Sold Leasehold Garage room-Taxation treatment

Dear Experts,

An assessee had taken a garage room on sub lease for 50 years in 1992,now in 2019,he has entered into sub-lease agreement and transferred the property resulting in Capital Gains .The difference between Consideration received and Stamp duty valuation is huge.Please guide with following queries : 1) As per reading of case laws,section 50C is not applicable on sale of leasehold property,kindly guide whether it is true that section 50C is not applicable in leasehold property? 2) If above answer is yes,then while filing ITR, whether long term capital gain to be shown in Point-B-10 (From sale of assets where B1 to B9 above are not applicable) as in point-B1,it asks for Stamp duty Valuation.

Thanks in Advance

Hi Neha, here’s some clarity on your queries about leasehold garage room sale and capital gains taxation:

1) Applicability of Section 50C on Leasehold Property Sale

Section 50C of the Income Tax Act applies to transfer of immovable property, which includes both freehold and leasehold rights.
However, there has been some debate and case law interpretations regarding whether Section 50C applies strictly to freehold or also to leasehold properties.
Generally, the CBDT and courts have held Section 50C applicable to leasehold properties as well because a leasehold interest is a capital asset.
But some specific case rulings have differed based on facts (e.g., term of lease, type of interest transferred).
So, it’s safer to assume Section 50C applies to leasehold property transfers, unless you have strong legal precedence otherwise in your jurisdiction.

2) Treatment in ITR Filing

When filing ITR (especially ITR-2 or relevant form for capital gains), capital gains on sale of leasehold property should be reported under Long Term Capital Gains section if the leasehold period exceeds 36 months (typically qualifies as long-term).
Regarding point B1 (capital gains with Stamp Duty value), if Section 50C applies, then you must use stamp duty value (circle rate) as deemed consideration or higher of sale consideration or stamp duty value.
If Section 50C does not apply (which is uncommon for leasehold), you report actual sale consideration in B-10 (capital gains where B1 to B9 not applicable).
Since your case involves a huge difference between consideration and stamp duty value, you must carefully decide on applicability of Section 50C.

Recommendation

Confirm with a tax consultant or legal expert if any recent jurisdictional ruling exempts leasehold properties from Section 50C in your area.
If Section 50C is applicable, report the capital gain under B1 with stamp duty value as deemed sale consideration.
If not applicable, report under B10 with actual sale consideration.
Maintain all documents like sub-lease agreements, stamp duty valuations, and proof of consideration for audit purposes.