Arif Akhatar Hussain vs. ITO (ITAT Mumbai)

DATE: (Date of pronouncement)
DATE: December 24, 2010 (Date of publication)

Click here to download the judgement (Arif_50C_development_rights.pdf)

S. 50C applies to transfer of development rights in property

The assessee was co-owner of inherited property. He entered into an agreement with the developer for development of the property for a consideration of Rs. 63 lakhs and offered his share of the consideration to capital gains. The Stamp Valuing Authority valued the property at Rs.4.73 crores though the DVO valued it at Rs. 1.81 crores. The AO invoked s. 50C and adopted the DVO’s valuation as the consideration. This was confirmed by the CIT (A). Before the Tribunal, the assessee argued that there was a distinction between “rights in land & building” and the “land and building” and that s. 50C did not apply to “rights” in land & building such as development rights. It was pointed out that the fact that only development rights were transferred was borne out by the fact that the assessee was shown as owner of the property in the municipal records. It was also pointed out that the stamp duty law made a distinction between transfer of development rights and transfer of the property by imposing different rates of duty. HELD dismissing the appeal:

The argument that transfer of development rights does not amount to transfer of land or building and therefore s. 50C is not applicable is not acceptable because u/s 2(47)(v) the giving of possession in part performance of a contract as per s. 53A of the Transfer of property Act is deemed to be a “transfer”. When the assessee received the sale consideration and handed over possession of the property vide the development agreement, the condition prescribed in s. 53A of the Transfer of Property Act was satisfied and u/s 2 (47) (v) the transaction of transfer was completed. The fact that the assessee’s name stands in the municipal records does not change the nature of the transaction.

Note: The fact that there is a “transfer” of development rights was never in dispute. The dispute was whether, given that there is a “transfer“, s. 50C applies while “computing” the capital gains. In Kishori Sharad Gaitonde vs. ITO (ITAT Mumbai) it was held that s. 50C does not apply to “rights” in land & building like tenancy rights

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