Section 50C does not apply to transfer of tenancy/ leasehold rights

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Assessee was a lessee in the property which was sold by the KSCT; there is no dispute on this aspect of the matter. Yet, the Assessing Officer has treated the assessee a seller of property apparently because the assessee was a party to the sale deed, and because, according to the Assessing Officer, “consideration is paid on sale of the property for giving up right of the owner of the property” and that “in the case of leasehold property, the right of owner is divided between lessor and lessee”. We are unable to share this line of reasoning. It is not necessary that consideration paid by the buyer of a property, at the time of buying the property, must only relate to ownership rights. In the case of tenanted property, as is the case before us, while the buyer of property pays the owner of property for ownership rights, he may also have to pay, when he wants to have possession of the property and to remove the fetters of tenancy rights on the property so purchased, the tenants towards their surrendering the tenancy rights. Merely because he pays the tenants, for their surrendering the tenancy rights, at the time of purchase of property, will not alter the character of receipt in the hands of the tenant receiving such payment. What is paid for the tenancy rights cannot, merely because of the timing of the payment, cannot be treated as receipt for ownership rights in the hands of the assessee. This distinction between the receipt for ownership rights in respect of a property and receipt for tenancy rights in respect of a property, even though both these receipts are capital receipts leading to taxable capital gains, is very important for two reasons – first, that the cost of acquisition for tenancy rights, under section 55(2)(a), is, unless purchased from a previous owner – which is admittedly not the case here, treated as‘nil’; and, – second, since, the provisions of Section 50 C can only be applied in respect of “transfer by an assessee of a capital asset, being land or building or both”, the provisions of Section 50 C will apply on receipt of consideration on transfer of a property, being land or building or both, these provisions will not come into play in a case where only tenancy rights are transferred or surrendered. It is, therefore, important to examine as to in what capacity the assessee received the payment. No doubt the assessee was a party to the registered tripartite deed dated 20th July 2007 whereby the property was sold by the KS CT, but, as a perusal of the sale deed unambiguously shows, the assessee has given up all the rights and interests in the said property, which he had acquired by the virtue of lease agreements with owner and which were, therefore, in the nature of lessee’s rights; these rights could not have been, by any stretch of logic, could be treated as ownership rights. It has been specifically stated in the sale deed that the lessee, which included this assessee before us, had proceeded to, inter alia, “grant, convey, transfer and assign their leasehold rights, title and interest in the said premises”. There is nothing on the record to even remotely suggest that the assessee was owner of the property in question. The monies received by the assessee, under the said agreement, were thus clearly in the nature of receipts for transfer of tenancy rights, and, accordingly, as the learned CIT(A) rightly holds, Section 50 C could not have been invoked on the facts of this case.

Revenue’s contention that the provisions of Section 50 C also apply to the transfer of leasehold rights is devoid of legally sustainable merits and is not supported by the plain words of the statute. Section 50 C can come into play only in a situation “where the consideration received or accruing as a result of the transfer by an assessee of a capital asset being land or building or both. (emphasis supplied by us by underlining) is less than the value adopted or assessed or assessable by any authority of a State Government ……for the purpose of payment of stamp duty in respect of such transfer”. Clearly, therefore, it is sine qua non for application of Section 50 C that the transfer must be of a “capital asset, being land or building or both”, but then a leasehold right in such a capital asset cannot be equated with the capital asset per se. We are, therefore, unable to see any merits in revenue’s contention that even when a leasehold right in “land or building or both” is transferred, the provisions of Section 50C can be invoked.