Facts of the Case

The assessees, being co-owners, sold immovable property for a consideration substantially lower than the stamp duty valuation adopted by the authorities. The Assessing Officer invoked Section 50C of the Income-tax Act, 1961 and substituted the declared 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 Zamindari Abolition and Land Reforms Act, where ownership vests in the State Government and the assessee holds only rights of use for agricultural purposes. Therefore, according to them, the transaction involved transfer of tenancy rights and not ownership of land, rendering Section 50C inapplicable.

Issues Involved

  1. Whether the property sold constituted freehold land or merely tenancy rights.
  2. 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 they were not absolute owners but Bhumidars holding limited rights under State land laws.
  • It was submitted that ownership vested in the State Government and they possessed only tenancy rights.
  • Therefore, Section 50C, which applies to transfer of land or building, should not apply to transfer of tenancy rights.
  • Reliance was placed on legal provisions under the UP Zamindari Abolition Act and judicial precedents relating to leasehold transfers.

Respondent’s Arguments (Revenue)

  • It was submitted that the land was free from encumbrances and not leasehold or government land at the time of sale.
  • Accordingly, what was transferred was ownership of land, and Section 50C was correctly invoked based on stamp duty valuation.

Court Order / Findings (ITAT)

  • The Tribunal observed that if only tenancy or leasehold
  • Neither the Assessing Officer nor the assessees produced conclusive evidence regarding the actual legal status of the land at the time of sale.
  • The Tribunal held that proper verification from State Revenue authorities regarding the status of land was necessary.
  • Accordingly, the matter was remanded to the Assessing Officer for fresh adjudication after conducting proper enquiry.

Important Clarification

  • Transfer of mere tenancy or leasehold rights may fall outside its scope depending on facts.
  • Determination of the legal status of property at the time of transfer is crucial.
  • Uniform valuation principles must be applied to co-owners of the same property.

Link to download the order - https://itat.gov.in/public/files/upload/1627638348-133%20and%20161.pdf

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