Transfer of leasehold rights in land won’t attract Section 50C

Brief of the case:

The ITAT Mumbai in the case of Farid Gulmohamed vs. ITO held that the provisions of Sec 50C is applicable only to transfer of land of which the assessee is absolute and legal owner and cannot be applicable to the transfer of leasehold rights in land.Thus, the transfer value cannot be benchmarked to stamp duty value.

Facts of the case:

• The assessee filed his return of income for A.Y. 2010-11 on 21.07.2010 declaring income of 4,14,78,131/-.The return was processed under section 143(1) of the Income Tax Act, 1961 and the same subsequently picked up for scrutiny.
• AO observed that the assessee had assigned leasehold right in a property situated at 16, Napean Sea Road, Mumbai to M/s. Orbit Dwelling Pvt. Ltd. for a total consideration of Rs.90,00,000/-, whereas the market value of the said property was determined by the Stamp Valuation Authority, Mumbai at Rs.3,41,59,500/-
• AO was of the opinion that income escaped assessment due to the difference between the value of the property determined by the Stamp Valuation Authority and the consideration as declared by the assessee and based on such opinion AO initiated proceedings under section 147 of the Act to bring to tax income of the assessee which he had reason to believe escaped assessment.
• The assessment was completed determining the assessee’s income at Rs. 6,21,37,650/- wherein the AO invoking the provisions of section 50C of the Act computed the Long Term Capital Gain (LTCG) of the aforesaid property at Rs. 3,03,82,674/-.
• The CIT(A) also upheld the order of AO. Aggrieved assessee is in appeal before tribunal.
  

Contention of the Assessee:

• It was submitted that assessee is only holding leasehold rights in the said land and that he is not the owner of the land, the ownership of the land belongs to the Collector Mumbai. In Sec 50C the word “land” is only with respect to lands which are owned by the assessee as such and not to for o leasehold rights in land.
• Thus, the applicability of Sec 50C cannot be extended to transfer of leasehold rights.
  

Held by ITAT Mumbai:

• It is not in dispute that the foreshore land at Napean Sea Road, Mumbai is a leasehold land for which the leasehold rights were acquired on 27.11.1953 for a period of 99 years from the Governor of Bombay and the ownership of which vests in the Collector of Mumbai.
• Tribunal relied on its own decision in the case of Nadir Nazarali Dhanani IT Appeal No.-100/2013 dated 09.10.2015 wherein it was held that a considerable longer period of lease like that of 99 years makes assessee only a beneficial owner but not legal owner because the lease is subject to certain terms & conditions as stated in lease agreement which restrict assessee from absolute ownership and only confers lease hold rights. It is because in Sec 50C the  word “land” is only with respect to lands which are owned by the assessee as such and not to for o leasehold rights in land. Thus, the applicability of Sec 50C cannot be extended to transfer of leasehold rights.
• Therefore, the provisions of section 50 C would not apply as it require a person transferring rights to be absolute owner of land/building .
• Hence, the capital gains offered by the assessee by adopting the sale consideration actually received by him are to be taxed as such and not by applying the provisions of Sec 50C.
• In result the appeal of assessee was allowed.