High Court upholds taxpayer’s win: Section 50C wrongly applied when total sale price exceeded circle rate

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Case Name

Principal Commissioner of Income Tax vs. Shailja Pasricha (High Court of Delhi)

ITA 227/2020

Date: 23rd November 2021

Key Takeaways

• Section 50C application: Section 50C cannot be invoked when the actual sale consideration exceeds the circle rate, even if the consideration is split between multiple parties with different rights in the property
• Leasehold rights matter: When property has existing leasehold rights, the sale consideration can be legitimately bifurcated between the owner and lessee based on their respective rights
• Concurrent findings: High Courts should not interfere with concurrent findings of fact by lower appellate authorities unless there’s a substantial question of law
• Revenue’s limited role: Tax authorities cannot dictate how sale consideration should be distributed between parties with legitimate rights in the property

Issue

The central legal question was: Whether Section 50C of the Income Tax Act can be invoked to add deemed income when the total sale consideration exceeds the circle rate, but is bifurcated between the property owner and a long-term lessee based on their respective rights in the property?

Facts

1. Original ownership: Late Shri Jeewan Lal Virmani owned a plot of land (5777 sq yards) in New Delhi, which he got from Delhi Development Authority in 1969
2. Lease creation: In 1975, Virmani leased this land to M/s ESS ESS Metals and Electricals (owned by Banarsi Lal Pasricha) for 99 years
3. Inheritance: After Virmani’s death, his three legal heirs sold their shares to Shailja Pasricha (who is Banarsi Lal Pasricha’s daughter-in-law) through sale deeds executed between 1977-2010
4. The disputed sale: In February 2012, both Shailja Pasricha and M/s ESS ESS Metals jointly sold the land to M/s HH Buildtech Private Ltd. for Rs. 35 crores total. The consideration was split: Rs. 18 crores to Shailja Pasricha and Rs. 17 crores to the lessee
5. Tax assessment: The Assessing Officer applied Section 50C, claiming Shailja should have received the full circle rate value of Rs. 27.6 crores, and added Rs. 9.6 crores to her income

Arguments

Revenue’s Arguments:

• Shailja Pasricha was the sole owner of the property and should have received the entire sale consideration based on circle rates
• The parties were closely related (daughter-in-law and father-in-law), suggesting the transaction was designed to evade tax
• Under Section 48, the entire sale consideration should be disclosed as income, with payments to the lessee claimed as deductions
• The bifurcation of consideration between related parties was suspicious

Taxpayer’s Arguments (upheld by CIT(A) and ITAT):

• The total sale consideration of Rs. 35 crores exceeded the circle rate of Rs. 27.6 crores, so Section 50C was wrongly invoked
• The property had encumbered rights - the lessee had legitimate 99-year lease rights that needed to be extinguished
• It’s for the parties to decide how to split consideration based on their respective rights, not for tax authorities to dictate
• The Assessing Officer incorrectly assumed sole ownership while ignoring existing lease rights

Key Legal Precedents

The High Court relied on several important Supreme Court cases:

1. Ram Kumar Aggarwal & Anr. vs. Thawar Das (through LRs), (1999) 7 SCC 303: This case established that under Section 100 of the Code of Civil Procedure, 1908, High Courts can only interfere with lower court orders on substantial questions of law, not for re-appreciation of evidence
2. State of Haryana & Ors. vs. Khalsa Motor Limited & Ors., (1990) 4 SCC 659: The Supreme Court held that High Courts cannot reverse concurrent findings of fact by lower courts in second appeals
3. Hero Vinoth (Minor) vs. Seshammal, (2006) 5 SCC 545: This case established that “in a case where from a given set of circumstances two inferences of fact are possible, the one drawn by the lower appellate court will not be interfered by the High Court in second appeal. Adopting any other approach is not permissible.”

The court also referenced Rule 46A of Income Tax Rules, 1962 and the case CIT v. Manish Buildwell § Ltd. regarding additional evidence procedures

Judgement

Winner: Shailja Pasricha (taxpayer) won the case.

Court’s reasoning:

1. Section 50C misapplication: The Assessing Officer wrongly invoked Section 50C by considering only Rs. 18 crores as sale consideration, when the actual total was Rs. 35 crores, which exceeded the circle rate
2. Legitimate rights recognition: The court recognized that both parties had legitimate rights - Shailja had ownership rights subject to the lease, and ESS had 99-year leasehold rights that were being extinguished
3. Concurrent findings: The CIT(A) and ITAT had given concurrent findings on facts, which should not be “lightly interfered with” by the High Court
4. No perversity: The court found “no perversity in the findings of the CIT(A) and ITAT”

Final order: The High Court dismissed the revenue’s appeal

FAQs

Q1: What is Section 50C and when does it apply?

A: Section 50C is an anti-avoidance provision that deems the circle rate as sale consideration if the actual consideration is below the circle rate. However, it doesn’t apply when the actual consideration exceeds the circle rate, as happened here.

Q2: Why was the sale consideration split between two parties?

A: The land had two types of rights - ownership rights (held by Shailja) and 99-year leasehold rights (held by ESS). When the property was sold, both rights were being transferred, so the consideration was split based on the value of respective rights.

Q3: Does the family relationship between parties make the transaction suspicious?

A: While the parties were related (daughter-in-law and father-in-law), the court found that the Assessing Officer never challenged the transaction as collusive. The bifurcation was based on legitimate legal rights, not tax evasion.

Q4: Can tax authorities dictate how sale proceeds should be distributed?

A: No. The court clearly stated that “Revenue authorities have no say to dictate the terms of sale consideration to be received in exchange of rights of the parties” when multiple parties have legitimate rights in the property.

Q5: What’s the significance of “concurrent findings”?

A: When both the CIT(A) and ITAT reach the same factual conclusion, High Courts are very reluctant to interfere unless there’s a clear legal error. This principle protects taxpayers from endless litigation on factual matters.

Q6: Could the revenue have taken a different approach?

A: Yes, the court noted that instead of challenging the bifurcation, the revenue could have verified whether ESS properly declared and paid tax on the Rs. 17 crores it received.

1. This appeal has been filed challenging the order dated 16.07.2019 passed by the Income Tax Appellate Tribunal, Delhi Bench ‘G’, New Delhi (hereinafter referred to as ‘ITAT’) in ITA No.3518/DEL/2016 dismissing the appeal filed by the appellant herein.

2. The questions of law proposed in the appeal are as under:-

“3.1. WHETHER in the facts and

circumstances of the case, Hon'ble ITAT

erred in holding that it is for the parties

to settle the sale consideration for

transfer of respective shares in the

property while the Hon'ble ITAT failed

to note that the parties were closely

related and there was no proper basis

for settlement of sale consideration

between them and it was done with a

view to evade payment of tax?

3.2 WHETHER in the facts and

circumstances of the case, Hon'ble ITAT

erred in upholding Ld CIT(A) order

based on additional evidence without

complying with the provisions of Rule

46A of Income Tax Rules, 1962 and thus

failed to follow the law laid down by this

Hon'ble Court in CIT v. Manish

Buildwell (P) Ltd. ?

3. It is submitted by the learned counsel for the appellant that plot

No. 69/4A, Main Najafgarh Road, Industrial Area, New Delhi

admeasuring around 5777 square yards was under the ownership of

late Shri Jeewan Lal Virmani by virtue of a Sale Deed dated

17.10.1969 executed by the Delhi Development Authority in his

favour. The late Shri Virmani had executed a Lease Deed dated

01.02.1975 in favour of M/s ESS ESS Metals and Electricals, a sole

proprietorship of Shri Banarsi Lal Pasricha, granting the said land on

lease to him for 99 years. Shri Banarsi Lal Pasricha is the father-in-

law of the respondent herein.

4. On the death of Shri Jeewan Lal Virmani, his three legal heirs,

by way of Sale Deeds dated 13.06.1977, 26.04.2007 and 19.10.2010

transferred their respective one-third undivided share in the land in

favour of the respondent herein.

5. Out of the total land of 5777 sq. meters, 700 sq. meters was

acquired leaving a balance of 5077 sq. meters.

6. By a Sale Deed dated 10.02.2012, the respondent alongwith M/s

ESS ESS Metals and Electricals transferred the said land in favour of

M/s HH Buildtech Private Ltd. for a total consideration of Rs. 35

Crores (Rupees Thirty Five Crores) out of which Rs. 18 Crores

(Rupees Eighteen Crores) was received by the respondent, while the

balance of Rs. 17 Crores (Rupees Seventeen Crores) was received by

M/s ESS ESS Metals and Electricals.

7. The Assessing Officer, by the Assessment Order dated

31.03.2015, held that the respondent had the sole ownership right over

the plot of land and therefore, should have received the minimum

amount of sale consideration at the Circle Rate of Rs. 27,60,03,387/-

(Rupees Twenty Seven Crores Sixty Lakhs Three Thousand Three

Hundred and Eighty Seven Only). The Assessing Officer, therefore,

added an amount of Rs. 9,60,03,387/- (Rupees Nine Crores Sixty

Lakhs Three Thousand Three Hundred Eighty Seven Only) to the

income of the respondent under Section 50C of the Income Tax Act,

1961 (hereinafter referred to as the ‘Act’).

8. The Assessment Order was challenged in appeal by the

respondent, being Appeal No. 91/15-16. The same was allowed by the

Commissioner of Income Tax (Appeals) (hereinafter referred to as

‘CIT(A)’) vide his order dated 10.03.2016, holding that as the sale

consideration was admittedly Rs. 35 Crores, which is above the Circle

Rate, Section 50C of the Act has been wrongly invoked by the

Assessing Officer. It was further held that the Assessing Officer

cannot decide the amount that should have been paid by the vendee to

the title holder of the land, that is, the respondent herein, and/or to the

lessee of the land, that is, M/s ESS ESS Metals and Electricals, for

possession of the land.

9. Aggrieved of the above order, the appellant preferred an appeal

before the ITAT being ITA No. 3518/Del/2016, which has been

dismissed by the Impugned Order observing as under:-

“8. We have gone through the record. There is no dispute

as to Jeewan Lal Virmani during the land in dispute to M/s

ESS ESS Metals and Electricals on lease for 99 years in the

year 1975, and subsequent to the death of Jeewan Lal

Virmani, his children selling the same to the assessee under

three sale deeds on different dates. The sale consideration

paid by the assessee is also not in dispute. As on the date of

sale of the said land in favour of M/s HH Buildtech Private

Limited, according to the learned Assessing Officer, the

circle rate was Rs.27.60· crores whereas the sale

consideration according to the sale deed was Rs.35 crores,

which is much higher than the circle rate.

9. Sale deed dated 10.02.2012 of this land in favour of M/s

HH Buildtech Private Limited clearly shows that both the

assessee and M/s ESS ESS Metals and Electricals were the

vendors of their respective rights in the land and the

recitals of the sale deed are clear in stating that out of the

sale consideration of Rs.35 crores assessee had to receive

Rs.18 crores and M/s ESS ESS Metals and Electricals had

to receive Rs.17 crores.

10. In the circumstances, the admitted facts prove that in

respect of the land that was sold in favour of M/s HH

Buildtech Private Limited both the assessee and M/s ESS

ESS Metals and Electricals have rights in different

capacities. M/s ESS ESS Metals and Electricals held the

leasehold rights for 99 years and since the lease was in the

year 1975 and the assessee purchased the property between

1997 and 2010, the rights acquired by the assessee must be

understood to be subject to the leasehold rights. It is,

therefore, clear that the Assessing Officer was in clear

error in holding that the assessee had become the sole

owner of the property, which is factually and legally

incorrect. Assessee was not the absolute owner of the

property and her rights were subject to the leasehold rights

held for 99 years by M/s ESS ESS Metals and Electricals. In

such situation, it is for the parties to settle the sale

consideration for transfer of respective properties held by

the assessee and M/s ESS ESS Metals and Electricals.

Revenue authorities have no say to dictate the terms of sale

consideration to be received in exchange of rights of the

parties.

11. It is not for the Assessing Officer to say that de hors the

leasehold rights held by M/s ESS ESS Metals and

Electricals for 99 years, the assessee had to receive the

entire sale consideration to the exclusion of M/s ESS ESS

Metals and Electricals or that the consideration paid to M/s

ESS ESS Metals and Electricals was excessive. It is open for

the Revenue to verify whether the sale consideration said to

have been received by M/s ESS ESS Metals and Electricals

was offered to tax or not in the scrutiny of the return of

income of M/s ESS ESS Metals and Electricals. It is not

open for the Revenue to contend that to the exclusion of M/s

ESS ESS Metals and Electricals, assessee alone must

receive the entire sale consideration ignoring the leasehold

rights held by M/s ESS ESS Metals and Electricals for 99

years in respect of the very same property which was the

subject matter of the sale.

12. In this perspective of the matter, we are of the

considered opinion that the Ld. CIT(A) had reached a right

conclusion on proper appreciation of the facts available on

the record and the reasoning or conclusion of the Ld.

CIT(A) in the impugned order is beyond the pale of

challenge by the Revenue. We, therefore, decline to

interfere with the impugned order.”

10. The learned counsel for the appellant submits that in terms of

Section 48 of the Act the entire sale consideration should have been

disclosed as income by the respondent and thereafter, the amount paid

to M/s ESS ESS Metals and Electricals could have been claimed as a

deduction. She further casts a doubt on the bifurcation of the amount

between the respondent and M/s ESS ESS Metals and Electricals,

submitting that the respondent is the daughter-in-law of the sole

proprietor of M/s ESS ESS Metals and Electricals, that is, Mr. Banarsi

Lal Pasricha.

11. We have considered the submissions made by the learned

counsel for the appellant, however, find no merit in the same.

12. As observed hereinabove, the Assessing Officer had in fact

invoked Section 50C of the Act claiming that the sale consideration of

Rs. 18 Crores received by the respondent was below the Circle Rate.

This was clearly ignoring the fact that the sale consideration was in

fact Rs. 35 Crores. The CIT(A) and the ITAT have given concurrent

findings on the above. It is also not denied that M/s ESS ESS Metals

and Electricals held a lease for 99 years with respect to the land and

the vendee has paid consideration of Rs. 17 Crores for cancellation of

the said lease. In the present case, the vendor did not have an

unencumbered right over the land and M/s ESS ESS Metals and

Electricals admittedly had a perpetual leasehold right over the land,

which right was also extinguished under the Sale Deed.

13. The bifurcation of the sale consideration was not challenged by

the Assessing Officer. In fact, the Assessing Officer took Rs. 18 crores

received by the respondent as the Sale Consideration. This was clearly

erroneous as the Sale Consideration was Rs. 35 crores, however, was

bifurcated between two right-holders over the land. The transaction

being collusive was not the case of the Assessing Officer.

14. Keeping in view the concurrent findings of fact by the CIT(A)

and the Tribunal, this Court is of the view that the said findings should

not be lightly interfered with. In fact, the Supreme Court in the case of

Ram Kumar Aggarwal & Anr. vs. Thawar Das (through LRs),

(1999) 7 SCC 303 has reiterated that under Section 100 of the Code of

Civil Procedure, 1908, the jurisdiction of the High Court to interfere

with the orders of the Courts below is confined to hearing on

substantial question of law and interference with finding of the fact is

not warranted if it involves re-appreciation of evidence. Further, the

Supreme Court in State of Haryana & Ors. vs. Khalsa Motor Limited

& Ors., (1990) 4 SCC 659 has held that the High Court was not

justified in law in reversing, in second appeal, the concurrent finding

of the fact recorded by both the Courts below. The Supreme Court in

Hero Vinoth (Minor) vs. Seshammal, (2006) 5 SCC 545 has also held

that “in a case where from a given set of circumstances two inferences

of fact are possible, the one drawn by the lower appellate court will

not be interfered by the High Court in second appeal. Adopting any

other approach is not permissible.” It has also held that there is a

difference between question of law and a ‘substantial question of law’.

15. No submissions have been made by the learned counsel for the

appellant on the second question of law proposed in the appeal.

16. Consequently, this Court finds that there is no perversity in the

findings of the CIT(A) and ITAT. Accordingly, the present appeal is

dismissed.

NAVIN CHAWLA, J

MANMOHAN, J

NOVEMBER 23, 2021