a limited life interest arising under a trust.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
