Sec 50C is not applicable in case of compulsory acquisition of capital asset, as there is no question of payment of stamp duty

Relying on CBDT Circular No. 36 of 2016 dated Oct 25, 2016 whereby income tax exemption on compensation on compulsory acquisition of agricultural land is extended to the compulsory acquisition of non-agricultural land, the Calcutta High Court held that the compensation received by the Assessee on account of compulsory acquisition of land under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 is exempt from the tax.

The Division Bench comprising of Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya observed that “in case of compulsory acquisition of a capital asset being land or building or both, the provisions of Section 50C cannot be applied as the question of payment of stamp duty for effecting such transfer does not arise”.

The Bench therefore clarified that the transfer through compulsory acquisition does not attract Section 50C since it is applicable only in cases where the transfer must be affected upon payment of stamp duty and since the question of payment of stamp duty itself does not arise in case of compulsory acquisitions by the Government, Section 50C of Income Tax Act cannot be invoked. 

Advocate Sumit Ghosh appeared for the Assessee while the Revenue was represented by Advocate Vipul Kundalia.

Briefly, the Assessee company received compensation of Rs.4.48 Cr on compulsory acquisition of land from NHAI under the Land Acquisition Act, 2013. During assessment, the AO made addition of Rs.5.45 Cr as capital gain on transfer of land by adopting the sale consideration as per stamp duty valuation of the said land at Rs.9.95 Cr by invoking Section 50C.

On appeal, the CIT(A) held that AO was not justified in invoking Section 50C on compulsory acquisition of land and directed the AO to re-compute the capital gains without applying Section 50C.

After considering the submission, the Bench observed that in a case of compulsory acquisition of land by the Government, there is no room for suppressing the actual consideration received on such acquisition, unlike the transaction between the private parties.

The Bench further observed that when compensation is determined by the authorities under the Land Acquisition Act, 2013, it is invariably lesser than the market value of the property as the determination is done in a particular manner by taking note of several factors.

The Bench clarified that since it is a case of compulsory acquisition of land by the Government, the AO cannot say that there was suppression of the value and consequently the question of invoking Section 50C does not arise.

Observing that Section 96 of the Land Acquisition Act, 2013 provides that income tax shall not be levied on any award or agreement made except those made under Section 46 of the said Act, the Bench emphasized that the provisions of Section 50C shall be applicable only in cases where transfer of the capital asset must be affected upon payment of stamp duty, since it provides for adoption of value of the property adopted by the stamp authority.

Accordingly, the High Court upheld the ITAT’s order holding that Section 50C cannot be applied to the present case.

Cause Title: Principal Commissioner of Income Tax vs. The Durgapur Projects Limited [ITAT NO. 282 OF 2022 / 2023-Enterslice-16-HC-Cal-IT]

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