Sushma Bajaj vs. ACIT, ITA No.1077/Del/2024
Delhi Bench of the Income Tax Appellate Tribunal (ITAT) in Sushma Bajaj vs ACIT [ITA No. 1077/Del/2024], has clarified that Section 50C of the Income Tax Act, 1961 does not apply to the transfer of mere rights in under-construction property.
The tribunal held that Section 50C applies only to the transfer of capital assets in the nature of “land or building or both”, and not to rights or interests therein. This reinforces a consistent judicial view that deeming provisions cannot be extended beyond their intended scope.
Case Background
- Assessee: Sushma Bajaj
- Assessment Year: 2017–18
- Issue: Whether Section 50C can be invoked on the sale of rights in flats that were still under construction.
- Transaction: The assessee sold her rights in two units at Suncity Parikrama Projects, Panchkula, without taking possession.
- AO’s Action: AO made an addition based on DVO’s valuation, invoking Section 50C deeming provisions.
Key Tribunal Observations
- Section 50C applies only when the capital asset is “land or building or both”.
- Rights in an under-construction property — such as booking rights — do not fall within this definition.
- Valuation by DVO is not determinative under Section 50C, which specifically refers to stamp duty valuation by prescribed authorities.
- Citing precedent, the Tribunal emphasized that mere enforceable rights are capital assets, but not the type of assets covered by Section 50C.
Supporting Precedents
The ITAT placed reliance on several prior decisions, including:
- Anil Jain vs DCIT (ITA No. 3777/Del/2013) – Rights to purchase a building do not qualify as land/building for Section 50C.
- Rekha Agarwal vs ITO [2017] 79 taxmann.com 290 (Jaipur Trib) – Section 50C not applicable to rights in immovable property.
- Devindraben I. Barot vs ITO [2016] 159 ITD 162 (Ahd. Trib) – Transfer of booking rights not covered under Section 50C.
- ITO vs Yasin Moosa Godil [2021] 18 ITR(T) 253 (Ahd) – Same principle upheld.
- Baniara Engs. Pvt. Ltd. vs ITO (ITA No. 635/Kol/2018) – Deeming provisions not applicable to rights.
Final Verdict
The Tribunal allowed the appeal and deleted the addition made under Section 50C. It reaffirmed that rights in under-construction flats are not capital assets of the nature to which Section 50C applies, and valuation by DVO cannot be substituted as a benchmark under this provision.
Key Takeaway
This ruling is a crucial precedent for taxpayers who sell their rights in under-construction properties. Unless actual land or building is transferred, Section 50C cannot be invoked, and deeming income additions are not sustainable.