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Tax Insights
from India Tax & Regulatory Services
Karnataka High Court holds that section 50C of the Act does not apply to transfer of rights in land
23 February 2021
In brief
The Karnataka High Court,1 it its recent order, held that the provisions of section 50C of the Income-tax Act, 1961 (the Act) would apply in the case of a transferor and not in the case of a consenting party to the agreement, who is not a transferor/ co-owner. It also held that section 50C of the Act is not applicable in the case of transfer of rights in land.
In detail
Facts
• The taxpayer, a proprietor, entered into an unregistered agreement with ABC Limited for the purchase of land f or a certain consideration. However, the taxpayer was not handed over the possession of the land in question, nor was the power of attorney executed in his favour.
• Subsequently, ABC Limited sold this land by entering into three separate sale deeds/ transactions. In the f irst two sale deeds, the taxpayer was not a party to the deed, whereas in the third deed, the taxpayer was merely a consenting witness.
Issue before the Tribunal
• Whether section 50C of the Act is applicable in case of transfer of certain rights in land by a consenting party who is not a transferor/ co-owner of such land?
Taxpayer’s contentions
• Section 50C of the Act applies to the transferor of the capital asset being ‘land, building or both’.
• The word ‘being’ is more like ‘namely’, and section 50C of the Act does not deal with interest in land, but only with land.
• Explanation 1 to section 2(47) of the Act, uses the expression 'immovable property', whereas section 50C of the Act does not use the expression 'immovable property'. Theref ore, one can conclude that the legislature has used the term 'land' instead of 'immovable property', and wherever it intended, the legislature has expanded the meaning of 'land' to include rights or interest therein.
• The right held by the taxpayer for specific performance cannot be equated with land, it is merely a right to sue under the agreement for sale. There is no transfer of land.
• There is no need to take recourse in interpreting the external aid of interpretation of provision, as the provisions of section 50C of the Act are clear and unambiguous. The tax payer cannot be taxed without clear words for that purpose and every Act of the Parliament has to be read as per its natural construction of words. Accordingly, the provisions of section 50C of the Act do not apply to rights in land.
1 ITA No. 70 of 2015
2 PwC Tax Insights
Revenue’s contentions
• The f inding of the cost of acquisition and consideration by the Income-tax Appellate Tribunal (Tribunal) are f acts recorded by the Tribunal on the basis of value determined by the State Government for the purpose of stamp duty.
• Section 50C of the Act mandates the adoption of consideration on the basis of guidance value prescribed by the State Government for the purpose of stamp duty, as the consideration reflected by the taxpayer is much less than the guidance value provided by the Karnataka Government. The authorities have rightly adopted the value of land sold equal to the value determined by the Karnataka Government for the purpose of stamp duty.
• The taxpayer had entered into an agreement and had paid a substantial amount as consideration, to the extent of 80%, which the sale deed has acknowledged.
High Court’s decision
• Whenever the legislature intended to expand the meaning of ‘land’ to include rights or interest in land, it has said so specifically, viz. sections 35(1)(a), 54G(1), 54GA(1), 269UA(d), and the Explanation to section 155(5A) of the Act. Thus, section 50C of the Act applies only in the case of transferor of land, which in the instant case, is not the taxpayer, who was merely the consenting party and not a transferor/ co-owner.
• The taxpayer has certain rights in the land, but from the clear plain and unambiguous language employed in section 50C of the Act, it is evident that they do not apply to a case of right in land.
• It is a settled rule of statutory interpretation with regard to taxing statute that a taxpayer cannot be taxed without clear words for that purpose, and every Act of the Parliament has to be read as per its natural construction of words. Therefore, the provisions of section 50C of the Act are inapplicable to the taxpayer.
• Section 50C of the Act applies only in the case of a transferor of land, which in the instant case, is not the taxpayer, as he is only a consenting party and not a transferor/ co-owner of the property.
The takeaways
The High Court has held that section 50C of the Act is applicable in the case of a transferor/ owner/ co-owner and not in the case of a consenting party to the agreement. The Court has also held that section 50C of the Act is applicable in the case of transfer of land, building or both, and not in the case of any right in the same.
This decision has provided clarity in law regarding the terms ‘land, building or both’ which is very important considering that similar terms are also used in certain other sections. This will be a guidance/ ref erence point f or the purpose of interpretation.
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