Section 49(1), section 50C — Once a particular amount is considered as full value of consideration at the time of its purchase, the same shall automatically become the cost of acquisition at the time when such capital asset is subsequently transferred — Section 50C applies to a capital asset being ‘land or building or both’ and not to ‘any right in land or building or both’ — Leasehold rights in plot of land is not ‘land or building or both’ — Section 50C does not apply to leasehold rights.
Facts:
On 16-8-2004, the assessee was allotted leasehold rights in a plot of land for a period of 60 years under ‘12.50% Gaothan Expansion Scheme’. The allotment was in lieu of agricultural land owned by the assessee’s father which land was acquired by the Government of Maharashtra. The lease agreement, in favour of the assessee, was executed on 8-8-2005. On 25-8-2005, the assessee transferred its rights in the said plot for a consideration of Rs.2.50 crore. In the return of income, the assessee took the stand that since the plot which was transferred by the assessee was received in consideration for agricultural land which was not a capital asset, this plot is also not a capital asset and hence gain on its transfer is not chargeable u/s.45 of the Act. Alternatively, it was contended that the market value of the plot on the date of its allotment to the assessee be taken to be its cost of acquisition. The Assessing Officer (AO) held that though the original land was agricultural, the allotted land was not agricultural and therefore the land transferred was capital asset. He held that by virtue of section 49, the cost of acquisition of original land in the hands of the assessee’s father has to be regarded as the cost of acquisition of the land transferred by the assessee. Also, he invoked the provisions of section 50C and considered the market value of land as per stamp valuation authorities to be full value of consideration.
Aggrieved, the assessee preferred an appeal to the CIT(A) who upheld the action of the AO.
Aggrieved, the assessee preferred an appeal to the Tribunal.
Held:
(1) There were two distinct transactions — the first was the acquisition by the Government of land belonging to the assessee’s father, against which the assessee, as legal heir, was given lease of plot on 16-8-2004. This transaction got completed when the assessee got the leasehold rights viz. on 16-8-2004. The second transaction was transferring, on 25-8-2005, leasehold rights in the plot for a consideration of Rs.2.50 crores. The second asset i.e., leasehold rights in the plot cannot be categorised as agricultural land within the meaning of section 2(14)(iii) of the Act.
(2) The sole criteria for considering whether the asset transferred is capital asset u/s.2(14) or not is to consider the nature of asset so transferred in the previous year and not the origin or the source from which such asset came to be acquired. The second asset i.e., the leasehold rights in the plot cannot be categorised as agricultural land within the meaning of section 2(14)(iii) of the Act. Hence, gains arising on transfer of leasehold rights were chargeable to tax u/s.45 of the Act.
(3) Section 49(1) provides that where a capital asset becomes the property of the assessee by any of the modes specified in clauses (i) to (iv), such as gift or will, succession, inheritance or devolution, etc., the cost of acquisition of such capital asset in the hands of the assessee receiving such capital asset shall be deemed to be the cost for which it was acquired by the person transferring such capital asset in the prescribed modes. In order to apply the mandate of section 49(1), it is a sine qua non that the capital asset acquired by the assessee in any of the modes prescribed in clauses (i) to (iv) should become the subject matter of transfer and only in such a situation where such capital asset is subsequently transferred, the cost to the previous owner is deemed as the cost of acquisition of the asset. Once such capital asset is transferred and another capital asset is acquired, there is no applicability of section 49(1) to such converted asset. The lower authorities erred in applying the provisions of section 49(1) to transfer of leasehold rights.
(4) Since the market value of the leasehold rights, on the date of allotment, constituted full value of consideration for transfer of lands belonging to the assessee’s father, the cost of acquisition of leasehold rights will be its market value on the date of allotment. Once a particular amount is considered as full value of consideration at the time of its purchase, the same shall automatically become the cost of acquisition at the time when such capital asset is subsequently transferred.
(5) Section 50C is a deeming provision which extends only to land or building or both. Deeming provision can be applied only in respect of the situation specifically given and hence cannot go beyond the explicit mandate of the section. The distinction between a capital asset being ‘land or building or both’ and any right in land or building or both is well recognised under the Income-tax Act. The deeming fiction in section 50C applies only to a capital asset being land or building or both, it cannot be made applicable to lease rights in land. As the assessee had transferred lease rights for sixty years in the plot and not land itself, the provisions of section 50C cannot be invoked.
The appeal filed by the assessee was allowed.
