No section 50C on sale of TDR Rights

Quite often the actual sale consideration paid for acquiring immovable property is more than the sale consideration disclosed in the sale deed executed. In order to overcome the escapement of Capital Gain Tax on such transactions, Section 50C was introduced in the Statute, so as to at least adopt the market value of the State Revenue Authority as the sale consideration for the purpose of computing Capital Gain under the provisions of the Act. Section 50C provides that the capital gain will be chargeable to tax on the basis of stamp duty valuation if it exceeds Actual sale consideration. Question arises whether the same provision of section 50C will also be applicable in case the sale transaction is not of land and building but is of TDR. It may be recalled that the provisions of section 50C was introduced to curb the menace of unaccounted cash being infused in the real estate transactions.

There was an interesting case before ITAT Hyderabad in Sri Justice B. Subhashan Reddy (HUF) Vs ACIT wherein the issue of applicability of section 50C on the TDR & Rights to receive compensation was involved. ITAT noted that in the case of the assessee, the value of the property is already determined by the State Government which is coupled with certain TDS rights. ITAT observed as under:

1. It is pertinent to mention that no compensation is paid by way of cash for acquisition of the land in the case of both the assessees. Moreover considering the facts and circumstances of the case, it is apparent that the assessees have not actually transferred their immovable property consisting of land and building but have only transferred their right to receive the amount of the compensation and the TDR rights and both these asset do not fall under the category of immovable property. Further there is no finding by the Ld. Revenue Authorities that the market value of the TDR rights received by the assessees is at par with the SRO value of the property.
2. It is also evident that the transaction is a distress transaction causing mental agony due to loss arising out of land acquisition and wastage of land.
3. Keeping in view of all these facts and circumstances of the case, ITAT is of the considered view that the provisions of section 50C of the Act cannot be invoked in the hands of both these assessees. Hence, ITAT hereby set aside the order of the Ld. CIT (A) and direct the Ld. AO to delete the addition made invoking the provisions of section 50C of the Act in the case of both the assessees.

ITAT Hyderabad in Sri Justice B. Subhashan Reddy (HUF) Vs ACIT

COMPLETE ORDER

ITAT Hyderabad

Sri Justice B. Subhashan Reddy (HUF) Vs ACIT

ITA No.1680/Hyd/2018

Order Dated 22/07/2020

These appeals are filed by Shri B. Subhashan Reddy (HUF) and Smt. B. Ratna against the order of the Ld CIT (A) in appeal Nos.0072 & 0073/CIT(A)-1/Hyd/2015-16/2018-19, dated 01/05/2018 respectively for the AY 2007-08. Since both the appeals are with respect to related parties and on identical issues and grounds, for the sake of convenience they are taken up together for adjudication and disposed of by this common order.

2. Both the assessees have raised several identical grounds in their respective appeals however, the crux of the issue is that the Ld CIT (A) has erred in confirming the order of the Ld. AO who had unduly invoked the provisions of Section 50C of the Act.
3. The brief facts of the case are that the HUF of Justice B. Subhashan Reddy, and Smt. B. Ratna (Individual) filed their respective return of income on 31/7/2007 disclosing taxable income of Rs. 30,68,930/- and Rs. 29,72,240/- respectively. Both the cases of the assessees were reopened as it was observed that there is escapement of income since the SRO value of the property sold jointly by them was higher than the actual sale consideration received by both the assessees.
4. During the course of the scrutiny assessment proceedings in the case of both the assessees it was observed that the assessees had sold their property by executing a sale deed on 31/07/2006 wherein the sale consideration was disclosed as Rs.1,05,00,000/-. However, it was revealed that the SRO value of the property for the purpose of stamp duty was Rs.1,20,71,314/-. It was also observed that the purchaser of the property had paid the deficit stamp duty of Rs 8,44,510/- and the sale deed was registered. Therefore, it was opined by the Ld.AO that the provisions of section 50C of the Act shall come into operation and accordingly the sale consideration has to be enhanced by Rs. 7,85,657/- [(Rs. 1,20,71,314 – Rs. 1,05,00,000) / 2] by adopting the SRO value while computing the Capital Gains in the hands of both the assessee’s.
5. Both the assessees had explained before the Ld AO as follows:-

(i) The assessees had jointly sold their land admeasuring 405 sq. yds along with building thereon situated on the road side at Punjagutta Main Road.

(ii) The aforesaid property was notified for acquisition for road widening in the year 1998.

(iii) Due to the impending acquisition by the Government the property had lost its marketability.

(iv) The building constructed on the property was to be demolished due to the road widening.

(v) The area notified for acquisition by the Government vide letter dated 09/7/2006 was 291.83 sq.yds

(vi) The compensation proposed for the acquisition was only the benefit of reconstruction of compound wall, sump, borewell or any other structures other than the main building, structural compensation for the building as specified and TDR certificate as per Government GO so as to enable the assessees to utilise FAR of affected area on any other site within the limits of Municipal Corporation of Hyderabad.

(vii) Other than the aforesaid compensation, no other benefit was available to the assessee on the surrender of 291.83 sq.yds of land along with building. Thus, no compensation was paid for the acquisition of the land.

(viii) The balance land available to the assessee was 109.17 sq. yds which is waste land as it could not be utilised for any purpose.

(ix) Thus, the total compensation receivable by the assessees is Rs. 46,22,878/- along with the TDR Rights.

(x) In fact, both the assessees had transferred the property for a consideration of Rs. 1,05,00,000/- to the buyer of the property who in turn is only entitled to receive the TDS Rights and the amount of Rs. 46,22,878/- by virtue of the transfer of the property by both the assessees.

(xi) Therefore it was apparent the market value of the property transferred by the assessees is only Rs 1,05,00,000/- and the property transferred is actually the TDS rights and the amount of Rs. 46,22,878/- receivable by the assessees in future from the Government.

(xii) For the aforesaid reasons, the provisions of the section 50C of the Act will not be applicable in the case of the assessees.

6. However, the Ld.AO opined that the asset transferred by the assessees is land and building thereon and therefore, the provisions of section 50C of the Act will come into operation, accordingly he invoked the provisions of section 50C of the Act and adopted the sale consideration as Rs. 60,35,750/- (Rs. 1,20,71,500 / 2) and computed the taxable LTCG in the hands of each of the assessees at Rs. 35,25,683/-. Accordingly, taxable long term capital gain was enhanced by Rs. 7,85,657/- in the hands of each of the assessee.
7. On appeal, the Ld. CIT (A) confirmed the order of the Ld. AO by agreeing with his view.
8. At the outset, I do not find any merit in the orders of both the Ld. Revenue Authorities. It is pertinent to mention that the provisions of section 50C was introduced to curb the menace of unaccounted cash being infused in the real estate transactions. Quite often the actual sale consideration paid for acquiring immovable property is more than the sale consideration disclosed in the sale deed executed. In order to overcome the escapement of Capital Gain Tax on such transactions, Section 50C was introduced in the Statute, so as to at least adopt the market value of the State Revenue Authority as the sale consideration for the purpose of computing Capital Gain under the provisions of the Act. Further, to avoid genuine hardships to the assessee, the provisions of Section 50C(2) of the Act provided for referring the matter to the Valuation officer of the Revenue to determine the actual market value of the immovable property sold by considering all the relevant factors which may not have been considered by the State Valuatio Authority. In the case of the assessee, the value of the property is already determined by the State Government which is nothing but the amount of Rs. 46,22,878/- coupled with certain TDS rights. It is pertinent to mention that no compensation is paid by way of cash for acquisition of the land in the case of both the assessees. Moreover considering the facts and circumstances of the case, it is apparent that the assessees have not actually transferred their immovable property consisting of land and building but have only transferred their right to receive the amount of the compensation of Rs. 46,22,878/- and the TDR rights and both these asset do not fall under the category of immovable property. Further there is no finding by the Ld. Revenue Authorities that the market value of the TDR rights received by the assessees coupled with the amount of Rs. 46,22,878/- is at par with the SRO value of the property. It is also evident that the transaction is a distress transaction causing mental agony due to loss arising out of land acquisition and wastage of land. Keeping in view of all these facts and circumstances of the case, I am of the considered view that the provisions of section 50C of the Act cannot be invoked in the hands of both these assessees. Hence, I hereby set aside the order of the Ld. CIT (A) and direct the Ld. AO to delete the addition made invoking the provisions of section 50C of the Act in the case of both the assessees.
9. Before parting, it is worthwhile to mention that this order is pronounced after 90 days of hearing the appeal, which is though against the usual norms, I find it appropriate, taking into consideration of the extra-ordinary situation in the light of the lock-down due to Covid-19 pandemic. While doing so, I have relied on the decision of the Mumbai Bench of the Tribunal in the case of DCIT Vs. JSW Ltd., in ITA Nos.6264/M/2018 and 6103/M/2018 for AY.2013-14, order dated 14^thMay, 2020.
10. In the result, both the appeals of the assessees are allowed.

Order pronounced in the open court on 22-07-2020