Vildirect: IncomeTax-caselaws-2020-VIL-1046-ITAT-KOL

2020-VIL-1046-ITAT-KOL

Income Tax Appellate Tribunal KOLKATA

I.T.A. No. 1945/Kol/2019

Date: 17.01.2020

RITZ SUPPLIERS PVT. LTD.

ITO, WARD-12 (3) , KOLKATA.

For the Appellant : Sh. Rahul Tangri, Adv.
For the Respondent : Sh. Jayanta Khanra, JCIT, Sr. DR

BENCH

Shri A. T. Varkey, JM

JUDGMENT

PER SHRI A.T.VARKEY, JM:

This is an appeal preferred by the assessee against the action of the CIT(A)-4, Kolkata dated 10.06.2019 u/s 250 of the Income Tax Act, 1961 (hereinafter ‘the Act’) for Assessment Year (hereinafter ‘AY’) 2016-17.

2. Though the assessee has preferred 9 grounds, the main and the only effective ground raised by the assessee reads as under:

“That on facts and circumstances of the case, the Ld. Commissioner of Income Tax(Appeals) (hereinafter referred to as the ‘Ld. CIT(A)’), vide the impugned order dated 16.06.2019, has erred on facts and in law in upholding and confirming the addition of Rs. 24,28,372/- under Section 50C of the Income Tax Act, 1961 and the disallowance of longterm capital loss of Rs. 14,72,545/- made by the Ld. Assessing Officer (hereinafter referred to as ‘Ld. AO’) vide the assessment order dated 12.11.2018 under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).”

3. Brief facts of the case as stated by the AO is that “During the FY 2015-16, the assessee company sold a property in the form of a shop at Unit No.209 on the first floor of Dreamplex Airconditioned Mall, City Centre, Durgapur, on 08.04.2015 for a consideration of Rs. 1,25,92,000/-. Verification of records revealed that the Stamp Valuation Authority had valued the said property at Rs. 1,64,89,440/-. When asked as to why the value adopted by the Stamp Valuation Authority shall not be considered as the full value consideration for the purpose of Sec.50C of the I.T. Act, the A/R of the assessee produced a calculation of capital gain and stated that in view of the fact that only the leasehold right in land has been transferred and it is not a transfer of land or building or both, the case of the assessee does not fall under the purview of Sec.50C of the I.T. Act.”

4. The AO after considering the reply of the assessee analysed the facts as under:

“3.3. In view of the above discussion, the following facts emerge:

a) The assessee leased out an immovable property.

b) The property is in the form of a shop.

c) The assessee claims to have received a consideration of Rs. 1,25,92,000/-.

d) The stamp valuation of the property was Rs. 1,64,89,440/-.

3.4. Provision of Sec50C provides that where the consideration declared to be received or accruing as a result of the transfer of LAND or BUILDING or BOTH is less than the value adopted or assessed or assessable by any Authority of State Govt.

For the purpose of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall be deemed to be the full value of consideration and capital gain shall be computed on the basis of such consideration U/s 48 of the I.T. Act.”

5. Thereafter the AO discussed few case laws and concluded as under:

“In view of the above, an amount of Rs. 24,28,372/- is added back to the total income of the assessee as long term capital gain. Accordingly, the Long Term Capital Loss claimed by the assessee to the tune of Rs. (-) 14,72,545/- is disallowed. Consequently, the assessee is not allowed to carry forward the LTCL to the tune of Rs. (-) 14,72,545/- in subsequent years.

6. Aggrieved, by the addition of Long Term Capital Gain (LTCG) at Rs.24,28,372/- the assessee preferred an appeal before the ld. CIT(A) who was pleased to confirm the order of the AO and dismissed the appeal of the assessee. Aggrieved, the assessee is before us.

7. Assailing the decision of the ld. CIT(A) the ld. AR of the assessee contended that the assessee is a private limited company and in the year 2010, the assessee had purchased the leasehold rights in a fully constructed shop located at Unit No.209 on the 1st floor, Dreamplex Air-conditioned Mall, Durgapur, West Bengal with super built-up area admeasuring 2376 sqft. According to ld. AR the said Mall was constructed by Bengal Shristi Infrastructure Development Ltd., (the Developer), which is a joint venture Company held by M/s. Shristi Infrastructure Development Corporation Ltd. and Asansol Durgapur Development Authority. The lease of the land for the development of the project was granted by the Governor of West Bengal acting through the Special Officer, Urban Development (Town and Country Planning) Department, Government of West Bengal (lessor).

8. It was brought to my notice that the transfer of leasehold rights of the said Unit to the assessee was affected by way of a lease-cum-transfer deed dated 12.11.2010.

According to ld. AR by virtue of the said deed, the assessee became entitled to leasehold rights in such unit for a period of 99 years. And for obtaining such leasehold rights an amount of Rs. 59,40,000/-, was paid by the assessee as lease premium.

According to ld. AR, in addition to such premium, the assessee was also obligated to pay a lease rent of Re. 1/- per square foot of the super built-up area or as decided.

According to him, all expenses in relation to the preparation, execution and registration of the deed dated 12.11.2010 were also borne by the assessee and drew my attention to the copy of the lease-cum-transfer deed dated 12.11.2010 which is found placed at Pages 1 to 29 of the paper book.

9. According to ld. AR, later when the assessee was unable to retain the leasehold rights in Unit No. 209, it obtained necessary permissions from the lessor (Govt.) to transfer such rights to a third party. Accordingly, an indenture of lease dated 08.04.2015 (tri-party agreement) was executed between the assessee, lessor (Govt.) and Sri Surya Prakash Baid whereby the leasehold rights held by the assessee in Unit No. 209, 1st Floor, Dreamplex Air-Conditioned Mall were transferred to Sri Surya Prakash Baid. For affecting such transfer, a premium of Rs. 1,25,92,000/- was paid by Sri Surya Prakash Baid to the assessee, along with an amount of Rs. 8,83,872/-, which was paid by the assessee to the lessor (Govt.) as transfer fee and drew my attention to the copy of the indenture of lease dated 08.04.2015 which is found at Pages 36 to 60 of the paper book.

10. According to the ld. AR, the assessee, having transferred the leasehold rights which were in the nature of capital asset, calculated the gains/ losses arising from such transfer in accordance with Section 48 of the Income Tax Act, 1961 (hereinafter referred to as the Act. And the income arising from other sources during the assessment year 2016-2017 was also duly calculated by the assessee in accordance with law and drew my attention to copy of the computation chart of taxable income of the assessee for the assessment year 2016-2017 which is found at Page 61 of the paper book. Based on the said computation, the assessee filed its return of income for the assessment year 2016-2017 in form ITR-6 whereby a long-term capital loss of Rs. 14,72,545/- was reported by the assessee from the transfer of leasehold rights of Unit No. 209, Dreamplex Air-Conditioned Mall and drew my attention to copy of the income tax return of the assessee for the assessment year 2016-2017 which is found at Page 62 to 63 of the paper book.

11. Later when the case of the assessee was taken for scrutiny according to ld. AR the AO based on the balance sheet of the assessee wherein the subject leasehold was recorded as ‘Shop at Dreamplex Durgapur' under the heading ‘Non-Current Investments (Trade)', concluded that the property leased out by the assessee was in the form of a ‘shop’. Therefore, according to AO the transfer of leasehold rights in the ‘shop’ by the assessee was classifiable as a transfer of building. Hence, the AO took a view that the provisions of Section 50C of the Act were applicable to the case and the stamp duty value of the leasehold rights i.e. Rs. 1,64,89,440/- was to be adopted as the full consideration value of the transfer instead of the actual consideration received by the assessee i.e. Rs. 1,25,92,000/-. Accordingly, the AO framed the Assessment Order dated 12.11.2018 adding Rs. 24,28,372/-to the total income of the assessee and disallowing the assessee’s claim of long-term capital loss of Rs. 14,72,545/-.

12. On appeal, the ld. CIT(A) has confirmed the order of the AO which according to the ld. AR is erroneous for the simple reason that the assessee has transferred only leasehold rights and therefore Section 50C is not applicable in this case and therefore the AO as well as the ld. CIT(A) erred in applying the deeming provision of Section 50C to saddle the addition of Rs.24,28,372/- to the total income of the assessee. The ld. AR relied on the decision of the Hon’ble Bombay High Court in the case of CIT vs. Greenfield Hotels and Estates Pvt. Ltd., [2016] 389 ITR 68 (Bom.) and the Tribunal’s (Mumbai) order in the case of Atul G. Puranik vs. ITO, [2011] 11 ITR 120 (Mumbai) and it was brought to my notice that Hon’ble High Court has dismissed the appeal of the Revenue against the order of the Tribunal in the case of Atul G. Puranik (supra).

The ld. AR also relied upon the order in the case of DCIT, Central Circle-VI vs. Tejinder Singh, [2012] 19 taxmann.com 4 (Kol.). Thereafter he relied on the following decisions:

i. ACIT 19(1), Mumbai v. Aditya D. Mahadevia, 2016 SCC Online ITAT 11619.

ii. Fleurette Marine Novelle Hatam v. 1TO, Mumbai, [2015] 61 taxmann.com 362 (Mumbai - Trib.).

iii. Kancast (P.) Ltd. v. ITO, Pune [2015] 55 taxmann.com 171 (Pune - Trib.).

iv. M/s. Jaipur Times Industries, v. ITO, Jaipur, 2014 (SCC) Online ITAT 11223.

v. DCIT, Kolkata v. Amardeep Singh, 2012 SCC Online ITAT 2649.

vi. Vijay Mehta (HUF) v. ITO, Kolkata, 2012 SCC Online ITAT 5630.

vii. Ranjit Singh Bengani (HUF) v. DCIT, Kolkata, 2013 SCC Online ITAT 6056.

13. In the light of the aforesaid precedents, he prayed that this Tribunal interfere with the order of the ld. CIT(A) and give relief to the assessee.

14. Per contra the ld. DR supported the order of the ld. CIT(A) and the AO; and submitted that the ld. CIT(A) has relied on the decision of Hon’ble Apex Court in the case of Sharvan Kumar Sharma vs. ITO, 2018 SCC Online Raj. 2360 (which is placed at page 119-123 of the paperbook) to confirm the order of the AO. According to him, the assessee has itself shown in its balance sheet, the asset in question i.e. “shop at Dreamplex, Durgapur” under the heading “non-current investment” and therefore the assessee has treated the same asset as shop. Therefore when transfer of shop takes place for computing capital gain, Section 50C of the Act is attracted. Therefore the ld. DR does not want me to interfere with the order of the ld. CIT(A).

15. Having heard the submission of both the sides and after perusing the records, paper book, the facts on the issue is not repeated for the sake of brevity. The short question before me is whether the consideration which the assessee received for the transfer of leasehold rights in the shop can attract Section 50C of the Act for computation of the capital gains as done by the AO and confirmed by the ld. CIT(A).

16. I note that the AO taking note that the assessee in its balance sheet has shown the transferred item as “Shop at Dreamplex, Durgapur” which was under the heading “non-current investment” has treated the said item in the balance sheet as an immovable property in the form of a “shop”. Though the ld. AR of the assessee contended before the AO that there was a presentation error in the balance sheet and it should have been shown only as ‘leasehold right’, the AO did not agree, which resulted in the addition based on Section 50C of the Act. I note that the assessee had purchased the leasehold rights in the fully constructed shop located at Unit No.209 on the 1st floor, Dreamplex Air-conditioned Mall, Durgapur, West Bengal with super built-up area admeasuring 2376 sqft. I note from a perusal of the page 1 of the paper book that the assessee had signed the indenture of lease cum transfer made on 12.11.2010 between the Governor of West Bengal (1st part) and M/s. Bengal Shristi Infrastructure Development Limited (2nd part) and M/s. Ritz Suppliers Private Limited (3rd part, the assessee). The Transferees/Lessees, and all the three parts i.e. had executed a tripartite agreement by virtue of it in pursuance to the aforesaid lease cum transfer deed, the assessee received the leasehold rights in the said unit for 99 years for a lease premium of Rs.59,40,000/- and was obliged to pay lease premium of Rs.1/- per square foot of the super built-up area. Later when the assessee could not retain the leasehold right, it took permission from the lessor (Govt.) and transferred it to Sri Surya Prakash Baid by tri-part indenture of lease dtd. 08.04.2015. And for the transfer of leasehold to Sri Surya Prakash Baid, the assessee received a premium of Rs.1,25,92,000/- which is the bone of contention. According to assessee, the capital gain should be computed u/s 48 of the Act and it computed the same at a long term capital loss of Rs.14,72,545/- whereas according to AO/CIT(A), the transaction attracts Section 50C of the Act and so the value determined by Stamp Valuation Authority to be adopted @Rs.1,64,89,440/- and not at Rs.1,25,92,000/- received by the assessee and computed the Long Term Capital Gain at Rs.24,28,372/-. The main contention of the assessee is that transfer of leasehold rights will not attract Section 50C of the Act. 17. So, in order to appreciate the rival contentions on this issue, it would be apt to consider the prescription of Sub-Section (1) of Section 50C of the Act, which is as under :

“50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereinafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be full value of the consideration received or accruing as a result of such transfer.”

18. On going through the above provision, it transpires that where the full value of consideration shown to have been received or accruing on the transfer of an asset, being land or building of both, is less than the value adopted or assessed or assessable by stamp valuation authority, the value so adopted etc. shall, for the purposes of sec. 48, be deemed to be full value of consideration received or accruing as a result of such transfer. It is noted that this section has been inserted by the Finance Act 2002 w.e.f. 01-04-2003 with a view to substitute the declared full value of consideration in respect of land or building or both transferred by the assessee with the value adopted or assessed or assessable by Stamp Valuation Authority. It has to be kept in mind that for this provision, there is nothing in the Act, by which the full value of a consideration received or accruing as a result of transfer of land or building or both is deemed to be any amount other than that actually received. From the language used in Sub-Section (1) of Section 50C of the Act, it is clear that the value of land or building or both adopted or assessed or assessable by the stamp valuation authority shall, for the purpose of section 48, be deemed to be the full value of the consideration received or accruing as a result of such a transfer. Thus two things are noticeable from this 'provision. Firstly, it is a deeming provision and secondly, it extends only to land or building or both. It is apparent that the deeming provision has been incorporated to substitute the value adopted or assessed or assessable by stamp valuation authority in place of consideration received or accruing as a result of transfer of land or building or both and in case the latter is lower than the former. It is a settled legal proposition that a deeming provision cannot be extended beyond the purpose for which it is enacted.

The Hon'ble Apex Court in CIT v. Amarchand N. Shroff [1963] 48 ITR 59 has considered the scope of a deeming provision and came to hold that it cannot be extended beyond the object for which it is enacted. Similar view has been reiterated by the Hon'ble Supreme Court in CIT v. Mother India Refrigeration Industries (P.) Ltd. [1985] 155 ITR 711/23 Taxman 8 by laying down that "legal fictions are created only for some definite purple and these must be limited to that purpose and should not be extended beyond their legitimate field". So the mandate of Section 50C of the Act it is noted extends only to a capital asset which is "land or building or both". Therefore, follows that only if a capital asset being land or building or both is transferred and the consideration received or accruing as a result of such transfer is less than the value adopted or assessed or assessable by the stamp valuation authority, the deeming fiction of law stipulated under Sub-Section (1) of Section 50C of the Act shall be attracted to substitute such adopted or assessed or assessable value as full value of consideration received or accruing as a result of such transfer in the given situation.

19. So as discussed, section 50C of the Act is a deeming fiction for substituting, adopting the valuation of land or building or both by the Stamp Valuation Authority as full value of consideration is applicable only in respect of "land or building or both’. If the capital asset under transfer cannot be described as 'land or building or both', then Section 50C of the Act cannot be attracted. From the facts of this case narrated above, it is seen that the assessee was allotted lease right in the unit for a period of 99 years, which right was further assigned to Shri Surya Prakash Lal in the year in question.

Since in this case neither 'land or building or both' has been transferred Section 50C of the Act cannot be attracted. The distinction between a capital asset being 'land or building or both' and any 'right in land or building or both' is well recognized under the Act itself. My attention was drawn to Section 54D of the Act, which deals with certain cases in which capital gain on compulsory acquisition of land and building is charged.

Sub-sec.(l) of sec. 54D opens with : "Subject to the provisions of sub-section (2), where the capital gain arises from the transfer by way of compulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking….” (emphasis given by me). It is palpable from Section 54D of the Act that 'land or building' is distinct from 'any right in land or building'. My attention was drawn to the Wealth Tax Act, 1957 also. Section 5(1) of the Wealth Tax Act at the material time provided for exemption in respect of certain assets. Clause (xxxii) of Section 5(1) of the Wealth Tax Act provided that "the value, as determined in the prescribed manner, of the interest of the assessee in the assets (not being any land or building or any rights in land or building or any asset referred to in any other clauses of this sub-section) forming part of an industrial undertaking" shall be exempt from tax. Thus it is noted that Parliament was aware of the distinction and has used differently between 'land or building' on one hand and 'or any rights in land or building' on the other. Here it is apt to apply the legal maxim Expressio Unius Est Exclusio Alterius meaning Express mention of one implies the exclusion of another.

[G.V.K. Industries Ltd. vs. ITO, (2011) 4 SCC 36. Hon’ble Supreme Court 5 Member Constitution Bench] Considering the fact that we are dealing with special provision for full value of consideration in certain cases u/s.50C of the Act, which is a deeming provision, the fiction created in this section cannot be extended to any asset other than those specifically provided therein. As sec. 50C of the Act applies only to a capital asset, being land or building or both, it cannot be made applicable to lease rights in a land. As the assessee has transferred leasehold right for 99 years in the shop and not land itself, the provisions of sec. 50C of the Act cannot be invoked. I therefore, hold that the full value of consideration in the instant case be taken as Rs. 1,25,92,000/-.

20. To sum up, the full value of consideration upon the assignment of lease rights in the shop on 08.04.2015 shall be taken at Rs. 1,25,92,000/- and the capital gain/loss shall be accordingly re-computed as per law by the AO. Therefore the impugned order of Ld CIT(A) is set aside and the AO is directed to re-compute the capital gains/loss as discussed (supra)

21. In the result, appeal of the assessee is allowed.

Order is pronounced in the open court on 17th January, 2020.

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