Section 50C Cannot Be Invoked for Tenancy Agreements Without

Section 50C Cannot Be Invoked for Tenancy Agreements Without Proof of Ownership Transfer

Issue

Whether the deeming provisions of Section 50C of the Income-tax Act, 1961 can be invoked to substitute stamp duty value as full value of consideration in the case of a registered tenancy agreement, without establishing an actual transfer of ownership rights in land or building.

Facts

Return & Scrutiny: The assessee, an individual, filed a return of income for AY 2018-19 declaring an income of approximately ₹2.81 lakhs, following which the case was selected for scrutiny.
Property Transaction Disclosed: In response to queries regarding immovable property transfers, the assessee clarified that no property was bought or sold, but a tenancy agreement in respect of a room was registered on June 13, 2017.
AO’s Classification: Observing that a document had been registered for stamp duty purposes (valued around ₹32.28 lakhs) and noting the absence of a duration clause, the Assessing Officer (AO) treated the tenancy agreement as conferring perpetual enjoyment and constituting a transfer of ownership under Section 2(47)(vi) read with Section 269UA(d).
Addition Under Section 50C: Invoking Section 50C, the AO adopted the stamp duty value of approximately ₹34.38 lakhs as full consideration, treated the cost of acquisition as NIL, and added the entire amount as long-term capital gains to the returned income.

Decision

Scope of Legal Fiction: Section 50C creates a specific legal fiction allowing substitution of stamp duty value only where there is an actual transfer of a capital asset being land, building, or both, and the declared consideration is less than the stamp value.
Prerequisites for Invocation: The Revenue must first prove that a transfer covered under the provision occurred and that consideration accrued or arose from such transfer; the section cannot be applied in isolation simply because an instrument was subjected to stamp duty.
Lack of Evidence: The AO failed to bring any evidence on record showing that the assessee transferred ownership rights or received any consideration beyond the stipulated monthly rent.
Addition Deleted: The addition made under Section 50C was held unsustainable and ordered to be deleted in favor of the assessee.

Key Takeaways

Strict Construction of Section 50C: Section 50C applies exclusively to transfers of ownership in “land or building or both” and cannot be extended to leasehold or tenancy rights without proof of title transfer.
Burden on Revenue: Stamp duty registration alone does not automatically attract capital gains tax; the Department must independently establish the true nature of the transfer and accrual of consideration.
Tenancy vs. Ownership: Treating a tenancy agreement as a perpetual lease or transfer of ownership requires substantive evidence showing the divestment of title and receipt of capital consideration.

IN THE ITAT MUMBAI BENCH ‘H (SMC)’

Kanubhai Purshottam Merchant

Income-tax Officer

Smt. Beena Pillai, Judicial Member
and Jagadish, Accountant Member

IT Appeal No. 1817 (MUM) of 2026
[Assessment year 2018-19]

JULY 15, 2026

Satish Mody for the Appellant. Pravin Salunkhe, SR. DR. for the Respondent.

ORDER

Smt. Beena Pillai, Judicial Member.- The present appeal filed by the assessee arises out of order dated 23.12.2025 passed by the NFAC, Delhi for Assessment Year 2018-19 on following grounds of appeal:

Ground No. 1

1) The Learned CIT(A) erred in confirming the order of the Assessing Officer without considering the facts of the case that the Appellant had not transferred any part of Land and/or Building and that the Provisions of Sec. 50C of the I.T.Act, 1961 are not applicable to transfer of Tenancy rights.

(a) Jurisdictional Error:

The CIT(A) erred in law and on facts in confirming addition of Rs. 34,38,()()()/- as LTCG by invoking Sec. 50C, ignoring that the transaction was a tenancy agreement and not transfer of land/building.

(b) Misapplication of Section 50C:

The CIT(A) failed to appreciate that Sec. 5(C applies only to transfer of capital asset being land or building or both. Tenancy rights, though capital assets, are distinct and outside the ambit of Sec. 5(C. Reliance is placed on:

Greenfield Hotels & Estates Pvt. Ltd. (Bombay HC), (8

Atul G. Puranik (ITAT Mumbai), (Mumbai)

Fleurette Marine Hatam (ITAT Mumbai), (Mumbai Tribunal)

Kishori Sharad Gaitonde (ITAT Mumbai), IT Appeal No.1561 (Mum) of 2((9

The CIT(A) erred in holding that absence of duration clause in tenancy agreement implied perpetual transfer of ownership. The agreement clearly stipulates monthly rent, advance deposit, and landlord’s continuing rights, which are inconsistent with ownership transfer.

Ground No.2

The Learned CIT(A) erred in confirming the order of the Assessing Officer by not considering the facts of the case and not following the judgment of Bombay High Court in CIT v. Greenfield Hotels & Estates Pvt. Ltd. [2(16 389 ITR 68) (BOM) and not following judgment of ITAT, Mumbai in case of (a) Fleurette Marine Novelle Hatam v. ITO (ITA No. 7468/Mum 213) (b) Smt. Kishori Sharad Gaitonde v. ITAT (Mumbai) ITA No. 1561/M/09 (Mum)

(a) Denial of Natural Justice:

The CIT(A) erred in dismissing the appeal without properly considering detailed submissions, judicial precedents, and documentary evidence filed. The AO also denied adjournment and completed assessment hurriedly.

(b) Notional Income Taxed:

The CIT(A) erred in confirming taxation of notional capital gains when no consideration was received by the appellant other than nominal rent. Sec. 45 taxes only real income arising from transfer, not hypothetical gains.

Ground No.3

Ownership Misattributed:

The CIT(A) erred in taxing alleged capital gains in the hands of the Appellant as individual, ignoring documentary evidence (Partition Deed, Property Card) that the property belongs to HUF of Purshottam Keshavji Dharamshi. Any income, if at all, is assessable in HUF’s hands.

Ground No. 4

Cost of Acquisition Wrongly Taken as NIL:

The AO and CIT(A) erred in treating cost of acquisition as NIL, ignoring Sec. 49(1) which mandates substitution of cost to previous owner in case of inheritance.

Ground No. 5

The Appellant reserves right to add, amend or alter any of the Grounds of Appeal.

Brief facts of the case are as under:

2. The assessee, an individual, filed his return of income for the year under consideration on 12.07.2018 declaring a total income of Rs. 2,80,877/-. The case was selected for scrutiny, and notices under sections 143(2) and 142(1) of the Income-tax Act, 1961 were issued from time to time calling upon the assessee, inter alia, to furnish details regarding the source of income, computation of income, copies of sale and purchase deeds of immovable properties, details of capital gains or loss arising from any transfer of immovable property, and the statement of affairs.

2.1. In response, the assessee, vide letter dated 19.01.2021, submitted that he had neither purchased nor sold any immovable property during the relevant previous year. However, it was explained that a document had been registered on 12.06.2017 in respect of the tenancy of Room No. 16, 4th Floor, situated at 19/21, Lad Wadi, Hanuman Lane. Since the assessee did not furnish the registered tenancy deed or any supporting documentary evidence, the Assessing Officer relied upon the information available on record indicating that a document had been registered on 13.06.2017 for a value of Rs. 32,28,000/-. Consequently, the Assessing Officer issued a further notice requiring the assessee to explain the nature of the rights transferred under the said document and to clarify whether the provisions of section 50C of the Act were attracted.

2.2. In response, vide letter dated 15.03.2021, the assessee submitted that the document in question was merely a tenancy agreement dated 13.06.2017 under which the premises had been let out on a monthly rent of Rs. 375/-, with three months’ rent received in advance. It was further explained that the value adopted for the purpose of levy of stamp duty was Rs. 34,38,000/-, being the value determined by the stamp valuation authority in accordance with the applicable stamp duty provisions governing tenancy/lease agreements, and that such valuation did not represent the consideration received by the assessee. The assessee categorically submitted that no premium, pagadi, or any other consideration, apart from the stipulated rent, had been received under the tenancy agreement. It was, therefore, contended that there was no transfer of a capital asset for consideration and, consequently, the deeming provisions of section 50C of the Act were not applicable to the transaction.

2.3. The Ld.AO after considering the submissions of the assessee observed and held as under:

“6. During the course of assessment proceedings, the assessee submitted that the immovable property Room No. 16, 4 th Floor, 19/21, Ladwadi, Hanuman Lane, Mumbai-400 002 came to the assessee’s possession by way of inheritance as a Karta of HUF of Purshottam Keshavji Dharamshi vide the partition deed dated 10.03.1972. From the above it is evidently clear that the assessee is a owner of the immovable property as mentioned above and not merely, a lease holder. Further, vide the notice issued u/s 142 dated 11.03.2021, the assessee was asked specifically for the duration of the agreement, in absence of any duration of the agreement, it is considered as if the agreement for tenancy rights is entered into with the tenant for perpetuity. In other words, the rights of immovable property i.e. an capital assets have been transferred to the tenant. The assessee vide in his reply dated 15.03.2021 has not contested for duration of the agreement and also no clarification or reply was furnished on this issue. Therefore, it can be clearly seen that this transfer of immovable property is not a transfer of tenancy rights, it is a transfer of ownership, as the owner i.e. the assessee has transferred its rights to the tenant for perpetuity which invokes the section 2(47)(vi) r.w.s. 269UA(d), for the sake of clarity, the provisions of section 2(47) and 269Ua is reproduced as under for ready reference:…………….

2(47)……………….

(vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation 1.—For the purposes of sub-clauses (v) and (vi), “immovable property” shall have the same meaning as in clause (d) of section 269UA…………….

269UA …………….

(d) “immovable property” means— (i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also. Explanation.—For the purposes of this sub-clause, “land, building, part of a building, machinery, plant, furniture, fittings and other things” include any rights therein;…………

7. As discussed above, the immovable property having 242 sq ft area at Room No. 16, 4 th Floor, 19/21, Ladwadi, Hanuman Lane, Mumbai-400 002 has been transferred by way of entering into an agreement of lease which does not put any restriction on the buyer for enjoyment of the said immovable property for indefinite time. Also, the agreement does not contain any remaining rights in the property for the assessee nor it creates any liabilities/restrictions what so ever in the case of buyer. Thus, in view of the provisions of section 2(47)(vi) r.w.s 269UA it is clearly a transfer of building and therefore the provisions of section 50C definitely applies to the case.

8. The assessee also relied on the judicial pronouncements of Bombay High Court and ITAT Mumbai, it is noteworthy to mention that these judicial orders are about transfer of tenancy rights. But in the instant case, as discussed above, it is a transfer of ownership of capital assets. Hence the ratio of above judgements does not apply to the facts of the case of the assessee.

9. In view of the section 2(47)(vi) r.w.s. 269UA(d) it is a transfer of building having 242 sq ft area at Room No. 16, 4 th Floor, 19/21, Ladwadi, Hanuman Lane, Mumbai-400 002 and the value of the property adopted for the purpose of calculating the stamp value is taken as the sale consideration and the same is adopted at Rs. 34,38,000/-. Vide the notice issued u/s 142(1) dated 11.03.2021, the assessee was asked to furnish the cost of acquisition, in response the assessee chose not to furnish cost of acquisition and remained silent on it. Since the assessee has not furnished, the cost of acquisition is taken as NIL for the purpose of computation of capital Gain. In the instant case, the period of holding is more than 36 months, hence the profit has to be treated as long term capital gains accordingly the long term capital gains is worked out as under:

Sale Consideration – Rs.34,38,000/-(As discussed above)

Less: Cost of acquisition – NIL

Long Term Capital Gains= Rs. 34,38,000/-

As such, the above worked out long term capital gains of Rs. 34,38,000/- is brought to tax and added to the return income of the assessee.

Addition on account of LTCG: Rs. 34,38,000/-

Penalty proceedings u/s 270A(9) for under reporting of income which is in consequent of mis-reporting of income is initiated as the assessee failed to declare the above long term capital gains in the return of income filed.”

Aggrieved by the order of the Ld.AO assessee preferred appeal before the Ld.CIT(A).

3. Ld.CIT(A) after considering the submissions of the assessee observed and held as under:

“5. 1 The brief facts of this case are that information was received by the AO thatthe appellant had been involved in a immovable property transaction which was registered on 13.06.2017 for a consideration of Rs. 32,28,000/- having stamp value of Rs. 34,38,000/-. Appellant had furnished a copy of tenancy agreement entered with Smt. Anusuiya Ravi Mishra before AO in respect of a property admeasuring 242 square feet and the monthly rent as per the said agreement was Rs. 375/- and it was also stated that appellant was given Rs. 1,125/-(three months’ rent) as advance. It was noticed by the AO that the duration of the agreement was not mentioned and under these conditions, it is considered as if the agreement for tenancy rights is entered into with the tenant for perpetuity. It was held that the rights of immovable property /capital asset had been transferred to the tenant i.e. Smt. Anusuiya Ravi Mishra. The property under reference was Room No-16, 4th Floor, 19/21, Ladwadi, Hanuman Lane, Kalbadevi, Mumbai-400002, which was an immovable property coming into appellant’s possession by way of inheritance as a Karta of HUF of Purshottam Keshavji Dharamshi. In this regard a partition deed dated 10.03.1972 was furnished by appellant before AO. It was held that the appellant is a owner of the immovable property and not merely, a lease holder and in absence of any duration of the agreement, the agreement for tenancy rights can be held to be entered into with the tenant for perpetuity. In other words, the rights of immovable property i.e. an capital assets have been transferred to the tenant.

5.2 Before the AO, appellant has not contested duration of the agreement and no clarification was furnished on this issue. Therefore, it was held that this transfer of immovable property is not a transfer of tenancy rights, it is a transfer of ownership, as the owner i.e. the appellant has transferred its rights to the tenant for perpetuity. Invoking the provisions of section 2(47)(vi) r.w.s. 269UA(d) AO had worked out long term capital gains of Rs. 34,38,000/-.

5.3 During the appellate proceedings, no fresh arguments were put forth by the appellant. It was submitted by the appellant that the tenancy agreement dt. 13.6.2017 was Registered with the Registrar of Assurances and for the purposes of stamp duty the value was taken by the Stamp Authority at Rs. 34,38,000/-. The provisions of Sec. 50C are not applicable as no transfer of Land and/or Building/premsies has taken place.

5.4 I have perused the assessment order and the submissions of the appellant. It is clearly brought on records by the AO that the source of acquisition of the said property with the appellant was through inheritance. Appellant has not disputed the payment of stamp duty on the valuation at Rs. 34,38,000/- and entered into a transaction that amounted to transfer within the meaning of section 2(47)(vi) of the Act. The consideration reported by the appellant is much below the Fair Market value of the said property and therefore the AO has rightly adopted the fair market value asconsideration in this case. Appellant has also not disputed the finding of AO on perpetual enjoyment of rights in the said property. Accordingly, I do not find any infirmity in the order of the AO and the additions made by the AO are hereby confirmed.

Aggrieved by the Ld.CIT(A) assessee filed appeal before this Tribunal.

4. The Ld.AR submitted that the authorities below proceeded on an erroneous assumption that the property in question belonged to the assessee in his individual capacity. Inviting our attention to the partition deed dated 10.03.1972, the Ld.AR submitted that the property originally belonged to Late Shri Keshavji Dharamshi and, upon his demise, devolved upon the HUFs of Shri Purushotam Dharamshi and Shri Parmanand Keshavji. Pursuant to the partition effected under the deed dated 10.03.1972, the property in question fell to the share of Purushotam Dharamshi HUF.

4.1. The Ld.AR further submitted that the property continues to be owned by the members and coparceners of the said HUF, as is also evident from the property card. It was contended that the assessee appears before the Tribunal only in his capacity as the Karta of the HUF and not as the individual owner of the property. Therefore, any income arising from the property, including rental income or capital gains, if any, is assessable only in the hands of the HUF and not in the hands of the assessee in his individual capacity. It was, therefore, submitted that the addition made in the individual assessment of the assessee deserves to be deleted on this ground alone.

4.2. Without prejudice to the above, the Ld.AR submitted that the authorities below have erroneously invoked the provisions of section 50C of the Act in respect of a tenancy agreement. It was argued that the Assessing Officer has incorrectly treated the value adopted by the stamp valuation authority for the purpose of levy of stamp duty on the tenancy agreement as the full value of consideration received by the assessee for transfer of tenancy rights, despite there being no such consideration in fact.

4.3. Elaborating further, the Ld.AR submitted that under the tenancy agreement the assessee was entitled only to monthly rent of Rs. 375/-, and no premium, salami, pagadi or any other consideration was received. The value of Rs. 34,38,000/- was adopted solely by the stamp valuation authority for the limited purpose of computation of stamp duty payable on the registration of the tenancy agreement and did not represent the actual consideration received by the assessee. It was, therefore, contended that there was neither any transfer of land or building nor any transfer attracting capital gains under the Act. Consequently, the deeming fiction contained in section 50C could not be invoked, and no capital gains were liable to be assessed in the hands of the assessee.

4.4 Per contra, the Ld.DR strongly relied upon the orders of the Assessing Officer and the learned Commissioner of Income-tax (Appeals) and submitted that the addition has been rightly made on the basis of the material available on record. The Ld.DR particularly placed reliance on the findings recorded by the Ld.CIT(A), as reproduced hereinabove, and contended that the same do not call for any interference.

4.5. In rejoinder, and without prejudice to his primary submissions, the Ld.AR alternatively contended that, in the event this Tribunal were to hold that the transaction gives rise to taxable capital gains in the hands of the assessee, the benefit of substitution of the fair market value of the asset as on 01.04.2001 as the cost of acquisition ought to be granted in accordance with the provisions of the Act while computing the capital gains. (The date appears to have been inadvertently mentioned as 01.04.2021; for assets acquired prior thereto, the relevant statutory date is 01.04.2001.)

We have perused the submissions advanced by both sides in the light of the records placed before us.

5. We have heard the rival submissions and perused the material placed before us. The primary controversy arising for our consideration is whether the authorities below were justified in invoking the provisions of section 50C of the Act merely on the basis of the stamp duty valuation adopted for registration of the tenancy agreement and treating the same as the full value of consideration for the purpose of computing long-term capital gains.

5.1. At the outset, we find that the Revenue has proceeded on the premise that the assessee had transferred an immovable property for a consideration equivalent to the value adopted by the stamp valuation authority. However, from the material placed on record, it emerges that the document registered on 13.06.2017 is a tenancy agreement under which the premises were let out on a monthly rent of Rs. 375/-. Except for the value adopted by the stamp valuation authority for the purpose of levy of stamp duty, there is no material brought on record by the Assessing Officer to demonstrate that the assessee had received any consideration of Rs. 32,28,000/- or Rs. 34,38,000/-, or any amount whatsoever, over and above the agreed rent.

5.2. Section 50C creates a legal fiction whereby the value adopted by the stamp valuation authority may be substituted as the full value of consideration only in respect of the transfer of a capital asset, being land or building or both, where the actual consideration declared is less than such value. The provision cannot be invoked in isolation merely because a document has been subjected to stamp duty valuation. Before invoking the deeming fiction, the Revenue must first establish that there has been a transfer covered by the provision and that consideration has arisen on account of such transfer. In the present case, the Assessing Officer has not brought any evidence on record to establish that the assessee had transferred ownership rights in the property or that any consideration, other than the stipulated monthly rent, had accrued or been received by him.

5.3. We further find merit in the contention of the assessee that the value adopted by the stamp valuation authority for registration of the tenancy agreement is only for the limited purpose of determination of stamp duty liability and cannot, by itself, be presumed to represent the actual consideration received by the assessee. In the absence of any material establishing receipt of consideration corresponding to the stamp duty valuation, the deeming provisions of section 50C cannot be extended beyond their legitimate scope.

5.4. We also note that the assessee has raised a specific contention that the property belongs to Purushotam Dharamshi HUF and that the assessee has executed the tenancy agreement only in his capacity as the Karta of the HUF. Although the assessee has placed reliance upon the partition deed dated 10.03.1972 and the property records in support of this contention, in the view we have taken that the very invocation of section 50C is unsustainable on the facts of the present case, adjudication of the said issue is rendered academic and does not call for any separate finding.

5.5. Accordingly, we hold that the Ld.AO was not justified in treating the stamp duty valuation as the full value of consideration for the purpose of computing long-term capital gains. The addition made by invoking section 50C, therefore, cannot be sustained and is directed to be deleted. In view of this conclusion, the alternate plea of the assessee regarding adoption of the fair market value as on 01.04.2001 for computing the capital gains has become academic and requires no adjudication.

Accordingly grounds raised by the assessee stands allowed.

In the result, appeal filed by the Assessee stands allowed.