Life Interest Assignment Not Transfer; Sec. 50C Inapplicable | ITAT

Case Details: Vanraj Ranchhoddas Merchant vs. Income-tax Officer - [2026] 182 taxmann.com 18 (Mumbai - Trib.)

Judiciary and Counsel Details

• Smt. Beena Pillai, Judicial Member
• Makarand Vasant Mahadeokar, Accountant Member
• Ms Kinjal Bhutta, Ld. AR for the Appellant.
• Ms Kavitha Kaushik, Ld. DR for the Respondent.

Facts of the Case

The assessee, an individual, was holding a 20 per cent undivided share, along with his four brothers, in an ancestral family trust property. Out of his 20 per cent share, the assessee assigned 10 per cent undivided share in the said property to his nephew for a consideration of Rs. 28 lakhs vide registered deed.

The Assessing Officer (AO) issued a show cause notice stating as to why the provisions of section 50C should not be invoked. The assessee contended that what was transferred was only rights in land and building, and therefore, section 50C was not applicable. Unsatisfied with the assessee’s response, AO completed the assessment accordingly. On appeal, CIT(A) affirmed the order of AO. The aggrieved assessee filed the instant appeal before the Tribunal.

High Court Held

The Tribunal held that the assessee had not transferred land or building in his own right. The deed did not convey the corpus of the immovable property, nor did it divest the trust of its ownership in the land or building. The ownership of the immovable property continued to vest in the trust at all material times, and the assessee merely assigned a limited, determinable and beneficial interest arising therefrom.

In law, a life interest represents a limited estate, the duration of which is co-terminous with the life of the holder and which stands extinguished upon his death. Such an interest does not confer absolute ownership of the immovable property, nor does it vest in the holder the power to deal with the corpus of the property as an owner, which is a necessary incident of ownership under property law. The life tenant is entitled only to use, occupy or enjoy the income or usufruct of the property during his lifetime, subject to an overriding obligation to preserve the property for the benefit of the remaindermen.

This principle is statutorily reflected in sections 108(B)(m) and 108(B)(o) of the Transfer of Property Act, 1882, which, though framed in the context of leases, embody the broader doctrine that a person in limited possession cannot commit acts destructive or permanently injurious to the property. Where such a life interest arises under a trust arrangement, the position is even more restrictive. Under the Indian Trusts Act, 1882, the legal title vests in the trustee, and the beneficiary’s enjoyment is circumscribed by fiduciary and preservative obligations imposed on the trustee for the benefit of all beneficiaries, including remainder men.

The beneficiary holding a life interest acquires only a beneficial interest and not ownership of the trust property. Accordingly, the invocation of section 50C in the facts of the present case was not warranted.

List of Cases Reviewed

• V.S. Chandrashekar v. Asstt. CIT [2021] 129 taxmann.com 273 (Karnataka)/[2021] 282 Taxman 244 (Karnataka)/[2021] 432 ITR 330 (Karnataka) (para 31) Followed.

List of Cases Referred to

• Vidharbha Veneer Industries Ltd. (In Liquidation) v. ITO [ITA No. 34 of 2022, dated 1-4-2025] (para 9)
• V.S. Chandrashekar v. Asstt. CIT [2021] 129 taxmann.com 273 (Karnataka)/[2021] 282 Taxman 244 (Karnataka)/[2021] 432 ITR 330 (Karnataka) (para 17).