When Two Views are Possible, View Favouring Assessee to Prevail – ITAT Delhi Holds Section 56(2)(vii) Inapplicable to Purchase of Leasehold Rights

 

Rajesh Kumar Sharma v. CIT(A)/NFAC, Delhi (ITA No. 1785/Del/2025)

Facts

1.  The assessee had purchased a residential flat during the relevant previous year for a consideration of ₹33,76,625. The stamp duty valuation adopted by the Sub-Registrar for the said flat was ₹55,72,000.

2.  The Assessing Officer, in reassessment proceedings under Section 147, invoked the provisions of Section 56(2)(vii)of the Income Tax Act, 1961, and treated the difference of ₹21,95,375 (₹55,72,000 – ₹33,76,625) as income from other sources. The CIT(A)/NFAC, Delhi, in order dated 03.08.2023, upheld the addition made by the Assessing Officer.

3.  Before the Tribunal, it was contended that the assessee had purchased leasehold rights in the flat and not ownership of land or building, and hence Section 56(2)(vii) was not applicable.

4.  The Department, however, argued relying on Vidarbha Veneere Industries Ltd. v. ITO (2025) 174 taxmann 223 (Bom.), that even transfer of leasehold rights attracts the provisions of Section 56(2)(vii).

5.  The assessee, on the other hand, relied upon V.S. Chandrashekar v. ACIT (2021) 129 taxmann 273 (Karnataka HC), wherein it was held that Section 50C (and by parity Section 56(2)(vii)) applies only to transfer of “land or building”, not to leasehold rights.

Delhi ITAT held as below:

1.  CIT(A)/NFAC had itself extracted the contents of the sale/purchase deed, which clearly showed that the transaction related to lease rights and not ownership of land or building.

2.  Section 56(2)(vii) Explanation (d)(i) defines “property” as land or building or both, and not leasehold rights.

3.  Section 56(2)(vii) is pari materia with Section 50C, which similarly applies only to land or building, and not to transfer of lease rights.

4.  In view of conflicting decisions of non-jurisdictional High Courts – Karnataka High Court (in favour of assessee) and Bombay High Court (against assessee) – the Tribunal applied the Supreme Court ruling in CIT v. Vegetable Products Ltd. (1973) 88 ITR 192 (SC), which holds that where two interpretations are possible, the one favourable to the assessee should be adopted.

5.  Accordingly, the addition of ₹21,95,375 made under Section 56(2)(vii) is hereby deleted.

The copy of the order is as under:

1759147025-UeFJa3-1-TO