Facts of the Case

The present appeal was filed by the Revenue challenging the order of the Income Tax Appellate Tribunal (ITAT), which upheld the decision of the Commissioner of Income Tax (Appeals) [CIT(A)].

The property in question, situated at Najafgarh Road, New Delhi, was originally owned by late Shri Jeewan Lal Virmani. During his lifetime, he had leased the property for 99 years to M/s ESS ESS Metals and Electricals.

Subsequently, after his death, his legal heirs transferred their undivided shares in the property to the respondent (assessee). Later, the respondent along with the lessee jointly sold the property for ₹35 crores, out of which ₹18 crores was received by the respondent and ₹17 crores by the lessee for surrender of leasehold rights.

The Assessing Officer (AO) treated the respondent as the sole owner and invoked Section 50C of the Income Tax Act, 1961, adding an amount on the ground that the sale consideration was less than the circle rate.

Issues Involved

  1. Whether Section 50C of the Income Tax Act, 1961 can be invoked when the total sale consideration exceeds the circle rate but is apportioned between different right holders.
  2. Whether the Assessing Officer can disregard leasehold rights and treat the assessee as the sole owner for taxation purposes.
  3. Whether bifurcation of sale consideration between related parties can be questioned without evidence of collusion.
  4. Whether ITAT erred in admitting additional evidence allegedly in violation of Rule 46A of the Income Tax Rules, 1962.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the respondent was the sole owner of the property and should have disclosed the entire sale consideration.
  • It was argued that the bifurcation of consideration between the respondent and the lessee was artificial and done to evade tax, especially since the parties were related.
  • The AO relied on Section 50C, asserting that the respondent received less than the applicable circle rate and hence addition was justified.
  • It was further argued that ITAT relied on additional evidence without complying with Rule 46A.

Respondent’s Arguments (Assessee)

  • The respondent submitted that the property was subject to a valid 99-year lease, and therefore, ownership rights were not absolute.
  • The total sale consideration was ₹35 crores, which was higher than the circle rate, thus Section 50C was not applicable.
  • The bifurcation of consideration was based on respective rights—ownership rights and leasehold rights—and was clearly recorded in the sale deed.
  • The Revenue cannot dictate how parties allocate sale consideration in a lawful transaction.

Court’s Findings / Order

The Delhi High Court dismissed the appeal filed by the Revenue and upheld the findings of CIT(A) and ITAT.

  • The assessee was not the absolute owner, as the property was subject to leasehold rights.
  • The total sale consideration (₹35 crores) exceeded the circle rate, hence Section 50C was wrongly invoked.
  • The Assessing Officer cannot determine or dictate the distribution of sale consideration between different right holders.
  • The leasehold rights held by M/s ESS ESS Metals and Electricals were valid and had independent value, justifying their share in consideration.
  • No evidence of collusion or tax evasion was established by the Revenue.
  • Concurrent findings of fact by CIT(A) and ITAT cannot be interfered with unless perverse.

Important Clarification

  • Section 50C applies only when the declared sale consideration is less than the circle rate, not when the total transaction value exceeds it.
  • In cases involving multiple rights (ownership + leasehold), the consideration must be evaluated holistically.
  • The Revenue cannot recharacterize contractual allocation of sale consideration without evidence of sham or collusion.
  • Leasehold rights are legally recognized interests and must be accounted for in property transactions.

Sections Involved

  • Section 50C, Income Tax Act, 1961
  • Section 48, Income Tax Act, 1961
  • Rule 46A, Income Tax Rules, 1962
  • Section 100, Code of Civil Procedure, 1908

 Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:3784-DB/NAC23112021ITA2272020_144049.pdf

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