By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi
Chartered Accountants
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Section 50C – Provisions of section 50C are not applicable
to transfer of development rights in land.
Facts
The
assessee company owned a plot of land at Panchpakdi, thane, in respect of which it entered into a
development agreement with m/s. Sheth developers Pvt. Ltd.,
on 8.6.2004. In
the return of
income filed by the assessee,
long term capital gains arising as a result of entering into the development
agreement were computed with reference to consideration mentioned in the
agreement.
During
the course of assessment proceedings, the Assessing Officer (AO) asked the
assessee to show cause why sales consideration should not be substituted with
the value adopted by the stamp valuation authority in view of section 50C of
the act. In response, the assessee objected to the value adopted by the stamp
valuation authority and also objected to the very invoking of section 50C of
the act upon the impugned transaction of sale of development rights.
The
AO referred the matter to District Valuation Officer for valuation of the sales
consideration as well as cost of acquisition of the property. But,
valuation report of the dvo was
not received by the ao till conclusion of
the assessment proceedings
and therefore the ao adopted value of stamp valuation
authority and substituted it with actual sales consideration shown by the assessee
and computed the long term capital gains on sale of development rights of the
land accordingly. Subsequently, upon receiving the valuation from the DVO, the
AO rectified the assessment order by passing an order u/s.154 of the Act.
Aggrieved,
the assessee filed an appeal to the CIT (A) who upheld the action of the AO.
Aggrieved,
the assessee preferred an appeal to the Tribunal where it, interalia, contended
that the transaction of sale of development rights is not covered u/s 50C.
Held
The
Tribunal Held that the scope of term ‘capital asset’ mentioned in the section
50C specifically refers and confines its meaning to ‘land or building or both’.
The scope of section 50C is restricted by the legislature itself to these two
types of capital assets only.
It
noted that the capital asset transferred by the assessee was ‘development rights in the land’
and not the ‘land’
itself.
The Tribunal having noted a few other similar
provisions of the act found that in section 269a and section 269UA ‘rights’ in
`land & building’ have been specifically included as per requirement of
these sections. It concluded that term ‘land & building’ and ‘rights
therein’ have been clearly understood and treated as independent from each
other. A perusal of the definitions given in these sections when compared with
section 50C shows that legislature was conscious about the proper expression to
be used as per its intention, scope, object and purpose of the section 50C,
wherein it has been expressly mentioned that capital asset should be ‘land or
building or both’. It has not been mentioned that any type of ‘rights’ shall
also be included in the definition of capital assets to be transferred by an
assessee.
Since
the provisions of section 50C are deeming provisions, the settled law and well
accepted rule of interpretation is that deeming provisions are to be construed
strictly. While interpreting deeming provisions neither any words can be added
nor deleted from language used expressly. The Tribunal Held that the ‘rule of
Strict interpretation’ as well as ‘rule of literal Construction’ should be
applied while understanding the meaning and scope of deeming provisions. it
Held that the provisions of section 50C have been wrongly applied to the
impugned transaction since the capital asset transferred by the assessee, upon
which long term capital gain has been computed by the ao, is development rights
in the land of the assessee. The land itself has not been transferred by the
assessee. The Tribunal reversed the action of lower authorities in applying the
provisions of section 50C and in substituting any value other than the amount
of actual sales consideration received by the assessee.
This
ground of the appeal filed by the assessee was allowed.
