Facts of the Case

The assessees, being co-owners, sold immovable property for a consideration significantly lower than the stamp duty valuation adopted by the authorities. The Assessing Officer invoked Section 50C of the Income-tax Act and substituted the declared sale consideration with the higher stamp duty value for computing long-term capital gains.

The assessees contended that the land was Bhumidari land under the Uttar Pradesh land laws, wherein ownership vested in the State Government and they held only tenancy rights. Therefore, according to them, the transfer involved tenancy rights and not ownership of land, making Section 50C inapplicable.

Issues Involved

  1. Whether Section 50C applies to transfer of land where the assessee claims only tenancy (Bhumidari) rights.
  2. Whether the property transferred constituted ownership rights or merely tenancy rights.
  3. Whether different fair market values can be adopted for co-owners of the same property as on 01.04.1981.

Petitioner’s Arguments (Assessees)

  • The assessees argued that the land was Bhumidari land and ownership vested with the State Government.
  • They contended that they possessed only rights to use the land for agricultural purposes, amounting to tenancy rights.
  • It was submitted that Section 50C applies only to transfer of land or building ownership, not tenancy or leasehold rights.
  • Reliance was placed on legal provisions governing land reforms and judicial precedents dealing with transfer of leasehold rights.

Respondent’s Arguments (Revenue)

  • The Revenue contended that the sale deed described the assessees as absolute owners of the property.
  • It was argued that the land was free from encumbrances and not leasehold or government land at the time of sale.
  • Therefore, what was transferred was ownership of land, making Section 50C applicable.
  • The stamp duty valuation rightly represented the deemed full value of consideration.

Court Order / Findings (ITAT)

  • The Tribunal observed that if the assessees possessed only tenancy or leasehold rights, Section 50C would not apply to such transfer.
  • However, the sale deed indicated that the property was sold as freehold land without encumbrances.
  • Neither the Assessing Officer nor the assessees produced conclusive evidence regarding the actual legal status of the land at the time of transfer.
  • The Tribunal held that proper verification of the land status from State Revenue authorities was necessary.
  • Accordingly, the issue relating to applicability of Section 50C was set aside to the Assessing Officer for fresh adjudication after conducting proper enquiry.

Important Clarification

  • Section 50C applies only where ownership rights in land or building are transferred.
  • Transfer of mere tenancy or leasehold rights may fall outside its scope.
  • Determination of legal status of property at the time of transfer is crucial.
  • Uniform valuation principles must apply to co-owners of the same property.

Link to download the order - https://itat.gov.in/public/files/upload/1627639795-133%20and%20161.pdf

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