The main legal point established in the judgment is that the transfer of leasehold interests in agricultural land attracts capital gains, and Section 50C of the Income-tax Act, 1961 is applicable to such transfers.

S. RAVINDRA BHAT, J.

1. This appeal by the assessee - a Hindu Undivided Family (HUF), questions an order of the Income Tax Appellate Tribunal (ITAT) which allowed the revenue’s appeal.

2. The facts of the case are that the assessing officer (AO) added Rs. 40,40,000/- under Section 50C of the Income-tax Act, 1961 [hereafter ‘the Act’ for short]. The assessee had for the relevant assessment year (AY) filed its return declaring an income of Rs. 9,35,010/- including long term capital gain of Rs. 7,57,435/-. Later, a notice under Section 148 of the Act was issued to the assessee on 21.03.2016. During assessment proceedings, the assessee was asked to explain as to why Section 50C of the Act be not invoked with respect to the consideration received on sale of agricultural land as assessed by the authorities for the purpose of stamp duty. The assessee sold its rights in the agricultural land measuring 0.64 hectares in Village-Tulera, Tehsil & Distt. Alwar, Rajasthan on 31.03.2009 for Rs. 30 lakhs. According to the AO, the value of land for the purpose of stamp duty was Rs. 70,40,000/-. The assessee claimed possession and occupation of the lands only as a tiller/Kashtkar and not as an owner. It argued that Section 50C was inapplicable; it contended that the owner of the lands was the State of Rajasthan. The AO rejected the explanation holding that the sale consideration was received by the assessee, and not the State of Rajasthan. It further observed that the assessee had failed to prove that the State of Rajasthan was the owner of the land. The CIT(A), held that the addition of Rs. 40,40,000/-, on account of difference in LTCG was not justified. It was held that Section 50C did not extend to rights in the property and since the assessee was not the absolute owner of the property transferred, the said Section has no application.

3. The Revenue, in its appeal to ITAT challenged the deletion of Rs. 40,40,000/-. The ITAT, in its impugned order, held as follows:

“8. There is a difference between a lease where the period is specified for e.g. 40 years, 60 years etc. and a perpetual lease where no period is specified. In the first case, rights over the property for a certain period are transferred and the property goes back to the owner after the expiry of the lease term. However, in the latter case, the property is perpetually with the lessee and does not go back to the owner. The lessee in a perpetual lease is virtually the owner of the property.

9. The CIT(A) in the impugned order failed to appreciate that the lease deed was a perpetual lease deed. It is relevant to refer to the submission made by the assessee before the CIT (A) on 29.05.2017 wherein it was stated as under:

"Agricultural land in Rajasthan is owned by the Government and is under the cultivation of different subjects of the State. Subjects occupy the land as tillers, cultivators, Kashtkars, Dakhaikars, Khatedars and Kabzadars. Occupants are the perpetual lessees. Subjects sell their limited rights in the land and the ownership always remains with the State Govt. Circle rates declare by the Govt., for the purpose of levy of stamp duty are applicable to transfer of such rights in land.

Stamp duty rates as applicable in Rajasthan are envisaged in schedule to the Stamp Duty Act. Rates of stamp duty applicable to conveyance of movable and immovable property are given in Article 21 of the Schedule. In case of immovable property, the rates of stamp duty is 11% of market value. Explanation-1 to article 21 reads "For the purpose of this Article an agreement to sell an immovable property or an irrevocable power of attorney or any other instrument executed in the course of conveyance or lease e.g. allotment letters, patta, license etc. shall, in the case of transfer of the possession of such property before, at the time of or after the execution of any such instrument, be deemed to be a conveyance and the stamp duty thereon shall be chargeable accordingly:"

Rates of stamp duty appli