Section 50C Cannot Be Applied On Compulsory Acquisition Of A Capital Asset: Calcutta High Court

The Calcutta High Court has held that in cases of compulsory acquisition of a capital asset (land or building, or both), the provisions of Section 50C of the Income Tax Act cannot be applied as the question of payment of stamp duty for effecting the transfer does not arise.The division bench of Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya has observed that the property was acquired under the provisions of the National Highways Act 1956. The property vests by operation of the said statute, and there is no requirement for payment of stamp duty in such vesting of property. As such, there was no necessity for an assessment of the valuation of the property by the stamp valuation authority in the case at hand.The respondent/assessee filed its original return of income on September 28, 2015, declaring a loss. On January 16, 2017, a revised return was filed, declaring a loss. The case was selected for scrutiny, and notices under Sections 143(2) and 142(1) were issued. The assessee was heard, and the assessing officer completed the assessment.The assessing officer added a sum of Rs. 5,48,43,584 to the total income as capital gain on the transfer of land to the National Highways Authority of India (NHAI) and also initiated penalty proceedings under Section 271(1)(c). The AO disallowed the claim for shortage of coal and disallowed the claim for shortage of imported coal and added it to the total income and also initiated penalty proceedings under Section 271(1)(c) of the Act.The AO disallowed the depreciation claimed by the assessee at 15% and added it to the total income. It also initiated penalty proceedings under Section 271(1)(c) and disallowed the claim of prior period expenses and added them to the total income.The assessee preferred to appeal before the Commissioner of Income Tax (Appeals). By order dated October 30, 2018, the appeal was partially allowed. The CIT(A) held that the assessing officer was not justified in invoking Section 50C on the land that was compulsorily acquired for NHAI and was directed to re-compute the capital gains without applying Section 50C. The addition made to the shortage of coal was also deleted.The department challenged the order by filing an appeal before the tribunal. The appeal was dismissed by the tribunal.Section 50C was inserted by the Finance Act 2002 with effect from April 1, 2003. It is for the purpose of taking the value adopted or assessed by the stamp valuation authority as the deemed full value of consideration received or accruing as the result of the transfer of a capital asset, be it land, a building, or both, in case the consideration received or accruing as a result of the transfer is less than such value.Section 50C was introduced to adopt the market value determined by the stamp duty authorities as the sale consideration for the purpose of computing capital gains under the provisions of the Income Tax Act. The provision provides for referring the matter to the valuation officer of the revenue to determine the actual market value of the property sold and all other relevant factors that may be considered by the State Valuation Authority.The department contended that the word "transfer" used in Section 50C shall have the same meaning as the word "transfer" defined under Section 2(47) of the Act, which is accepted. It is to be held that, with respect to transfers contemplated under Section 2(47) of the Act, the valuation adopted or assessed by the stamp valuation authority is to be deemed the full value of the consideration received as a result of the transfer. The expression "for the purpose of payment of stamp duty in respect of such transfer" would pale into insignificance, and the expression is to be subtracted from Section 50C, which is against the canon of interpretation.The court held that in the case of a transfer by way of compulsory acquisition, the capital asset, whether land, a building, or both, vests in the government by operation of the provisions of the statute governing the acquisition proceeding and is subject to the terms and conditions laid down in the statute being followed. In cases of compulsory acquisition, the transfer of property takes place by operation of law, and the provisions of the Transfer of Property Act or the Indian Registration Act have no application to the transfers. The question of the payment of stamp duty also does not arise.Case Title: PCIT Versus Durgapur Projects Ltd.Case No: ITAT No. 282 Of 2022Citation: 2023 LiveLaw (Cal) 53Date: 24.02.2023Counsel For Appellant: Vipul Kundalia, Amit SharmaCounsel For Respondent: Sumit Ghosh, Anupam Dey, Souradeep Majumdar, Bhaskar SenguptaClick Here To Read The Order

Section 50C Cannot Be Applied On Compulsory Acquisition Of A Capital Asset: Calcutta High Court

Mariya Paliwala

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