By TIOL News Service

NEW DELHI, MAY 04, 2018: THE ISSUE IS - Whether transfer of occupancy rights in land gives rise to capital gains, taxable u/s 50C. YES IS THE VERDICT.

Facts of the case:

The assessee HUF, had filed return for relevant AY. During assessment AO made addition u/s 50C of Act for sale of agricultural land executed in relevant year as assessee sold its rights in the agricultural land for Rs. 30 lakhs but according to the AO, the value of land for the purpose of stamp duty was Rs. 70,40,000/-. Later, a notice u/s 148 of the Act was issued to the assessee. The assessee was asked to explain as to why Section 50C of the Act be not invoked with respect to the consideration received on sale of agricultural land as assessed by the authorities for the purpose of stamp duty. The assessee replied that it claimed possession and occupation of the lands only as a tiller/Kashtkar and not as an owner. It argued that Section 50C was inapplicable as the owner of the lands was the State of Rajasthan. The AO rejected the explanation holding that the sale consideration was received by the assessee, and not the State of Rajasthan. It further observed that the assessee had failed to prove that the State of Rajasthan was the owner of the land. On appeal, the CIT(A) passed order in favour of assessee but Tribunal upheld the order of AO.

High Court held that,

++ assessee’s contentions is wrong that the occupancy rights are not in the nature of capital assets and the transfer of which do not attract capital gains, as to exclude application of Section 50C. The rights (towards occupancy) are nearly permanent, having regard to the nature of holding. Moreover, the issue of transfer of lease rights (in the case of lease for 99 years, relating to agricultural land) was considered in R.K. Palshikar (HUF) v. Commissioner of Income Tax. The court observed in this case that " grant of the leases in question, in our view, amounts to a transfer of capital assets as contemplated under Section 12-B of the said Act." It is therefore held that no question of law arises. The appeal is consequently dismissed as unmerited.

(See 2018-TIOL-826-HC-DEL-IT)