Bombay HC upholds substitution of stamp duty value as deemed full value of consideration on assignment of leasehold rights in land

In the case of Vidarbha Veneer Industries Ltd. ^[1] (Taxpayer), the Bombay High Court (HC) considered the issue of applicability of stamp duty value on transfer of land and building to transaction of assignment of lease in long term leasehold land in terms of anti-abuse provision in the ITL for substituting stamp duty value where the transaction value is less than such stamp duty value. 

The Taxpayer had acquired leasehold rights in land from a state industrial development corporation (viz. MIDC) on 31 March 1979. Subsequently, on 30 August 2004, the Taxpayer assigned these leasehold rights through a Deed of Assignment. The Taxpayer relied upon Mumbai Tribunal decision in case of Atul G. Puranik v. ITO^[2]  which held that the provision for substitution of stamp duty value as sale consideration for computing capital gains is not applicable to transfer of leasehold rights in land.  Tax Authority, while assessing the capital gains arising from the assignment, substituted the stamp duty value as the deemed full value of consideration by invoking the anti-abuse provision. The Tribunal upheld the application of anti-abuse provision to the transfer of leasehold rights in land.

The Taxpayer challenged the Tribunal’s order before the Bombay HC, relying on the decision in Atul G. Puranik v. ITO (supra), which held that leasehold rights cannot be equated with land or building for application of anti-abuse provision.

The HC noted that the anti-abuse provision applies to the transfer of “land or building or both” and held that legal ownership is not a prerequisite for treating a property as a capital asset. The definition of capital asset requires that the property should be “held by the assessee”. Thus, an immovable property may be held by a taxpayer in different modes being as a lessee, sub-lessee, allottee, tenant, licensee, gratuitous licensee or under any other mode permissible or recognized by law. 

The HC held that the expression “held by an assessee” does not restrict the manner in which the land or building can be held. The holding of land, is merely a method in which rights to the land, can be held or acquired, by a person. That cannot be in any manner equated with land or building, but rather, would be a species of the right to hold it, which as indicated above, are of multiple nature.

Accordingly, the HC held that the anti-abuse provision applies to all modes of transfers which are permissible and recognizable in law and would include transfer by way of assignment.

The HC further observed that the decision in Atul G. Puranik (supra) merely states that leasehold rights cannot be equated with land or building but does not consider the fact that mode of holding property should not impact application of anti-abuse provision. The HC expressed disagreement with the decision of Atul G. Puranik (supra) and also with the coordinate bench decision in Greenfield Hotels and Estates Pvt. Ltd. ^[3] , noting that the latter ruling merely dismissed the appeal on the grounds that the tax authority had not preferred an appeal against Atul G. Puranik (supra) without addressing the issue on merits.

^[1] [TS-363-HC-2025(Bom)]
^[2] (2011) 30 CCH 0239 (Mum Trib)
^[3] (2016) 389 ITR 0068 (Bom)