ITO 12(3)(3), MUMBAI V. MEHER R SURTI, MUMBAI

ITA 1186/MUM/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70918 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 05-08-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 11-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SHEKHAR L GAJBHIYE
• Keywords: Capital asset; Gift; Cost of acquisition; Fair market value; Wrong claim; Valuation report; Surrender of tenancy right
• Section: 54F; 27; 54

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL D DD D BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . , . , ! ! ! ! '# '# '# '# BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI D. KARUNAKAR D. KARUNAKAR D. KARUNAKAR D. KARUNAKARA AA A RAO RAO RAO RAO, AM , AM , AM , AM ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 531/MUM/2013 531/MUM/2013 531/MUM/2013 531/MUM/2013 ( $% $% $% $% & & & & / ASSESSMENT YEAR :2009-10) M/S MEHER R. SURTI FLAT NO. 1, GR. FLOOR, SUNSHINE, 156, MAHARSHI KARVE ROAD, CHURCHGATE MUMBAI-400020 % % % % / VS. INCOME TAX OFFICER 12(3)(3) MUMBAI ( '( / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( )*'( / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 1186/MUM/2013 1186/MUM/2013 1186/MUM/2013 1186/MUM/2013 ( $% $% $% $% & & & & / ASSESSMENT YEAR :2009-10) INCOME TAX OFFICER 12(3)(3) MUMBAI % % % % / VS. M/S MEHER R. SURTI FLAT NO. 1, GR. FLOOR, SUNSHINE, 156, MAHARSHI KARVE ROAD, CHURCHGATE MUMBAI-400020 #' ! ./ + ./ PAN/GIR NO. :AAQPS7150R ( '( / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( )*'( / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) '( '( '( '( , , , , / APPELLANT BY : MR. FIROZE B. ANDHYARUJINA )*'( )*'( )*'( )*'( - -- - , , , , /RESPONDENT BY : MR. SHEKHAR L. GAJBHIYE % % % % - -- - .! .! .! .! / DATE OF HEARING : 6 TH AUGUST 2013 /0& /0& /0& /0& - -- -.! .! .! .! /DATE OF PRONOUNCEMENT: 4 TH SEPTEMBER 2013 ' 1 ' 1 ' 1 ' 1 / O R D E R PER : , . . / VIJAY PAL RAO, JM THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 02.11.2012 OF COMMISSIONER OF INCOME TAX(APPEALS) FOR THE ASSESSMENT YEAR 2009-10. ITA NO.531 & 1186/M/2013 MEHER R. SURTI 2 2. IN APPEAL I.T.A.NO.351 OF 2013 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER AND DENYING THE BENEFIT OF SECTION 54 OF TH E INCOME TAX ACT, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) HAS FAILED TO APPRECIATE THE PLEA OF THE APPELLANT THAT THE PROVISION OF SECTION 55(3) TO BE READ WITH THE SECTION 49(1)(II) WERE CLEARLY ATTRACTED IN THE CASE AND NOT THE PROV ISION OF SECTION 55(2) OF THE INCOME TAX ACT, 1961. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE ASSESSING OFFICER HAVING HIMSELF ACCEPTED THAT THE TENANCY RIGHTS HAD BEEN ACQUIRED BY THE ANCESTORS OF THE AP PELLANT PRIOR TO 01.04.1981 THE CIT(A) WAS WRONG IN NOT HOLDING THAT THE COST OF ACQUISITION WAS TO BE ADOPTED AS ON 01.04.1981 AND THE BENEFIT OF INDEXATION ALSO BE GIVEN TO THE APPELLANT. THAT THE CIT(A) WAS WRONG TO IGNORE SECTION 55(3) WHICH IS APPLICABLE I N THIS CASE. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN OVERLOOKING THE PROVISION O F SECTION 27 (IIIB),49(1)(III) (E) AND SECTION 55(2)(3) OF THE I NCOME TAX ACT, 1961 ON THE BASIS OF WHICH THE APPELLANT IS ENTITLE D TO THE BENEFIT OF COST OF ACQUISITION AS ON 01.04.1981, BENEFIT OF INDEXATION AND THE BENEFIT OF INVESTMENT UNDER SECTION 54. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW AND WITHOUT PREJUDICE TO THE OTHER GROUNDS OF APPEA L, SINCE THE REVENUE INSISTS THAT THE COST OF ACQUISITION OF THE TENANCY RIGHTS CANNOT BE DETERMINED IN THIS CASE NO CAPITAL GAIN I S ASSESSABLE TO TAX AS PER THE DECISION OF SUPREME COURT IN THE CAS E OF UNION OF INDIA AND ANOTHER V/S. CADELL WEAVING MILL COMPANY PRIVATE LIMITED AND ANOTHER 273 ITR 1(SC). 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE AND IN LAW, THE CIT(A) HAS ERRED IN DENYING THE BENEFIT THE AMOUNT INCURRED ON THE HEAVY REPAIRS TO MAKE THE HOUSE INHABITABLE U/S 48 OF THE INCOME TAX ACT, 1961 ALTHOUGH THE DETAILS WERE ON T HE RECORD OF THE ASSESSMENT PROCEEDINGS. 7. THE APPELLANT CRAVES LEAVE TO ADD AND OR TO AMEN D OR ALTER ANY OF THE GROUNDS OF APPEAL ANY TIME BEFORE THE FINAL DISPOSAL OF THE APPEAL. ITA NO.531 & 1186/M/2013 MEHER R. SURTI 3 3. BEFORE DEALING WITH THE ISSUES RAISED IN THE GRO UNDS, WE WOULD LIKE TO MENTION THE BRIEF HISTORY OF THE EVENTS, IN RESP ECT OF THE PROPERTY IN QUESTION: (I)THE PROPERTY NAMELY A BUNGALOW THE PROPERTY NAMELY A BUNGALOW THE PROPERTY NAMELY A BUNGALOW THE PROPERTY NAMELY A BUNGALOW CS NO. 590 OF CS NO. 590 OF CS NO. 590 OF CS NO. 590 OF MALABAR SITUATED AT NEPEAN SEA ROAD MUMBAI 400 036 WAS PURCHASED BY MR. BOMANJEE EDULJEE CASSINATH THE GREAT-GREAT GRANDFATHER OF TH E ASSESSEE IN AND AROUND 1898. SHRI B.E. CASSINATH DIED AROUND 1912 A ND LEFT A WILL DATED 8 TH AUGUST 1895 AND THE CODICIL THERETO DATED 27 TH AUGUST 1900 WHEREBY CREATED A TRUST AND LIFE INTEREST CLAUSES IN FAVOUR OF THE HEIRS OF THE TESTATOR. SHRI WOOKERJEE BOMANJEE CASSINATH (SON OF BOMANJEE EDULJEE CASSINATH) WAS APPOINTED AS A TRUSTEE OF THE WILL W HO HAS FURTHER APPOINTED TRUSTEES TO EXECUTE THE CODICIL OF HIS FA THERS WILL VIDE DEED OF SETTLEMENT OF TRUST REGISTERED WITH SUB-REGISTRAR O F BOMBAY UNDER REGISTRATION NO. 35 BOOK NO.1 DATED 19 TH JANUARY 1932. IN THE MEAN TIME MR. CURSETJEE WOOKERJEE CASSINATH ANOTHER SON OF B. E. CASSINATH MORTGAGED HIS SHARE TO SEVERAL MORTGAGEES IN OR ARO UND LATE 1930S AND THEREAFTER IN THE YEAR 1942, 1943 & 1944. THE PROPE RTY WAS ALSO SOLD IN THE YEAR 1942 BY THE TRUSTEES OF THE WILL TO SIR EZ RA KNIGHT, HOWEVER, THE ENTIRE FAMILY OF THE SONS OF B.E. CASSINATH CONTINU ED TO RESIDE IN THE SAME PROPERTY EVEN AFTER ITS SALE. INITIALLY THE 1 ST FLOOR OF THE PROPERTY WAS USED FOR RESIDENCE OF THE FAMILY BUT LATER ON THE GRANDF ATHER OF THE ASSESSEE NUSSERWANJI WOOKERJI CASSINATH TOOK THE GROUND FLOO R OF THE PROPERTY ON RENT FROM THE LANDLORD/PURCHASER IN OR AROUND 1944- 45. THE LANDLORD USED TO ISSUE RENT RECEIPTS IN THE NAME OF NUSSERWANJI W OOKERJEE CASSINATH, ITA NO.531 & 1186/M/2013 MEHER R. SURTI 4 THE GRANDFATHER OF THE ASSESSEE. THEREAFTER THE PRO PERTY CHANGED HANDS SEVERAL TIMES FROM 1945 TO 2002 BUT THE FAMILIES OF THE HEIRS OF WOOKERJEE CASSINATH HAVING BENEFICIAL INTEREST UNDE R THE TRUST AND SALE DOCUMENT CONTINUED TO RESIDE IN THE SAID PROPERTY. THE BRIEF DETAILS OF THE TRANSFER OF THE PROPERTY FROM ONE HAND TO ANOTH ER HAND ARE AS UNDER: 1942 SIR EZRA KNIGHT 1943 J DAVID SASOON AND COMPANY 1945 RAMNATH MAHDAVDAS 1947 S.C. BANERJEE 1947 GAURAJADEVI BALMUKUND 2002 KAPI BUILDERS PVT. LTD. AND KUPATI BUILDERS PV T. LTD. (II) NUSSERWANJI WOOKERJI CASSINATH, THE ASSESSEES GRANDFATHER DIED IN 1970 LIVING BEHIND HIS WIFE MARY, DAUGHTERS AMY & T EHMIN. THE ASSESSEE IS THE ONLY DAUGHTER OF AMY AND WAS LIVING IN THE S AME PROPERTY SINCE BIRTH I.E. 1972 TILL THE PROPERTY IN QUESTION WAS S OLD BY SURRENDERING THE TENANCY/OCCUPANCY RIGHT IN THE YEAR 2008. THE MOTHE R OF THE ASSESSEE DIED IN THE YEAR 1996 AND ASSESSEE BEING ONLY HEIR SUCCEEDED HER MOTHER. THE GRANDMOTHER OF THE ASSESSEE NAMELY MARY DIED IN THE YEAR 1998 AND AFTER THE DEATH OF THE GRANDMOTHER THE ASS ESSEE AND HER AUNT TAHMIN WERE IN THE OCCUPATION, IN RESPECT OF THE GR OUND FLOOR OF THE PROPERTY. 4. GROUND NO. 1 REGARDING THE DENIAL OF EXEMPTION U /S 54 AND GRANTING EXEMPTION U/S 54F. DURING THE YEAR UNDER CONSIDERAT ION THE ASSESSEE HAD SURRENDERED THE TENANCY RIGHTS IN THE PROPERTY IN Q UESTION WHICH RESULTED ITA NO.531 & 1186/M/2013 MEHER R. SURTI 5 IN CAPITAL GAINS LIABLE TO TAX IN HER HANDS. WHILE COMPUTING THE TAXABLE LONG TERM CAPITAL GAINS ON SURRENDER OF TENANCY RIG HTS THE ASSESSEE HAD CLAIMED DEDUCTION TOWARDS THE COST OF ACQUISITION A ND ALSO CLAIMED DEDUCTION FOR EXPENSES INCURRED IN CONNECTION WITH TRANSFER SUCH AS ARCHITECT/ VALUERS FEES, LEGAL FEES, ETC. THE ASSE SSEE FURTHER CLAIMED DEDUCTION UNDER SECTION 54 OF THE ACT ON ACCOUNT OF INVESTMENT IN RESIDENTIAL HOUSE, ALONG WITH THE EXPENSES INCURRED ON IMPROVEMENT OF NEW RESIDENTIAL HOUSE. 5. BEFORE THE AO, THE ASSESSEE SUBMITTED THAT SHE H AD TRANSFERRED HER 1/2 UNDIVIDED INTEREST AND RIGHT IN THE GROUND FLOO R OF THE PROPERTY KNOWN AS LAXMI NIWAS VIDE AGREEMENT DATED 4 TH AUGUST 2008. THE ASSESSEE CLAIMED THAT SHE IS DEEMED OWNER OF THE PROPERTY IN TERMS OF SECTION 27(IIIB) READ WITH SECTION 269UA(B) OF THE INCOME T AX ACT. THE AO CONCLUDED THAT THE ASSESSEE HAD ONLY TENANCY RIGHTS AND SHE WAS NOT THE OWNER OF THE PROPERTY. ACCORDINGLY, THE AO REJECTED THE CLAIM OF THE ASSESSEE U/S 54 OF THE ACT. HOWEVER, THE AO ALLOWED DEDUCTION UNDER SECTION 54F OF THE ACT. THE AO ALSO DENIED THE BENE FIT OF INDEXED COST OF ACQUISITION. ON APPEAL, THE CIT(A) CONFIRMED THE AC TION OF THE AO IN DENYING BENEFIT U/S 54 AND GRANTING THE DEDUCTION U /S 54F. 6. BEFORE US THE LEARNED AR OF THE ASSESSEE HAS SUB MITTED THAT THE TENANCY/OCCUPANCY RIGHTS, OTHER INTEREST ARE IN RES PECT OF RESIDENTIAL HOUSE AND THEREFORE, CANNOT BE TREATED SEPARATELY F ROM THE RESIDENTIAL HOUSE. THE QUESTION OF OWNERSHIP OF HOUSE IS NOT RE LEVANT WHEN THE ASSESSEE TRANSFERRED THE TENANCY/OCCUPANCY RIGHTS A ND INTEREST IN THE ITA NO.531 & 1186/M/2013 MEHER R. SURTI 6 RESIDENTIAL PROPERTY AND THE OWNERSHIP OF THESE RIG HTS ARE NOT DISPUTED. THE CAPITAL GAINS EARNED BY THE ASSESSEE IS FROM SA LE OF RIGHTS IN THE RESIDENTIAL HOUSE AND THEREFORE, THE PROVISIONS OF SECTION 54 ARE APPLICABLE. HE HAS FURTHER SUBMITTED THAT THE AO TH OUGH ACCEPTED THE TRANSFER OF CAPITAL ASSET BEING TENANCY RIGHTS, HOW EVER IT WAS TREATED AS NOT SALE OF BUILDING OR LAND APPURTENANT THERETO AN D ACCORDINGLY, DENIED THE EXEMPTION U/S 54. THE AO WAS OF THE VIEW THAT T HE ASSESSEE IS NOT OWNER OF THE PROPERTY BEING RESIDENTIAL HOUSE AND T HEREFORE, FOR THE PURPOSE OF SECTION 54 OF THE ACT, THE TRANSFER OF T ENANCY RIGHTS DOES NOT TANTAMOUNT TO TRANSFER OF RESIDENTIAL HOUSE. 7. THE LEARNED AR HAS FURTHER CONTENDED THAT THE CH ILDREN/HEIRS OF THE TESTATORS WERE GIVEN THE LIFE BENEFIT IN THE PROPER TY AND FURTHER THE GRANDFATHER OF THE ASSESSEE TOOK THE GROUND FLOOR O N RENT IN THE YEAR 1944-45, WHICH CONTINUED TILL THE ASSESSEE SOLD THE SAME IN THE YEAR UNDER CONSIDERATION. THEREFORE, THE ASSESSEE INHERI TED THE RIGHTS IN THE PROPERTY ALONG WITH THE TENANCY RIGHT. HE HAS REFER RED THE PROVISIONS OF SECTION 27(IIIB) READ WITH SECTION 269UA OF THE INC OME TAX ACT AND SUBMITTED THAT WHEN THE TENANCY/LEASE OF THE PROPER TY IN QUESTION HAS BEEN CONTINUED SINCE 1945 THEN THE ASSESSEE AS WELL AS HER ANCESTORS BECAME DEEMED OWNER OF THE PROPERTY. HE HAS REFERRE D THE DECISION OF HONBLE HIGH COURT IN CASE OF MRS. AMY F. CAMA V. C IT 237 ITR 82 AND SUBMITTED THAT THE HONBLE HIGH COURT HAD HELD THAT THE BENEFICIAL OWNER IS ALSO CONSIDERED AS OWNER OF THE PROPERTY FOR THE PURPOSE OF SECTION 54 OF THE INCOME TAX ACT. ITA NO.531 & 1186/M/2013 MEHER R. SURTI 7 8. THE LEARNED AR HAS POINTED OUT THAT THOUGH OWNER SHIP OF THE PROPERTY HAS CHANGED MANY HANDS BUT THE FAMILY OF T HE ASSESSEE CONTINUE TO RESIDE IN THE PROPERTY IN QUESTION BECA USE OF THE RIGHT INHERITED AS PER WILL/TRUST AND TENANCY RIGHTS IN R ESPECT OF GROUND FLOOR. THIS SHOWS THAT THE ASSESSEE ACQUIRED DEEMED OWNERS HIP, IN RESPECT OF THE PROPERTY IN QUESTION. THE LEARNED AR HAS REFERR ED SECTION 54 OF THE INCOME TAX ACT AND SUBMITTED THAT REFERENCE HAS BEE N MADE TO THE CAPITAL ASSET BEING RESIDENTIAL HOUSE INCOME OF WHI CH IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE CAPI TAL ASSET IN QUESTION IS TENANCY RIGHTS/OCCUPANCY RIGHTS/OTHER INTEREST A ND RIGHTS IN THE RESIDENTIAL HOUSE PROPERTY SHOULD BE TREATED AS CAP ITAL ASSET EQUIVALENT TO THE CAPITAL ASSET BEING RESIDENTIAL HOUSE. EVEN, OT HERWISE WHEN THE PROPERTY IN QUESTION IS UNDER LEASE FOR MORE THAN 1 2 YEARS AND RATHER MORE THAN 6 DECADES THEN AS PER THE PROVISIONS OF S ECTION 27(IIIB) READ WITH SECTION 269UA, THE ASSESSEE IS DEEMED OWNER OF THE PROPERTY BEING THE CAPITAL ASSET TRANSFERRED BY THE ASSESSEE AND T HEREFORE, IS ENTITLED FOR EXEMPTION U/S 54 OF THE ACT. THE LEARNED AR HAS SUB MITTED THAT ALL THE CONDITIONS REQUIRED TO TAKE THE BENEFIT UNDER SECTI ON 54 OF THE ACT ARE SATISFIED IN THE CASE OF THE ASSESSEE. 9. ON THE OTHER HAND, LEARNED DR HAS SUBMITTED THAT THE BENEFIT OF SECTION 54 IS AVAILABLE IN THE CASE, WHEN THE CAPIT AL GAIN ARISES FROM TRANSFER OF BUILDING OR LAND APPURTENANT THERETO. T HEREFORE, THE CAPITAL ASSET BEING RESIDENTIAL HOUSE IS REQUIRED TO BE TRA NSFERRED FOR A AVAILING THE BENEFIT UNDER SECTION 54. WHAT HAS BEEN TRANSFE RRED BY THE ASSESSEE ITA NO.531 & 1186/M/2013 MEHER R. SURTI 8 IS THE TENANCY RIGHT IN THE PROPERTY AND NOT THE RE SIDENTIAL HOUSE ITSELF. HE HAS REFERRED TO THE TRANSFER DOCUMENT AND SUBMITTED THAT THE ASSESSEE HAS TRANSFERRED ONLY THE TENANCY RIGHTS BEING SURRE NDER OF TENANCY RIGHTS AND NOT SALE OF THE RESIDENTIAL PROPERTY. HE HAS RE LIED UPON THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE AO IS JUSTIFIED IN GRANTING DEDUCTION UNDER SECTION 54F INSTEAD OF SECTION 54 B ECAUSE THE ASSESSEE IS NOT OWNER OR DEEMED OWNER OR BENEFICIAL OWNER OF RESIDENTIAL PROPERTY BUT THE ASSESSEE IS ONLY OCCUPANT/TENANT AND CONSID ERATION RECEIVED BY THE ASSESSEE IS FOR SURRENDER OF TENANCY RIGHT. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. AS NOTED ABOVE THE PROPERTY IN QUESTION WAS PURCHASED BY ONE SHRI. B.E. CASSINATH, THE GREAT-GR ATE-GRANDFATHER OF THE ASSESSEE AROUND THE YEAR 1898. MR. B.E. CASSINATH D IED IN THE YEAR 1912 AND LEFT BEHIND HIM A WILL. BY THE SAID WILL AND CO DICIL, HE CREATED A SETTLEMENT REGARDING THE RESIDENTIAL PROPERTY IN QU ESTION AND APPOINTED HIS WIFE AND SONS AS EXECUTRIX AND TRUSTIES OF WILL . THE TESTATOR GAVE A LIFE INTEREST TO HIS CHILDREN/GRAND CHILDREN IN THE PROP ERTY IN QUESTION. THE TRUSTIES OF THE WILL SOLD THE PROPERTY IN QUESTION AND THEREAFTER THE PROPERTY CHANGED HANDS VARIOUS TIMES HOWEVER, THE F AMILIES OF THE HEIRS OF THE TESTATOR CONTINUED TO RESIDE IN THE PROPERTY IN QUESTION. THE ASSESSEE IS A DESCENDANT OF B.E. CASSINATH THE TEST ATOR. FOR BETTER UNDERSTANDING OF THE FACT WE REPRODUCED THE FAMILY TREE OF B.E. CASSINATH AS UNDER: ITA NO.531 & 1186/M/2013 MEHER R. SURTI 9 ITA NO.531 & 1186/M/2013 MEHER R. SURTI 10 11. IT IS CLEAR FROM THE ABOVE CHART OF THE DESCEND ANTS OF THE TESTATOR THAT THE ASSESSEE IS A GREAT-GREAT-GRANDDAUGHTER OF THE TESTATOR. INITIALLY THE ENTIRE FAMILY WAS RESIDING AT THE 1 ST FLOOR AND DUE TO THE REQUIREMENT OF MORE SPACE THE GROUND FLOOR WAS ALSO TAKEN ON LE ASE BY THE GRANDFATHER OF THE ASSESSEE. THE FAMILY OF THE GRAN D FATHER OF THE ASSESSEE THEN SHIFTED TO THE GROUND FLOOR IN RESPEC T OF WHICH THE TENANCY RIGHTS HAVE BEEN SURRENDERED BY THE ASSESSEE. THOUG H THE ASSESSEE CLAIMED BY FILING AN AFFIDAVIT THAT A SUM OF ` 20,0 00/- WAS PAID BY THE GRAND FATHER OF THE ASSESSEE TO THE LAND LORD AS A PAGRI AT THE TIME OF TAKING THE GROUND FLOOR ON RENT HOWEVER, EXCEPT THE STATEMENT OF THE ASSESSEE NO OTHER RECORD/EVIDENCE IN SUPPORT OF THE CLAIM HAS BEEN PRODUCED. EVEN OTHERWISE FOR DECIDING THE ISSUE OF EXEMPTION U/S 54 OR 54F THIS ASPECT OF PAYMENT IS NOT SO RELEVANT. 12. AS IT IS CLEAR FROM THE FACTS OF THE CASE THAT THE GROUND FLOOR WAS TAKEN ON RENT/LEASE AND THEREFORE THE RIGHTS VESTED WITH THE ASSESSEE WERE ONLY THE TENANCY RIGHTS. THE PROPERTY CHANGED HANDS VARIOUS TIMES AND FINALLY M/S KAPI BUILDERS PVT. LTD. PURCHASE TH E PROPERTY IN THE YEAR 2002. THE ASSESSEE SURRENDERED HER RIGHTS/TENANCY I N RESPECT OF THE GROUND FLOOR OF THE PROPERTY AGAINST THE CONSIDERAT ION. THE ASSESSING OFFICER THOUGH ACCEPTED THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR TRANSFER OF CAPITAL ASSET BEING TENANCY RIGHT HOWEV ER DENIED THE EXEMPTION U/S 54 AND ALLOWED THE EXEMPTION US/ 54F. 13. THE CIT(A) HAS DISCUSSED THE ISSUE ELABORATELY AND CONCLUDED THE FINDING IN PARA 2.17 AS UNDER: ITA NO.531 & 1186/M/2013 MEHER R. SURTI 11 2.17 IN THE PRESENT CASE, THERE IS NO AMBIGUITY. T HE APPELLANTS OWN UNDERTAKING CLEARLY STATES THAT SHE IS TENANT AND CONSIDERATION RECEIVED BY HER WAS FOR SURRENDER OF TENANCY RIGHT. THE QUESTION OF TRANSFER OF BUILDING OR LAND DOES N OT ARISE AT ALL. SIMILARLY, ARGUMENT SUCH AS APPELLANT IS DEEMED/BEN EFICIAL OWNER IS ALSO NOT ACCEPTABLE AS THE PROPERTY IS TRA NSFERRED TO THE BUILDER BY THE LANDLORDS AS ADMITTED BY THE APPELLA NT IN HER OWN UNDERTAKING CUM INDEMNITY. CONSIDERING ALL THESE FA CTS, I HAVE NO HESITATION IN COMING TO THE CONCLUSION THAT APPE LLANT IN THE INSTANT CASE IS NOT THE OWNER OF THE PROPERTY AND H OLDS MERE TENANCY RIGHT WITH RESPECT TO THE IMPUGNED PROPERTY . IN VIEW OF THIS AND IN VIEW OF THE SPECIFIC PROVISIONS OF SECT ION 54, I HOLD THAT THE APPELLANT IS NOT ENTITLED TO CLAIM DEDUCTI ON UNDER SECTION 54 OF THE ACT. THE ASSESSING OFFICER IS, TH EREFORE, JUSTIFIED IN REJECTING THE CLAIM OF THE APPELLANT AND IN DENY ING THE DEDUCTION UNDER SECTION 54 OF THE ACT. AS THE TENAN CY RIGHT IS A CAPITAL ASSET OTHER THAN RESIDENTIAL HOUSE, ASSESSI NG OFFICER HAS RIGHTLY GRANTED THE DEDUCTION UNDER SECTION 54F OF THE ACT. 14. WE DO AGREE WITH THE FINDING OF THE FACT GIVEN BY THE CIT(A) THAT THE ASSESSEE IS NOT THE OWNER OF THE PROPERTY BUT HOLDS MERE TENANCY RIGHTS IN RESPECT OF GROUND FLOOR OF THE PROPERTY. THE ARG UMENT OF DEEMED OWNERSHIP IS RELEVANT ONLY IN CONNECTION WITH COMPU TATION OF INCOME FROM HOUSE PROPERTY AND NOT IN RELATION TO EXEMPTION U/S 54. ACCORDINGLY WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE IMPUGNED OR DER OF THE CIT(A) QUA THIS ISSUE. 15. GROUND NO. 2 TO 5 REGARDING COST OF ACQUISITION UNDER SECTION 55 OF THE INCOME TAX ACT. THE ASSESSEE CLAIMED THAT THE P ROPERTY WAS ACQUIRED BY GREAT-GREAT-GRANDFATHER IN THE YEAR 1898 AND THE REAFTER BY THE GRANDFATHER OF THE ASSESSEE IN YEAR 1945 BY TAKING THE GROUND FLOOR ON RENT. THEREFORE, AS PER THE PROVISIONS OF SECTION 4 9, WHEN THE ASSESSEE HAS INHERITED THE PROPERTY, THE COST OF ACQUISITION WOULD BE CONSIDERED AS THE COST TO THE PREVIOUS OWNER AND ACCORDINGLY THE FAIR MARKET VALUE AS ITA NO.531 & 1186/M/2013 MEHER R. SURTI 12 ON 01.04.1981 WITH INDEX COST HAS TO BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF COMPUTATION OF CAPITAL GAINS. THE ASSESS EE FILED A VALUATION REPORT SHOWN THE VALUE OF THE PROPERTY AS ON 01.04. 1981 AT RS.87,68,000/- AND INDEXED COST OF ACQUISITION CLAI MED BY THE ASSESSEE AT RS.5,10,29,760/- FOR THE ENTIRE GROUND FLOOR OF THE PROPERTY. THE AO HELD THAT THERE IS NO COST INCURRED FOR PURCHASE/ACQUISI TION OF THE TENANCY RIGHTS AND ACCORDINGLY TOOK THE COST OF ACQUISITION AT NIL. HENCE, THE AO REJECTED THE CLAIM OF THE ASSESSEE FOR COST OF ACQU ISITION BEING FAIR MARKET VALUE AS ON 01.04.1981 AND INDEX COST BASED ON THE VALUE AS ON 01.04.1981. ON APPEAL, THE CIT(A) HAS CONFIRMED THE ACTION OF THE AO. 16. BEFORE US THE LEARNED AR OF THE ASSESSEE HAS SU BMITTED THAT THOUGH THE PROPERTY IN QUESTION WAS SOLD BY THE TRUSTIES I N THE YEAR 1942, HOWEVER, THE SALE CONSIDERATION WAS DEPRESSED DUE T O RIGHT TO RESIDE VESTED IN THE LEGAL HEIRS OF THE TESTATOR. THEREFOR E, THERE WAS A COST OF RIGHT TO RESIDE/OCCUPY THE PROPERTY. FURTHER EVEN A FTER THE SALE IN 1942 THE PROPERTY WAS MORTGAGED BY THE BROTHER OF GRANDF ATHER OF THE ASSESSEE WHICH SHOWS THAT THE ELEMENT OF COST WAS I NVOLVED IN THE ABSENCE OF WHICH THE PROPERTY COULD NOT BE MORTGAGE D. LD. AR HAS SUBMITTED THAT THE GRANDFATHER OF THE ASSESSEE PAID RS. 20,000/- IN CASH, IN RESPECT OF GROUND FLOOR TAKEN ON LEASE/RENT THOU GH THERE WAS RECEIPT/ACKNOWLEDGMENT REGARDING 20,000/- PAID AS P AGADI/SLAMI HOWEVER, THE ASSESSEE HAS MADE A CATEGORICAL SOLEMN AFFIRMATION ON AFFIDAVIT IN THIS RESPECT. THE LEARNED AR HAS FURTH ER SUBMITTED THAT IF THE REVENUE TAKES A STAND THAT THERE IS NO COST OF ACQU ISITION FOR TENANCY ITA NO.531 & 1186/M/2013 MEHER R. SURTI 13 RIGHT, THEN THE CONSIDERATION RECEIVED BECAUSE OF S URRENDER OF SUCH TENANCY RIGHT COULD NOT BE SUBJECTED TO CAPITAL GAI NS IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN CASE OF CIT VS . B.C. SRINIVASA SETTY 128 ITR 294. 17. HE HAS RELIED UPON THE DECISION OF HONBLE SUP REME COURT IN CASE OF CIT VS. CADELL WEAVING MILL. PVT. LTD. 273 ITR 1 . AND A.R. KRISHANAMURTHY AND ANOTHER VS. CIT 176 ITR 417 AND SUBMITTED THAT THE HONBLE SUPREME COURT HAS HELD THAT IT CANNOT BE SA ID CONCEPTUALLY THAT THERE IS NO COST OF ACQUISITION OF LEASEHOLD RIGHTS . THE COST OF ACQUISITION OF LEASEHOLD RIGHTS CAN BE DETERMINED. THE AR HAS R EFERRED THE DECISION OF HONBLE JURISDICTION HIGH COURT IN CASE OF CIT VS. MS. JANHAVI S. DESAI REPORTED IN 74 DTR 2 (BOM) WHEREIN IT WAS HELD THAT WHEN THE PROPERTY WAS ACQUIRED BY THE PREVIOUS OWNER BECAME THE PROPE RTY OF THE ASSESSEE AS PER SECTION 49(1), THEN THE COST OF ACQUISITION OF THE ASSET SHALL BE DEEMED TO BE THE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED. THE AR HAS REFERRED THE PROVISION OF SECT ION 55 AND SUBMITTED THAT WHEN THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE THROUGH THE MODES AS SPECIFIED UNDER SUB-SECTION 1 OF SECTI ON 49 AND CAPITAL ASSET BECAME THE PROPERTY OF PREVIOUS OWNER BEFORE 01.04. 1981 THEN THE COST OF ACQUISITION SHALL BE THE COST OF CAPITAL ASSET T O THE PREVIOUS OWNER OR THE FAIR MARKET VALUE OF THE ASSET ON 01.04.1981, A T THE OPTION OF THE ASSESSEE. THUS, THE LEARNED COUNSEL HAS CONTENDED T HAT ONCE THE ASSESSEE HAS CLAIMED THE FAIR MARKET VALUE AS ON 01 .04.1981 AS COST OF ACQUISITION, THEN THE AO CANNOT TAKE THE COST OF AC QUISITION AT NIL. EVEN ITA NO.531 & 1186/M/2013 MEHER R. SURTI 14 OTHERWISE AS PER THE PROVISIONS OF SECTION 55(2), THE COST OF ACQUISITION OF THE CAPITAL ASSET CAN BE TAKEN TO BE NIL ONLY IN TH E CASES WHICH DO NOT FALL UNDER SUB-CLAUSE (I) TO (IV) OF SUB-SECTION 1 OF SE CTION 49. 18. THE LEARNED AR HAS SUBMITTED THE CASE OF THE AS SESSEE FALLS IN THE CATEGORY OF MODE OF ACQUISITION UNDER CLAUSES (I) T O (IV) OF SECTION 49(1) THEREFORE, THE PROVISIONS OF SECTION 55(2)(A)(II) W OULD NOT APPLY IN THE CASE OF THE ASSESSEE RATHER THE PROVISIONS OF CLAUSE (B) (II) SUB-SECTIONS 2 ARE APPLICABLE. FURTHER SUB-SECTION 3 OF SECTION 55 PRO VIDES THAT IN CASE THE COST OF ACQUISITION OF THE PREVIOUS OWNER CANNOT BE ASCERTAINED THE COST OF ACQUISITION MEANS THE FAIR MARKET VALUE ON THE D ATE ON WHICH THE CAPITAL ASSET BECAME THE PROPERTY OF THE PREVIOUS O WNER. SINCE THE CAPITAL ASSET BECAME THE PROPERTY OF THE PREVIOUS OWNER BEF ORE 01.04.1981, THEREFORE, THE COST OF THE CAPITAL ASSET TO THE PRE VIOUS OWNER OR MARKET VALUE OF THE ASSET AS ON 01.04.1981 AT THE OPTION O F THE ASSESSEE WOULD BE THE COST OF ACQUISITION. THE LEARNED AR HAS FURT HER CONTENDED THAT THE EXPLANATION TO SECTION 49(1) HAS MADE IT CLEAR THAT THE EXPRESSION PREVIOUS OWNER IN RELATION TO THE CAPITAL ASSET MEA NS THE LAST PREVIOUS OWNER OF THE CAPITAL ASSET. THE LEARNED AR HAS ALSO RELIED THE FOLLOWING DECISIONS: MRS. AMY F. CAMA VS. CIT 237 ITR 82(BOM) CIT VS. MANJULA J. SHAH 249 CTR 270 (BOM) 19. ON THE OTHER HAND, LEARNED DR HAS SUBMITTED THA T THERE IS NOTHING ON RECORD TO SHOW THAT AMOUNT OF RS.20,000/- WAS PA ID FOR ACQUISITION OF ITA NO.531 & 1186/M/2013 MEHER R. SURTI 15 TENANCY RIGHTS AS CLAIMED BY THE ASSESSEE. HE HAS R ELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT IN THE ABSENCE OF ANY EVIDENCE THE COST OF ACQUISITION OF TENANCY RIGHTS HAS BEEN RIGHTLY TAKEN AS NIL AS PER THE PROVISIONS OF SECTION 55(2). THE LEARNED DR HAS FURTHER CONTENDED THAT WHEN THE COST OF ACQUISITION IS TAKE N AS NIL, THEN NO BENEFIT OF INDEX OF COST CAN BE GIVEN. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, AS WE LL AS RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE TE NANCY WAS ACQUIRED BY THE GRANDFATHER OF THE ASSESSEE IN THE YEAR 1945 AN D CAPITAL ASSET IN THE SHAPE OF TENANCY RIGHT BECAME A PROPERTY OF THE ASS ESSEE BY INHERITANCE WHICH CLEARLY FALLS WITHIN THE MODES PROVIDED UNDER SECTION 49(1) AS UNDER: 49(1) WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE- (I) ON ANY DISTRIBUTION OF ASSETS ON THE TOTAL OR PARTI AL PARTITION OF A HINDU UNDIVIDED FAMILY; (II) UNDER A GIFT OR WILL; (III) (A) BY SUCCESSION, INHERITANCE OR DEVOILUTION, OR (B) ON ANY DISTRIBUATION OF ASSETS ON TH E DISSOLUTION OF A FIRM, BODY OF INDIVIDUALS, OR OTHER ASSOCIATION OF PERSONS, WHERE SUCH DISSOLUTION HAD TAKEN LACE AT ANY TIME BEFORE THE 1 ST DAY OF APRIL, 1987, OR] (C) ON ANY DISTRIBUTION OF ASSETS ON THE LIQUIDATIO N OF A COMPANY, OR (D) UNDER THE TRANSFER TO A REVOCABLE OR AN IRREVOC ABLE TRUST, OR (E) UNDER ANY SUCH TRANSFER AS IS REFERRED TO IN CLAUSES(IV),(V),(VI),(VIA),(VIAA),(VICA),(VICB),(XI II),(XIIB) (XIV)] OF SECTION 47] (IV) SUCH ASSESSEE BEING A HINDU UNDIVIDED FAMILY B Y THE MODE REFERRED TO IN SUB-SECTION (2) OF SECTION 64 AT ANY TIME AFTER THE ITA NO.531 & 1186/M/2013 MEHER R. SURTI 16 31 ST DAY OF DECEMBER 1969] THE COST OF ACQUISITION OF T HE ASSET SHALL BE DEEMED TO BE THE COST FOR WHICH THE PREVIO US OWNER OF THE PROPERTY ACQUIRED IT, AS INCREASED BY THE COST OF A NY IMPROVEMENT OF THE ASSETS INCURRED OR BORNE BY THE PREVIOUS OWN ER OR THE ASSESSEE AS THE CASE MAY BE. [EXPLANATION- IN THIS [SUB-SECTION] THE EXPRESSION PREVIOUS OWNER OF THE PROPERTY IN RELATION TO ANY CAPITAL ASSET O WNED BY AN ASSESSEE MEANS THE LASE PREVIOUS OWNER OF THE CAPIT AL ASSET WHO ACQUIRED IT BY A MODE OF ACQUISITION OTHER THAN THA T REFERRED TO IN CLAUSE(I) OR CLAUSE (II) OR CLAUSE (III)[ OR CLAUSE (IV)OF THE [SUB- SECTION]. 21. THE CASE OF THE ASSESSEE CLEARLY FALLS UNDER TH E SUB-CLAUSE(III)(A) OF SUB-SECTION 1 OF SECTION 49. ONCE THE CAPITAL ASSET IN QUESTION BECAME THE PROPERTY OF THE ASSESSEE AS PER THE SECTION 49(1)(I II)(A) AND THE PREVIOUS OWNER ACQUIRED THE PROPERTY PRIOR TO 01.04.1981, TH EN THE COST OF ACQUISITION OF THE CAPITAL ASSET FOR THE PURPOSE OF SECTION 48 AND 49 SHALL BE THE COST OF ACQUISITION OF THE ASSET TO THE PREV IOUS OWNER OR THE FAIR MARKET VALUE (FMV) OF THE ASSET AS ON 01.04.1981 AT THE OPTION OF THE ASSESSEE PROVIDED UNDER THE PROVISIONS OF SECTION 5 5(2)(II)(B) OF THE INCOME TAX ACT. FOR READY REFERENCE, WE REPRODUCE S ECTION 55(2)(A)(B) AS UNDER: (2) FOR THE PURPOSES OF SECTIONS 48 AND 49, 'COST OF ACQUISITION',-- (A) IN RELATION TO A CAPITAL ASSET, BEING GOODWILL OF A BUSINESS, *OR A TRADE MARK OR BRAND NAME ASSOCIATED WITH A BUSINESS OR A RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THIN G **OR RIGHT TO CARRY ON ANY BUSINESS, TENANCY RIGHTS, STAGE CARRIAGE PER MITS OR LOOM HOURS, -- (I) IN THE CASE OF ACQUISITION OF SUCH ASSET BY THE ASSESSEE BY PURCHASE FROM A PREVIOUS OWNER, MEANS THE AMOUNT OF THE PURC HASE PRICE ; AND (II) IN ANY OTHER CASE NOT BEING A CASE FALLING UND ER SUB-CLAUSES (I) TO (IV) OF SUB-SECTION (1) OF SECTION 49, SHALL BE TAKEN TO BE NIL ; ..XXXXXXXXXXXX.. ITA NO.531 & 1186/M/2013 MEHER R. SURTI 17 (B) IN RELATION TO ANY OTHER CAPITAL ASSET,-- (I) WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BEFORE THE 1ST DAY OF APRIL, 1981, MEANS THE COST OF ACQUI SITION OF THE ASSET TO THE ASSESSEE OR THE FAIR MARKET VALUE OF THE ASSET ON THE 1ST DAY OF APRIL, 1981, AT THE OPTION OF THE ASSESSEE ; (II) WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BY ANY OF THE MODES SPECIFIED IN SUB-SECTION (1) OF SECTIO N 49, AND THE CAPITAL ASSET BECAME THE PROPERTY OF THE PREVIOUS OWNER BEF ORE THE 1ST DAY OF APRIL, 1981, MEANS THE COST OF THE CAPITAL ASSET TO THE PREVIOUS OWNER OR THE FAIR MARKET VALUE OF THE ASSET ON THE 1ST DAY O F APRIL, 11981, AT THE OPTION OF THE ASSESSEE ; (III).. 22. AS, IT IS CLEAR FROM SUB-CLAUSE (II) OF CLAUSE (B) OF SUB-SECTION 2 OF SECTION 55 THAT IN CASE THE ASSESSEE OPTS THE COST OF ACQUISITION OF CAPITAL ASSET BEING FAIR MARKET VALUE ON 01.04.1981, THEN T HE ACTUAL COST OF CAPITAL ASSET TO THE PREVIOUS OWNER IS NOT RELEVANT . EVEN OTHERWISE AS PER SUB-SECTION 3 OF SECTION 55 IN A CASE WHERE THE COS T OF ACQUISITION OF THE PROPERTY TO THE PREVIOUS OWNER CANNOT BE ASCERTAINE D THEN THE COST OF ACQUISITION TO THE PREVIOUS OWNER WOULD BE TAKEN AS FAIR MARKET VALUE ON THE DATE ON WHICH THE CAPITAL ASSET BECOMING THE PR OPERTY OF THE PREVIOUS OWNER. WE QUOTE SUB-SECTION 3 OF SECTION 55 AS UNDE R; (3) WHERE THE COST FOR WHICH THE PREVIOUS OWNER AC QUIRED THE PROPERTY CANNOT BE ASCERTAINED, THE COST OF ACQUISI TION TO THE PREVIOUS OWNER MEANS THE FAIR MARKET VALUE ON THE D ATE ON WHICH THE CAPITAL ASSET BECAME THE PROPERTY OF THE PREVIOUS OWNER. 23. SINCE, THE PREVIOUS OWNER ACQUIRED THE PROPERTY BEFORE 01.04.1981, THEREFORE THE FAIR MARKET VALUE OF THE PROPERTY AS ON 01.04.1981 HAS TO BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF SECTION 48 AN D 49 OF ACT. THE CASE ITA NO.531 & 1186/M/2013 MEHER R. SURTI 18 OF THE REVENUE IS BASED ON SUB-CLAUSE(II) OF CLAUSE (A) OF SUB-SECTION OF SECTION 55. IT IS DISCERNABLE FROM THE PLAIN READIN G OF SECTION 55(2)(II)(A), THAT THE COST OF ACQUISITION IS TAKEN TO BE NIL ONL Y IN THE CASES OF COMMERCIAL INTANGIBLE ASSETS WHICH ARE NOT FALLING UNDER SUB-CLAUSE (I) TO (IV) OF SECTION 49(1). AS WE HAVE ALREADY DISCUSSED IN THE FORGOING PARAS THAT THE CASE OF THE ASSESSEE FALLS UNDER SUB-CLAUS E (I) TO (IV) OF SECTION 49(1) THEREFORE, THE PROVISIONS OF SUB-CLAUSE (A) O F CLAUSE (II) OF SUB- SECTION 2 OF SECTION 55 DO NOT APPLY IN THE CASE OF THE ASSESSEE. 24. IT IS PERTINENT TO NOTE THAT THE TENANCY RIGHT INCLUDES THE ENJOYMENT AND OCCUPATION OF THE PROPERTY, THEREFORE IT CARRIE S COST IN THE FORM OF RENT PAID BY THE ASSESSEE. THOUGH, THE ASSESSEE COULD NO T PROVE THE PAYMENT OF CONSIDERATION IN LUMP-SUM FOR ACQUISITION OF TEN ANCY RIGHTS HOWEVER, THE RENT ITSELF IS COST OF THE TENANCY RIGHTS. FURT HER AS WE HAVE ALREADY DISCUSSED, WHEN THE ASSESSEE HAS THE OPTION TO ADOP T THE FAIR MARKET VALUE AS ON 01.04.1981 THEN THE COST OF ACQUISITION AT THE TIME OF ACQUISITION PRIOR TO 01.04.1981 BECOMES IRRELEVANT. 25. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT T HAT FAIR MARKET VALUE OF THE TENANCY RIGHTS AS ON 01.04.1981, SHALL BE TH E COST OF ACQUISITION AS PER THE PROVISIONS OF SECTION 55(2)(B)(II). THE ASS ESSEE FILED THE VALUATION REPORT FOR VALUING THE FAIR MARKET VALUE OF THE ASS ET IN QUESTION AS ON 01.04.1981 AND THE AUTHORITIES BELOW HAVE NOT QUEST IONED THE CORRECTNESS OF THE VALUE AS ON 01.04.1981. WE FURTH ER TAKE NOTE THAT THE BOMBAY STAMP ACT RECOGNIZES THE VALUE OF SURRENDER OF TENANCY RIGHTS ITA NO.531 & 1186/M/2013 MEHER R. SURTI 19 EXCEEDING 29 YEARS ALMOST EQUIVALENT TO THE MARKET VALUE OF THE PROPERTY THEREFORE, IT SUPPORTS THE CLAIM OF FAIR MARKET VAL UE AS ON 01.04.1981. 26. GROUND NO. 6 REGARDING THE EXPENDITURE INCURRED ON IMPROVEMENT/RENOVATION OF THE NEW RESIDENTIAL HOUSE FOR THE PURPOSE OF DEDUCTION UNDER SECTION 54. THE ASSESSING OFFICER N OTED THAT THE ASSESSEE CLAIMED COST OF RENOVATION AMOUNTING TO RS .58,26,773/- AS PART OF THE COST OF ACQUISITION OF NEW RESIDENTIAL HOUSE FOR THE PURPOSE OF DEDUCTION U/S 54. THE AO DISALLOWED THE CLAIM ASSES SEE ON THE GROUND THAT THE RENOVATION WAS NOT IN CONNECTION WITH ANY STRUCTURAL DAMAGE TO THE HOUSE AND IT WAS ONLY IN RESPECT OF PLASTERING AND RENOVATING OF WIRES WHICH CANNOT BE TREATED AS MAKING THE HOUSE HABITAB LE. ACCORDINGLY, THE AO HELD THAT THE CLAIM OF THE ASSESSEE IS UNTENABLE AND DISALLOWED COST OF RENOVATION. ON APPEAL, THE LEARNED CIT(A) HAS CONF IRMED THE DISALLOWANCE MADE BY THE AO. 27. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE EXPENDITURE HAS BEEN INCURRED FOR MAKING THE NE W HOUSE HABITABLE AND THEREFORE, THE SAME IS PART OF THE COST OF THE ACQUISITION OF NEW HOUSE AS PER THE PROVISIONS OF SECTION 48. HE HAS REFERRE D THE DETAILS OF THE EXPENDITURE AS WELL AS THE PHOTOGRAPHS OF THE RENOV ATION WORK CARRIED OUT IN THE NEW ASSET. THE LEARNED AR HAS ALSO POINTED O UT THAT THERE IS AN ARCHITECTS REPORT OF ESTIMATED COST OF THE RENOVAT ION AND THEREFORE, THE EXPENDITURE WAS INEVITABLE FOR THE PURPOSE OF MAKIN G THE NEW HOUSE HABITABLE. IN SUPPORT OF HIS CONTENTION HE HAS RELI ED UPON DECISION OF THIS TRIBUNAL FOLLOWING CASES: ITA NO.531 & 1186/M/2013 MEHER R. SURTI 20 SALEEM FAZUEBHOI VS. DCIT 106 ITD 167 IN CASE OF MRS. SONIA GULATI ITA NO.1300 OF 1998 28. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTED THAT SECTION 48 IS APPLICABLE FOR THE PURPOSE OF COMPUTATION OF CAPITA L GAINS AND NOT FOR EXEMPTION UNDER SECTION 54. HE HAS RELIED UPON THE ORDER OF THE LEARNED CIT(A) AS WELL AS THE DECISION OF HONBLE DELHI HIG H COURT IN CASE OF D.P. MEHTA VS. CIT 251 ITR 529. 29. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WEL L AS RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE THAT THE AS SESSEE HAS INCURRED AN EXPENDITURE OF RS. 58,26,773/- ON THE IMPROVEMENT O F THE FLAT PURCHASE BY THE ASSESSEE TO MAKE IT IN HABITABLE CONDITION. THE ASSESSING OFFICER HAS NOT DISPUTED THE GENUINENESS OF THE EXPENDITURE INCURRED BY THE ASSESSEE BUT DISALLOWED THE CLAIM OF THE ASSESSEE U NDER SECTION 54/54F, IN RESPECT OF THIS AMOUNT ON THE GROUND THAT THERE IS NO STRUCTURAL DAMAGE TO THE HOUSE. ON APPEAL THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO BY FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF D.P. MEHTA VS. CIT(SUPRA). 30. IT IS TO BE NOTED THAT THE OBJECTIVE AND SCHEME OF GRANTING EXEMPTION UNDER SECTIONS 54 AND 54F IS PROMOTING IN VESTMENT IN THE RESIDENTIAL HOUSE OUT OF THE CAPITAL GAINS/PROCEEDS OF SALE OF CAPITAL ASSET. A RESIDENTIAL HOUSE MEANS A PROPER HABITABLE HOUSE AND NOT MERELY A STRUCTURE. THEREFORE, THE INVESTMENT IN THE PURCHAS E OR CONSTRUCTION OF RESIDENTIAL HOUSE MAY BE IN THE FORM OF LUMP-SUM PA YMENT FOR A READY TO ITA NO.531 & 1186/M/2013 MEHER R. SURTI 21 OCCUPY HOUSE OR GETTING A HOUSE CONSTRUCTED. IN THE CASE HANDS THE ASSESSEE HAS PURCHASED AN OLD HOUSE AND THEREAFTER, INCURRED THE EXPENDITURE FOR MAKING IT HABITABLE. THUS IT IS PRE ROGATIVE OF THE ASSESSEE TO DECIDE AS TO HOW A RESIDENTIAL HOUSE CAN BE ACQU IRED ON A REASONABLE COST. IF THE ASSESSEE DECIDES THAT, INSTEAD OF GOIN G TO PURCHASE A READY TO SHIFT RESIDENTIAL HOUSE, PURCHASE AN OLD HOUSE AND GET THE SAME RENOVATED FOR MAKING IT HABITABLE AS IT IS ECONOMIC AL THEN, THE TAX AUTHORITIES CAN NOT QUESTION SUCH A DECISION TAKEN BY THE ASSESSEE IN THE ABSENCE OF ANY ALLEGATION OF BOGUS CLAIM. IN THE CA SE OF SALEEM FAZUEBHOI VS. DCIT(SUPRA), THE CO-ORDINATE BENCH OF THIS TRIB UNAL HAS CONSIDERED AND DECIDED A SIMILAR ISSUE IN PARA 7 AS UNDER : 7. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT INVESTMENT IN RESIDENTIAL HOUSE WOULD NOT ONLY INC LUDE THE COST OF PURCHASE OF THE HOUSE BUT ALSO THE COST INCURRE D IN MAKING THE HOUSE HABITABLE. AN INHABITABLE PREMISES, IN O UR OPINION, CANNOT BE EQUATED WITH A RESIDENTIAL HOUSE. IF ONE PERSON CANNOT LIVE IN A PREMISES, THEN SUCH PREMISES CANNO T BE CONSIDERED A RESIDENTIAL HOUSE. IN THE MODERN AGE, THE BUILDER MAY PROVIDE SEMI-FINISHED HOUSE OR COMPLETE HOUSE DEPENDING UPON THE PRICE AGREED TO BETWEEN THE PARTIES. IN C ASE OF SEMI- FINISHED HOUSE, THE PURCHASER WILL HAVE TO INVEST ON FLOORING, WOODEN WORK, SANITARY WORK, ETC., TO MAKE IT HABIT ABLE. THEREFORE, IN OUR VIEW, THE INVESTMENT IN HOUSE WOU LD BE COMPLETE ONLY WHEN SUCH HOUSE BECOMES HABITABLE. SI MILAR VIEW HAS ALSO BEEN TAKEN BY SMC BENCH OF THE TRI BUNAL IN THE CASE OF MRS. SONIA GULATI V. ITO [2001] 115 TA XMAN-MAG 232 (MUM.). ACCORDINGLY, WE HOLD IN PRINCIPLE THAT THE EXPENDITURE INCURRED ON MAKING THE HOUSE HABITABLE SHOULD BE CONSIDERED AS INVESTMENT IN PURCHASE OF THE HOUSE S UBJECT TO THE CONDITION THAT PAYMENT WAS MADE DURING THE PERI OD SPECIFIED IN SECTION 54F. 31. IT IS CLEAR FROM THE ABOVE DECISION THAT TH E RESIDENTIAL HOUSE FOR THE PURPOSE OF SECTION(S) 54 AND 54F MEANS A HABITABLE HOUSE AND ITA NO.531 & 1186/M/2013 MEHER R. SURTI 22 INVESTMENT MADE UP TO THE STAGE OF MAKING HOUSE AS HABITABLE SHOULD BE CONSIDERED AS INVESTMENT IN PURCHASE OF HOUSE. A SI MILAR VIEW WAS TAKEN BY THE TRIBUNAL IN CASE OF MRS. SAMY G. VS. DCIT 1 15 TAXMAN 232 WHICH HAS BEEN CONSIDERED BY THE CO-ORDINATE BENCH IN CAS E OF SALEEM FAZUEBHOI VS. DCIT(SUPRA). THEREFORE, IF THE ASSES SEE CHOOSES TO PURCHASE A HOUSE AND INCURRED BONAFIDE EXPENDITURE ON IMPROVEMENT FOR MAKING IT HABITABLE IT WOULD BE ELIGIBLE AS INVESTM ENT IN THE NEW ASSET FOR THE PURPOSE OF SECTION 54 OF THE INCOME TAX ACT. I N THE CASE OF D.P. MEHTA VS. CIT (SUPRA) THE HONBLE DELHI HIGH COURT HAS OBSERVED AS UNDER: WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES. LE ARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT, IN VIEW OF THE CONCLUSIONS OF THE TRIBUNAL, THAT SERVANT QUARTERS AHD BEEN CONSTRUCTED, THE FURTHER CONCLUSION THAT KEEPING IN VIEW OF THE ASSESSEES STATUS, IT CANNOT BE SAID THAT THE HOUSE WAS BEING USED FOR THE PURPOSE OF RESIDENCE CANNOT BE MAINTAI NED. IT WAS FURTHER SUBMITTED THAT WHAT WAS NECESSARY FOR CLAIM ING EXEMPTION RELATED TO USER OF THE PROPERTY FOR THE P URPOSE OF RESIDENCE AND THE STATUS OF THE ASSESSEE AND/OR TOT AL BUILT IN AREA HAS NO RELEVANCE SO FAR AS THAT ASPECT IS CONC ERNED. LEARNED COUNSEL FOR THE REVENUE, ON THE OTHER HAND, REFERRED TO THE STATEMENT STATED JANUARY 28,1974, WHEREIN TH E ASSESSEE HIMSELF ADMITTED THAT THE BUILDING WAS NOT WORTH OC CUPYING. WE FIND THAT THE TRIBUNAL HAS NOT REALLY CON SIDERED THE ESSENCE OF THE DISPUTE IN THE BACKGROUND OF THE FAC TUAL ASPECTS WHICH WERE ON RECORD. IT IS TO BE NOTED THAT THE AS SESSEE HIMSELF HAD STATED THAT THE PROPERTY WAS NOT WORTH OCCUPYING. THERE IS NO DISPUTE ABOUT THE STATEMENT HAVING BEEN MADE BY THE ASSESSEE. ADDITIONALLY, WE FIND THAT THE CONSTR UCTION WAS OF THE GARAGE AND SERVANT QUARTERS. THE APPELLATE ASSI STANT COMMISSIONER REFERRED TO SOME PERSONAL VISITS AND F OUND THAT THERE WAS ACTUALLY NO OCCUPATION BY ANY SERVANT OR TENANT AND EVEN THERE WAS NO COOKING. IN VIEW OF THE ACCEPTED STATEMENT OF THE ASSESSEE THAT THE BUILDING WAS NOT WORTH OCC UPYING AND WAS NOT INHABITABLE, THE CONCLUSION THAT THE ASSESS EE WAS NOT ENTITLE TO THE EXEMPTION IS IN ORDER. ITA NO.531 & 1186/M/2013 MEHER R. SURTI 23 32. IT IS CLEAR FROM THE DECISION OF HONBLE HIGH C OURT THAT IN THE SAID CASE THE ASSESSEE HIMSELF ADMITTED THAT ONLY A SERV ANT QUARTER WAS IN EXISTENCE AS TOTAL BUILT UP AREA WITHOUT ANY PROVIS ION OF COOKING AND IT WAS FOUND THAT THE SAID CONSTRUCTION WAS NOT AT ALL FIT FOR HABITATION, THEREFORE, IT WAS HELD THAT THE ASSESSEE WAS NOT EN TITLE TO THE EXEMPTION UNDER SECTION 54. THE DECISION OF HONBLE DELHI HIG H COURT (SUPRA) SUPPORTS THE CLAIM OF THE ASSESSEE BECAUSE THE ASSE SSEE MADE THE INVESTMENT FOR MAKING THE HOUSE HABITABLE AND THE C LAIM HAS BEEN MADE ONLY AFTER THE NEW ASSET WAS MADE HABITABLE. IN VIE W OF THE ABOVE DISCUSSION AND FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE EXEMPTION UNDER SECTION 54, IN RESPECT OF THE EXPENDITURE INCURRED ON THE RENOVATION WORK TO MAKE THE HOUSE HABITABLE APART FROM COST OF PURCHASE. APPEAL IN ITA NO 1186 OF 2006. APPEAL IN ITA NO 1186 OF 2006. APPEAL IN ITA NO 1186 OF 2006. APPEAL IN ITA NO 1186 OF 2006. 33. THE REVENUE HAS RAISED VARIOUS GROUNDS HOWEVER THE ONLY ISSUE ARISES IS AS UNDER: WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE CIT(A) IS JUSTIFIED IN ALLOWING THE EXEMPTION UNDER SECTION 54F, IN RESPECT OF RS.1,25,00,000/- DEPOSITED IN CAPITAL GAINS ACCOUNT IN CENTRAL BANK OF INDIA ON 29 TH JULY7 2009 AND THE ASSESSEE HAS UTILISED THE SAID AMOUNT FOR PURCHASE OF ANOTHER FLAT. 34. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE WIT HOUT ANY DISCUSSION. ON APPEAL, THE CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE BY CONSIDERING THE FACTS THAT THE ASSESSEE INVESTED TH IS AMOUNT IN ITA NO.531 & 1186/M/2013 MEHER R. SURTI 24 ACCORDANCE WITH THE PROVISION OF SECTION 54F AND WI THIN THE TIME LIMIT PRESCRIBED BY THE LAW. 35. BEFORE US THE LEARNED DR HAS SUBMITTED THAT WHE N THE ASSESSEE HAS ALREADY CLAIMED DEDUCTION/EXEMPTION, IN RESPECT OF ONE HOUSE THEN AS PER THE PROVISIONS OF SECTIONS 54 AND 54F NO EXEMPTION CAN BE GRANTED FOR PURCHASE OF MORE THAN 1 HOUSE. 36. ON THE OTHER HAND THE LEARNED AR OF THE ASSESSE E HAS SUBMITTED THAT IN VIEW OF THE VARIOUS DECISIONS OF HIGH COURT , A DEDUCTION UNDER SECTION 54 IS ELIGIBLE EVEN FOR PURCHASE OF MORE TH AN ONE HOUSE. HE HAS RELIED UPON THE FOLLOWING DECISIONS: IN THE MATTER OF MRS. JYOTHI K. MEHTA 12 TAXMAN.COM 440 (KAR) CIT VS. MRS. K.G. RUKMINIAMMA 331 ITR 211(KAR) CIT VS. D. ANANDA 320 ITR 19 (SC) CIT VS. MR. JEO B. FERNANDES 322 ITR 8 (SC) CIT VS. SMT. RASHMI KHANNA 322 ITR 8 (SC) CIT VS. MR. ANAND BASAPPA 309 ITR 329 (KAR) 37. WE HAVE CONSIDERED THE RIVAL SUBMISSION AS WELL AS RELEVANT MATERIAL ON RECORD. UNDISPUTEDLY THE ASSESSEE HAS DEPOSITED ` 1.25 CRORE IN THE CAPITAL GAIN ACCOUNT WITHIN THE PROSCRIBED P ERIOD AND FURTHER THE SAID AMOUNT HAS BEEN INVESTED IN ANOTHER FLAT. THE ISSUE IS NOW COVERED BY THE VARIOUS DECISIONS OF HONBLE HIGH COURTS AS RELIED UPON BY THE LD. AR OF THE ASSESSEE. ACCORDINGLY, THERE IS NO REASON TO INTERFERE WITH THE IMPUGNED ORDER OF CIT(A) QUA THIS ISSUE. ITA NO.531 & 1186/M/2013 MEHER R. SURTI 25 38. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF SEPTEMBER 2013 SD/- SD/- ( . ) ! '# (D. KARUNAKARA RAO) ACCOUNTANT MEMBER ( ) $ '# (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 4 TH SEPTEMBER 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI