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Renu Hingorani vs. ACIT (ITAT Mumbai) – The AO had not questioned the actual consideration received by the assessee but the addition was made purely on the basis of the deeming provisions of s. 50C. The AO had not doubted the agreement or given any finding that the actual sale consideration was more than the sale consideration stated in the sale agreement. The fact that the assessee agreed to the addition is not conclusive proof that the sale consideration as per agreement was incorrect and wrong. Accordingly, there was no concealment of income or furnishing inaccurate particulars of income.
It was held that transfer of development rights does amount to transfer of land or building and therefore s. 50C is applicable is applicable because u/s 2(47)(v) the giving of possession in part performance of a contract as pers. 53A of the Transfer of property Act is deemed to be a transfer.
The Mumbai bench of Income-tax Appellate Tribunal (the Tribunal) in the case of Kishori Sharad Gaitonde v ITO (ITA No. 1561/M/09) held that for attracting the provisions of Section 50C of the Income-tax Act, 1961 (the Act) a capital gains should arise from the sale of land or building or both. However, since in the present case the taxpayer earned capital gains from the transfer of tenancy right which is not a capital asset, being land or building or both, the Tribunal held that Section 50C of the Act was not applicable to the instant case.
Capital gains-Scope of section 50C-Extension of section 50C to purchaser-Section 50C creates a legal fiction for taxing capital gains in the hands of the seller and it cannot be extended for taxing the difference between apparent consideration and valuation done by Stamp Valuation Authorities as undisclosed investment under section 69. This fiction cannot be extended any further and, therefore, cannot be invoked by AO to tax the difference in the hands of the purchaser.
The Assessing Officer added the difference between purchase price disclosed in the sale deed and purchase price of the property adopted for the purpose of paying the stamp duty to the total income of the assessee as income from unexplained sources. The Commissioner of Income-tax (Appeals) deleted this addition by holding that section 50C is a deeming provision for the purpose of bringing to tax the difference as capital gain.
Section 50C creates a legal fiction for taxing capital gains in the hands of the seller and it cannot be extended for taxing the difference between apparent consideration and valuation done by Stamp Valuation Authorities as undisclosed investment u/s 69 in the hands of the purchaser.
Section 50C containing very harsh and controversial provisions is one more attempt by the Government to bring to revenue the unaccounted portion of the property transactions. Earlier, we had Chapter XXA from 5-11-1972 to 30-9-1986 providing for acquisition of immovable property by the Government when it was found that fair market value was higher than the consideration stated in instrument of transfer.
It is not in dispute that the activity of the assessee is of property promoter. As the property in the hands of the assessee was treated as business asset and not as capital asset, there is no question of invoking the provisions of section 50C of the Act. Section 50C of the Act pertains to determining the full value of the capital asset. The appeal is, therefore, dismissed.
The solitary issue urged in these two appeals is that Whether the Learned CIT(A) is right in law in confirming the action of the Assessing Officer in invoking the provisions of section 50C in the case of both the assessees.
The assessee, a partnership firm, filed its return of income for asst. year 2006- 07 declaring the income under the head Capital Gains at Rs. 28,767,565/-, which are related to the gains obtained on sale of three immovable properties.
