Section 50C was introduced in the Income Tax Laws vide Finance Act 2002 as a measure to curb the incidence of unaccounted money in immovable property transactions via undervaluation. The section seeks to tax sale of immovable properties at lower of the agreement value or the prevailing stamp duty value. The transactions/assets covered under the section are land, building or both, being held as a capital asset. A new deeming section was bound to bring in a great deal of litigation – issues such as applicability to immovable assets held as stock-in-trade, to unregistered transfers, long term leases, leviability of penalty on non-compliance of the deeming section, amount to be invested to be eligible for capital gains exemption benefits, etc. arose, to name a few. With the introduction of sec.43CA, which seeks to tax business assets in a manner similar to sec.50C, the Government has managed to combat one issue, while other issues continue to be litigated in courts.

The Taxsutra Database editorial team has, in this insight, made an effort to compile the important rulings on section 50C in the past three years.

1. [TS-5054-ITAT-2017(CHANDIGARH)-O] : Transfer through unregistered sale deed : ITAT quashes invocation of sec.50C on land transfer through unregistered sale deed pre-2009 amendment – Chandigarh ITAT allows assessee-individual’s claim of long term capital loss on transfer of plot to his nephews during AY 2009-10, rejects Revenue's application of sec.50C to an unregistered document; ITAT observes that in assessee’s case, no consideration was ‘assessed’ by Stamp Valuation Authority as no sale deed or agreement was registered.... Read More

2. [TS-6635-ITAT-2016(VISAKHAPATNAM)-O] : Relevance of stamp duty value for exemption u/s. 54 : Investment of actual sale proceeds, not deemed consideration u/s 50C, relevant for exemption u/s 54 – Visakhapatnam ITAT allows exemption u/s 54 to assessee-doctor for investing net sale consideration on sale of residential property during AY 2007-08 in construction of new residential house property; Though ITAT approves application of deeming fiction u/s 50C for computing capital gains, it clarifies that assessee needs to invest the sale proceeds, and not the full value of consideration u/s 50C in the new property for claiming sec.54 exemption....Read More

3. [TS-6252-ITAT-2016(AHMEDABAD)-O] : Relevant date to consider the stamp duty valuation : Sec. 50C amendment removing hardship by implementing Easwar Committee recommendations, held retrospective - Ahmedabad ITAT deletes addition u/s 50C (relating to substitution of sale consideration with stamp duty valuation) while computing capital gains on transfer of land by assessee-individual during AY 2008-09; Assessee had entered into ‘agreement to sell’ land in June, 2005, but the sale deed could be executed only in April, 2007, AO adopted the stamp duty value as on April 24, 2007 and made addition u/s 50C; ITAT accepts assessee’s stand that amendment to sec.50C should be treated as retrospective in nature, and accordingly, stamp duty valuation as on ‘agreement to sell’ date, and not sale deed execution date should be considered...Read More

4. [TS-6185-ITAT-2016(MUMBAI)-O] : Applicability of sec.50C to Development Rights : ITAT applies sec.50C to builder's land transfer; Cites intent to hold for long term to earn appreciation - Mumbai ITAT upholds AO’s invocation of sec.50C (which deems stamp duty valuation as full value of consideration) with respect to alleged transfer of development rights in land by assessee-firm (a builder/developer) during AY 2007-08, rejects assessee’s stand that gains were assessable as ‘business income’; ITAT observes that assessee was fully aware at the time of acquisition in 1994 itself that development of land and construction of building thereon was not possible in the near future in view of several encumbrances and defects in the land title; further, assessee did not demonstrate that it had any project conceived to be undertaken on this land...Read more

5. [TS-5698-ITAT-2016(AHMEDABAD)-O] : Transfer of 'rights in land': Relinquishment of rights in land not land or building; sec.50C inapplicable - ITAT allows assessee’s appeal for AY 2006-07, holds that deeming provisions of sec.50C shall not be applicable to transfer of rights in land by the assessee “which cannot be equated to land or building or both”; Revenue had adopted stamp duty value of registered sale deed as full value of consideration in terms of sec.50C, and had thus re-computed capital gains; Observes that sec. 50C is a deeming provision and extends only to land or building or both, thus rules that “deeming provision can be applied only in respect of the situation specifically given and, hence, cannot go beyond the explicit mandate of the section”...Read more

6. [TS-6233-ITAT-2016(AHMEDABAD)-O] : Relevant date to consider the stamp duty valuation : Date of entering into ‘agreement to sell’ to be considered for arriving at consideration u/s 50C, and not date of registration of sale deed - ITAT rules partly in favour of assessee; Holds that rates applicable on day of assessee extinguishing his right ought to be applied for determining value of the property for computing capital gains; Notes on examining the sale deed that assessee had extinguished his right in the property when this agreement was executed, as the vendee could enforce the agreement by way of suit for specific performance and hence,right to obtain sale deed executed had accrued in favour of the vendee...Read more

7. [TS-6663-ITAT-2016(MUMBAI)-O] : Penalty for non-compliance of sec.50C : Penalty u/s271(1)(c) not leviable on difference between DVO valuation and actual sale consideration – ITAT holds penalty for concealment cannot be levied as the DVO value is deemed to be the full consideration for chargeability to capital gains tax owing to deeming fiction of sec.50C, however sustains penalty on the difference between actual sale consideration and the purchase price; Rejects assessee’s defence of ‘Bonafide belief’ that transferred land was an agricultural land exempt from tax u/s54B, since the land in question was in fact an industrial land located in MIDC area...Read more

8. [TS-5-ITAT-2015(DEL)-O] : Relevant rate to consider the stamp duty valuation : Circle rate prevailing on transaction date relevant for sec.50C; Follows Vishkhapatnam ITAT in Lahiri - Circle rate prevailing on sale deed execution date, not registration date, relevant for determining deemed sale consideration u/s 50C; Notes dispute arose owing to difference in circle rate prevalent at the time of entering into landsale agreement and registration of saledeed....Read more

9. [TS-68-ITAT-2015(DEL)-O] : Undiclosed Investment u/s. 69B : Mere invocation of sec. 50C valuation not tantamount to "investment understated" u/s. 69B - ITAT deletes s 69B addition (for undisclosed investment) made merely on basis of DVO’s report, holds Revenue has to prove understatement of consideration with cogent evidence; Further observes that sec 50C (a deeming provision) which provides for reference to DVO, is applicable to the seller of the property who has to compute capital gains u/s 48 pursuant to the transfer”...Read more

10. [TS-6469-ITAT-2015(Pune)-O] : Long term lease : 99-year leasehold right is capital asset, but sec 50C valuation inapplicable - ITAT rules that transfer of 99-year leasehold right in land does not attract sec 50C (which deems stamp-valuation as full value of consideration); While leasehold rights in land is a capital asset, ITAT holds every kind of ‘capital asset’ not covered within scope of sec 50C; Noting the heading of sec 50C, “Special provision for full value of consideration in certain cases”, ITAT opines that “only capital asset being land or building or both are covered within the scope of section 50C”,,,Read more

11. [TS-114-ITAT-2015(MUM)-O] : Applicability of sec.50C while computing WDV : Sec 50C applicable to 'building' but not while computing WDV; Distinguishes United Marine - ITAT rules stamp valuation u/s 50C not relevant while computing WDV on sale of asset forming part of block of assets ‘Building’; Distinguishes Revenue’s reliance on Mumbai ITAT SB ruling in United Marine Academy; Holds the SB ruling has no application in present case as it had merely held that sec 50C shall equally apply in respect of depreciable assets and that “the deeming of sec 50C is for the limited purpose for computing the capital gains u/s45 r.w. sec 48… the WDV would have to be necessarily computed in terms of sec 43(6), and for which section 50C has no application.”...Read more

12. [TS-525-ITAT-2013(MUMBAI)-O] : Applicability of sec. 43CA before April 2014 : ITAT rejects application of stamp value u/s 50C / sec 43CA to business assets before April 2014 - No addition warranted for assessee, a builder / developer, qua difference in stamp value and actual sale consideration of flats sold; Applying sec50C to substitutestamp value not applicable in case of business income; Parallel provision for business income, i.e., Sec 43CA applicable only from April 1, 2014; Also rejects CIT(A)'s application of Sec 56(2)(vii)(b)(ii) which is in context of 'Income from other sources'....Read more

13. [TS-6757-ITAT-2013(DELHI)-O] : Applicability of sec.50C to tenancy rights : ITAT agrees with co-ordinate benches, sec 50C not applicable to transfer of tenancy rights - Sec 50C applies only to transfer of a capital asset, being land or building or both; Not applicable to transfer of lease rights in land; Transfer of lease rights does not involve approaching Stamp Duty Valuation authorities for payment of stamp duty; Co-ordinate bench rulings in Carlton Hotels; Atul G Puranik and Tejinder Singh followed....Read more

14. [TS-2-ITAT-2013(MUM)-O] : Sec 54F exemption against deemed sale consideration u/s 50C : ITAT allows capital gains exemption u/s 54F on deemed sale consideration u/s 50C –Sec 54F exemption from capital gains for investment in residential property allowed against deemed sale consideration on sale of land u/s 50C; Investment in new asset higher than stamp duty value adopted u/s 50C; Various ITAT rulings suggesting exemption not available against deemed consideration distinguished; Assessee (Raj Babbar)'s residential bungalow of ground plus four floors consists of "one residential property" due to one common kitchen....Read more

15. [TS-177-ITAT-2011(AHD)-O] : Re-working of stamp duty valuation u/s.50C : AO cannot re-compute stamp duty value u/s 50C - AO cannot re-compute stamp duty valuation adopted at the time of registration for capital gains u/s 50C...Read More

16. [TS-5283-ITAT-2010(Chennai)-O] : Value u/s. 50C of a Disputed Property : The DVO, while arriving at the value of a property u/s. 50C(2), is bound to consider the drag in its market value caused due to dispute in title of the property – ITAT holds in favour of the assessee; Accepts order of the CIT(A) who held that assessee having objected to the adoption of a higher value as fixed by the stamp valuation authority, Assessing Officer was duly bound to refer the valuation of the asset to the department valuation wing u/s. 50C....Read more