[Opinion] Section 50C Applies on Leasehold Rights Transfer – Bombay HC

Keyur Rambhia – [2025] 174 taxmann.com 567 (Article)

1. Background

According to section 50C of the Income-tax Act, 1961 (the Act), in relation to a transfer of a capital asset, being land or building or both, the value adopted or assessed or assessable for payment of stamp duty (‘stamp duty value’) is deemed to be the ‘full value of the consideration’ (FVC) in certain cases for computation of capital gains.

The Mumbai bench of the ITAT, in the case of Atul G. Puranik v. ITO [2011] 11 taxmann.com 92/132 ITD 499 had held that lease rights in a plot of land cannot be included within the scope of ‘land or building or both’ and accordingly section 50C should not apply upon assignment of lease rights in land. The tax department had not challenged this decision of the ITAT and accordingly, the conclusion by the ITAT was a settled position, until the High Court of Bombay pronounced its judgment in the case of Vidarbha Veneere Industries Ltd. v. ITO [2025] 174 taxmann.com 223.

2. What the High Court Concluded?

The High Court of Bombay, in the case of Vidarbha Veneere Industries Ltd. (supra) dismissed the assessee’s appeal and concluded that section 50C should apply even in case of an assignment of leasehold rights in a land. It is interesting to understand how the High Court arrived at this conclusion.

3. Facts of the case

In this case, some plots were acquired by the assessee on leasehold rights basis from MIDC by executing lease deeds. The rights in the plots were later transferred by the assessee by executing deeds of assignment.

The Assessee had relied on a registered valuer’s report in support of the value it wanted to adopt as FVC for computation of capital gains. The AO had invoked section 50C and had adopted stamp duty value as FVC.

4. Proceeding Before the Matter Reached the High Court

Upon assessee’s appeal, the CIT(A) had referred the matter to a Valuation Officer and had held that the FVC should be the value determined by the Valuation Officer. The value determined by the Valuation Officer was higher than the value adopted by the assessee but lower than the stamp duty value.

Upon further appeal by the assessee, the ITAT had upheld the CIT(A)’s order. The assessee, vide a Miscellaneous Application before the ITAT, had sought recall of the ITAT’s order, contesting that section 50C was not applicable to the leasehold rights in the land. The Miscellaneous Application was dismissed by the ITAT stating that such contention was nowhere made in the ground of appeal.

5. Assessee’s Argument Before the High Court

In the aforesaid background, the assessee had appealed before the Hight Court. Relying on the language of section 50C read with the definition of ‘capital asset’ under section 2(14) of the Act, the assessee had submitted before the High Court that since the plots were transferred to it by the MIDC by way of a lease, the subsequent assignment of the rights under such lease should not attract section 50C. In support of this submission, the assessee had relied on the decision of the Mumbai Bench of the ITAT in the case of Atul G. Puranik (supra), wherein the ITAT had held that section 50C cannot be made applicable to lease rights in a land. The ITAT had arrived at such conclusion by noting that a deeming provision cannot go beyond the explicit mandate of the section and the lease rights in a plot of land are neither ‘land and building or both’ as such nor can be included within the scope of ‘land or building or both’.

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