Section 50C – Provisions of section 50C are not applicable to introduction of development rights as capital contribution in an AOP of which assessee is a member

2. 119 taxmann.com 186 (Mum.)(Trib.) Network Construction Company vs. ACIT ITA No. 2279/Mum./2017 A.Y.: 2012-13 Date of order: 11^th August, 2020

Section 50C – Provisions of section 50C are
not applicable to introduction of development rights as capital contribution in
an AOP of which assessee is a member

FACTS

The assessee firm
acquired development rights in respect of seven buildings of which the assessee
firm developed and sold four on its own and disclosed the profit earned as
business profit in its return of income. The development rights in respect of
the remaining three buildings were shown as investments in the balance sheet as
at 31^st March, 2010.

As per the joint
venture agreement dated 1^st July, 2010, the assessee contributed
development rights in respect of three buildings as ‘capital contribution’ in
an AOP for an agreed consideration of Rs. 5 crores. The assessee contended that
the capital gains were to be computed in accordance with the provisions of
section 45(3).

The A.O. treated
the introduction of the development rights as a transfer and computed capital
gains by applying the provisions of section 50C by adopting Rs. 10,10,47,000,
being stamp duty value of these rights, as the full value of consideration.

Aggrieved, the
assessee preferred an appeal to the CIT(A) who confirmed the action of the AO.

The assessee
preferred an appeal to the Tribunal.

HELD

The Tribunal
observed that section 45(3) is a charging provision having two limbs joined by
the conjunction ‘AND’. The first limb is a charging provision which levies
capital gains tax on gains arising from the contribution of a capital asset in the
AOP by a member, and the second limb is an essential deeming fiction for
determining the value of consideration without which the charging provision
would fail. The Tribunal also observed that the provisions of section 50C are
also a deeming fiction which deems only the value of consideration for the
purpose of calculating capital gains in the transfer of a capital asset from
one person to another. It held that the provisions of section 50C are not
applicable in the present case and that the provisions of section 45(3) will be
applied.

The Tribunal
reversed the orders of the A.O. and the CIT(A) and allowed this ground of
appeal filed by the assessee.