Capital gains – Computation – Deeming provision in section 50C – Applicable only when there is actual transfer of land – Assessee acquiring right in land under agreement to purchase land – Sale of land to third party with consent of assessee – Section 50C not applicable

Capital gains – Computation – Deeming provision in section 50C – Applicable only when there is actual transfer of land – Assessee acquiring right in land under agreement to purchase land – Sale of land to third party with consent of assessee – Section 50C not applicable

The assessee was a dealer in land. On 23rd December, 2005, it had entered into an unregistered agreement with ‘N’ for purchase of land measuring 3,639.60 square metres for a consideration of Rs. 4.25 crores. Under the agreement, the assessee was neither handed over possession of the land nor was the power of attorney executed in his favour. ‘N’ sold the land in question by three sale deeds. In the first two transactions the assessee was not a party to the deed, whereas in the third transaction the assessee was a consenting witness. The assessee claimed the loss arising from the transaction as a business loss. The A.O. applied section 50C and made an addition to his income. This was upheld by the Tribunal.

The Karnataka High Court allowed the appeal filed by the assessee and held as under:

‘i) It is a well settled rule of statutory interpretation with regard to taxing statutes that an assessee cannot be taxed without clear words for that purpose and every Act of Parliament has to be read as per its natural construction of words.

ii) From a perusal of sections 2(47) and 50C it is axiomatic that Explanation 1 to section 2(47) uses the term “immovable property”, whereas section 50C uses the expression “land” instead of immovable property. Wherever the Legislature intended to expand the meaning of land to include rights or interests in land, it has said so specifically, viz., in section 35(1)(a), section 54G(1), section 54GA(1) and section 269UA(d) and Explanation to section 155(5A). Thus, section 50C applies only in case of transfer of land.

iii) Section 50C was applicable only in case of a transferor of land which in the instant case was ‘N’ and not a transferor or co-owner of the property. The provisions of section 50C were not applicable to the case of the assessee.

iv) The question whether the loss sustained by the assessee fell under the head “Business” or “Capital gains” required adjudication of facts.’