SAROJ SALES ORGANIZATION, MUMBAI V. ITO 16(1)(4), MUMBAI

ITA 2399/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2048 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 30-10-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ADAGIRI
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Capital asset; Depreciation; Cost of acquisition; Fair market value
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.2399/M/2012 ASSESSMENT YEAR: 2008-09 M/S. SAROJ SALES ORGANISATION, PLOT NO.A/62-63, MIDC, ANDHERI (E), MUMBAI 400 093 PAN: AAAFS 3944H VS. ITO 16(1)(4), MUMBAI (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : DR. K. SHIVARAM, A.R. REVENUE BY : SHRI B. YADAGIRI, D.R. DATE OF HEARING : 30.10.2015 DATE OF PRONOUNCEMENT : 11.12.2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 13.01.2012 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2008-09. 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) ERRED IN COMPUTING THE INDEXED COST AT NIL AS AGAINST THE INDEXED COST OF PREMISES COMPUTED AT RS.75,57,516/- IN RESPECT OF OFFICE PREMISES IN THE RETURN OF INCOME AND ASSESSING THE CAPITAL G AINS AT RS.70,00,000/- AS AGAINST CAPITAL LOSS OF RS.5,57,5 16/ -. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) , ERRED IN NOT FOLLOWING THE RATIO OF SPECIAL BENCH JUDGMENT OF AH MEDABAD TRIBUNAL IN VIJAYSINH R. RATHOD V. ITO (2007) 106 I TD 153, WHERE IN TRIBUNAL HAS HELD THAT BENEFIT OF COST OF INDEX COS T IS AVAILABLE TO OCCUPATION RIGHTS, AS THE ORDER OF ASSESSING OFFICE R AND COMMISSIONER (APPEALS) IS CONTRARY TO LAW LAID DOWN BY SPECIAL BENCH, THE ASSESSING OFFICER MAY BE DIRECTED TO ADO PT THE COST OF ITA NO.2399/M/2012 M/S. SAROJ SALES ORGANISATION 2 INDEXATION SHOWN BY THE ASSESSEE AND LOSS MAY BE AL LOWED TO BE CARRIED FORWARD. 3. THE APPELLANT CRAVES LEAVE TO AMEND ALTER OR DEL ETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PARTNERSHIP FIRM CARRYING ON THE BUSINESS OF PRINTING PRESS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE SURRENDERED TENANCY RIG HTS OF A PREMISES FOR A CONSIDERATION OF RS.70 LAKHS AND COMPUTED THE LONG TERM CAPITAL LOSS AT RS.5,57,516/- BY WAY OF ADOPTING THE COST OF ACQUIS ITION OF THE SAID TENANCY RIGHTS AS ON 01.04.81 AT RS.13,51,600/- AND BY CLAI MING INDEXATION THEREUPON. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS T HE AO) DURING THE ASSESSMENT PROCEEDINGS TOOK THE COST OF ACQUISITION OF TENANCY RIGHTS AT NIL AND ACCORDINGLY TAXED THE ENTIRE RECEIPT OF RS.70 LAKHS AS LONG TERM CAPITAL GAINS. THE ASSESSEE CONTESTED THE APPEAL BEFORE THE LD. CI T(A) BUT REMAINED UNSUCCESSFULLY. 4. BEFORE US, THE LD. A.R. OF THE ASSESSEE HAS STAT ED THAT THE PROPERTY IN QUESTION WAS TAKEN BY THE ASSESSEE ON LEAVE AND LIC ENSE BASIS VIDE AGREEMENT DATED 09.09.72 FOR A PERIOD OF FIVE YEARS. THEREAF TER, CERTAIN DISPUTES AROSE AND SUIT WAS FILED IN THE COURT OF SMALL CAUSES, MUMBAI BY THE ASSESSEE FOR DECLARING HIM AS A DEEMED TENANT. A COMPRISE TOO K PLACE BETWEEN THE ASSESSEE AND HIS LANDLORD AND THE CONSENT TERMS WER E FILED IN THE COURT. THE COURT THEREAFTER DECREED THE SUIT AS PER THE CONSEN T TERMS AND DECLARED THE ASSESSEE AS A DEEMED TENANT AND THE RENT WAS FIXED AT THE RATE OF RS.670/- PER MONTH COMMENCING FROM 01.04.1977. THE ARREARS OF R ENT WAS PAID BY THE ASSESSEE TO HIS LANDLORD. DURING THE YEAR UNDER CO NSIDERATION, THE ASSESSEE FIRM SURRENDERED THE TENANCY RIGHTS TO ONE MR. SURE SH KALUCHAND JUGANI WHO HAS BECOME THE PRESENT LANDLORD OF THE ASSESSEE PUR SUANCE TO SOME OTHER LITIGATION BETWEEN THE ORIGINAL OWNERS, TENANTS, SU B TENANTS ETC. OF THE PROPERTY IN QUESTION. THE ASSESSEE, WHILE COMPUTING THE CAP ITAL GAIN ON THE SAID AMOUNT ITA NO.2399/M/2012 M/S. SAROJ SALES ORGANISATION 3 OF RS.70 LAKHS, HAD TAKEN THE MARKET VALUE OF THE S AID PREMISES/TENANCY RIGHTS AS ON 01.04.81 AT RS.13,71,600/- AND AFTER CLAIMING INDEXATION, CLAIMED THE CAPITAL LOSS AS NARRATED ABOVE. THE LD. A.R. HAS SUBMITTED THAT THE RIGHTS OF THE A SSESSEE WERE THE OCCUPANCY RIGHTS AND THAT THE ASSESSEE HAD GOT VALU ED THE SAID OCCUPANCY RIGHTS OF THE PROPERTY FROM THE GOVERNMENT VALUER A ND HAS ADOPTED THE FAIR MARKET VALUE OF THE SAID PROPERTY AS ON 01.04.81. THE LD. A.R. HAS STRESSED THAT SINCE THE PROPERTY HAS BEEN HELD BY THE ASSESS EE SINCE 1979 AS DEEMED TENANT AND THE ASSESSEE OTHERWISE WAS IN OCCUPATION BY THE PROPERTY SINCE 01.02.73, HENCE THE ASSESSEE HAS RIGHTLY TAKEN THE FAIR MARKET VALUE OF THE SAID RIGHTS AS ON 01.04.81 AND HAS CLAIMED INDEXATION TH EREUPON. THE LD. A.R. IN THIS RESPECT HAS RELIED UPON THE DECISION IN THE CA SE OF MRS. TAUQEER FATEMA RIZVI VS. ITO IN ITA NO.8862/M/2011 DATED 02.05.11 . THE LD. A.R. HAS FURTHER SUBMITTED THAT EVEN OTHERWISE PROVISIONS OF SECTION 55(2)(A) COULD NOT BE APPLIED TO THE CASE OF ASSESSEE AS THE ASSESSEE HAD NOT SURRENDERED TENANCY RIGHTS BUT THE OCCUPANCY RIGHTS. WHILE SUBMITTING SO, HE HAS CONTENDED THAT DEEMED TENANCY IS NOT THE TENANCY RIGHTS. THE LD. A.R. HAS FURTHER CONTENDED THAT BY VIRTUE OF EXPLANATION 3 TO SECTION 32(1)(II ), THE COMMERCIAL OR BUSINESS RIGHTS WHICH ARE SIMILAR TO A LICENSE OR FRANCHI SE ARE TREATED AS INELIGIBLE ASSETS. HE HAS SUBMITTED THAT IN THIS CASE, THE AS SESSEE WAS HAVING DEEMED TENANCY RIGHTS AKIN TO A LICENSE TO HOLD THE PROPER TY WHICH WAS TO BE TREATED AS INTANGIBLE ASSET AS DEFINED UNDER SECTION 32 OF THE ACT AND HENCE THE ASSESSEE HAS RIGHTLY CLAIMED THE FAIR MARKET VALUE OF THE SA ME AS ON 01.04.81 AND HAS ACCORDINGLY CLAIMED THE INDEXATION THEREUPON. WITH OUT PREJUDICE TO THE ABOVE, THE LD. A.R. HAS FURTHER SUBMITTED THAT THE ASSESSE E HAD GOT THE RIGHTS IN THE PROPERTY BY WAY OF ADVERSE POSSESSION AND THEREFORE THERE WAS NO COST OF ACQUISITION, HENCE THE CONSIDERATION RECEIVED IS NO T LIABLE FOR CAPITAL GAIN TAXED. HE, IN THIS RESPECT, HAS RELIED UPON THE DE CISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. STAR CHEMICALS ( BOM.) (P.) LTD. (2007) ITA NO.2399/M/2012 M/S. SAROJ SALES ORGANISATION 4 110 TTJ 753 (MUM.) IN ITA NOS.1110 & 1153 OF 2009 V IDE ORDER DATED 14.08.09. THE LD. D.R., ON THE OTHER HAND, HAS RELIED UPON T HE FINDINGS OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORDS. SO FAR AS THE RELIANCE OF THE ASSESSEE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES & STOCK S LTD V. CIT (2010) 327 ITR 323 (SC) IS CONCERNED, WE FIND THAT THE TENANCY RIGHTS OF THE ASSESSEE IN THE PREMISES IN QUESTION ARE NOT AKIN TO THE COMMER CIAL OR BUSINESS RIGHTS SUCH AS LICENSE OR FRANCHISE, KNOWHOW, PATENTS, COPY RIG HTS, TRADE MARKS ETC. AS PROVIDED UNDER SECTION 32 OF THE ACT AS INTANGIBLE ASSETS ELIGIBLE FOR THE CLAIM OF DEPRECIATION. THE IDENTICAL ISSUE CAME UP FOR C ONSIDERATION BEFORE THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DABU R INDIA LTD. VS. ACIT (2013) 37 TAXMAN.COM 289 (ONE OF US I.E. THE JUDICI AL MEMBER BEING A PARTY TO THE SAID DECISION) WHEREIN IT HAS BEEN CATEGORICALL Y HELD THAT THE TENANCY RIGHTS CANNOT BE EQUATED WITH THE BUSINESS RIGHTS SUCH AS LICENSE KNOWHOW, COPY RIGHT OR TRADE MARK ETC. APPLYING THE RULE OF NOSTI CUR A SOCIIS. THE TENANCY RIGHTS ARE NOT ELIGIBLE FOR DEPRECIATION. THE DECI SION OF THE HONBLE SUPREME COURT IN THE CASE OF TECHNO SHARES & STOCKS LTD V. CIT (SUPRA) HAS ALSO BEEN CONSIDERED BY THE TRIBUNAL IN THE ABOVE STATED DECISION. IT IS PERTINENT TO MENTION HERE THAT EVEN OTHERWISE THE DISPUTE BEFORE US IS NOT AS REGARDING THE ELIGIBILITY OF CLAIM OF DEPRECIATION ON TENANCY RIG HTS. THE ISSUE BEFORE US IS ABOUT THE COMPUTATION OF CAPITAL GAINS ON TRANSFER OF TENANCY RIGHTS. THE TENANCY RIGHTS HAVE BEEN SPECIFICALLY DECLARED AS C APITAL ASSET UNDER SECTION 55 OF THE ACT. IT IS ALSO NOT DISPUTED THAT EVEN IT I S NEITHER THE CASE OF THE REVENUE NOR OF THE ASSESSEE THAT THE TENANCY RIGHTS SOLD BY THE ASSESSEE ARE NOT THE CAPITAL ASSET. ITA NO.2399/M/2012 M/S. SAROJ SALES ORGANISATION 5 6. NOW COMING TO THE QUESTION AS TO WHETHER THE FAI R MARKET VALUE OF THE TENANCY RIGHTS AS ON 01.04.81 ARE TO BE TAKEN FOR C OMPUTATION OF CAPITAL GAINS IS CONCERNED, WE FIND THAT THE LD. A.R. HAS RELIED, IN THIS RESPECT, ON THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CAS E OF MRS. TAUQEER FATEMA RIZVI (SUPRA). WE FIND THAT THE FACTS OF THE CASE IN CASE OF MRS. TAUQEER FATEMA RIZVI (SUPRA) ARE QUITE DISTINGUISHABLE. I N THE SAID CASE, THE ASSESSEE HAD SURRENDERED HER TENANCY RIGHTS TO THE BUILDER A ND HAD GOT THE POSSESSION OF A FLAT. THE ASSESSEE HAD TO PAY CERTAIN ADDITIONAL CHARGES IN ADDITION TO THE COST OF ACQUISITION OF THE SAID FLAT APART FROM SURRENDE RING OF TENANCY RIGHTS. THE ASSESSEE HAD BECOME THE OWNER OF THE SAID FLAT WHIC H WAS SUBSEQUENTLY SOLD WHILE COMPUTING THE CAPITAL GAINS. THE TRIBUNAL HE LD THAT THE FAIR MARKET VALUE OF THE SAID FLAT IS TO BE CONSIDERED FOR THE PURPOS E OF COMPUTATION OF CAPITAL GAINS AND INDEXATION THEREUPON AND THE RELEVANT DAT E SHOULD BE THE DATE ON WHICH THE ASSESSEE WAS PUT IN POSSESSION OF THE FLA T AFTER ITS COMPLETION. HENCE, IN THE CIRCUMSTANCES, IT WAS THE COST OF ACQ UISITION OF THE FLAT WHICH WAS DISPUTED IN THE SAID DECISION AND NOT THE COST OF A CQUISITION OF THE TENANCY RIGHTS. THE NEXT DECISION RELIED UPON BY THE LD. A.R. IS IN THE CASE OF VIJAYSINH R. RATHOD VS. ITO (2007) 106 ITD 153 (A HD.) WHEREIN IT HAS BEEN HELD THAT THE BENEFIT OF COST OF INDEXATION IS AVAI LABLE TO OCCUPANCY RIGHTS. WE FIND THAT THE SAID DECISION IS NOT APPLICABLE TO TH E CASE IN HAND. THE ASSESSEE WAS NOT HAVING ANY OCCUPANCY RIGHTS IN THE BUILDING . OCCUPANCY RIGHTS ARE GENERALLY GRANTED BY THE GOVERNMENT TO CERTAIN CLAS S OF PEOPLE TO HOLD THE PROPERTY FOR A PARTICULAR PURPOSE AND WITH THE PASS AGE OF TIME THE OCCUPANT GOT A RIGHT TO HOLD THE PROPERTY CLAIMING THE OCCUPANCY RIGHTS. IN THE CASE OF VIJAYSINH R. RATHOD (SUPRA) THE ANCESTORS OF THE ASSESSEE WERE ALLOTTED LANDS FOR CULTIVATION BY PORTUGUESE ADMINISTRATION UNDER ORGANIZAC AGRAIA. THEREAFTER ALL THE ASSESSEES HAD BEEN GRANTED LAND UNDER THE NEW LAND REFORMS REGULATIONS, 1971 IN RECOGNITION OF THEIR O CCUPANCY RIGHTS IN THE SAID ITA NO.2399/M/2012 M/S. SAROJ SALES ORGANISATION 6 PROPERTY. IT WAS UNDER SUCH CIRCUMSTANCES, THE TRI BUNAL WHILE ANALYZING THE PROVISIONS OF DADRA & NAGAR HAVELI LAND REFORMS REG ULATIONS, 1971 HAS HELD THAT THE ASSESSEES WERE IN FACT TREATED AS OWNERS O F THE PROPERTY AND HENCE THE COST OF ACQUISITION WAS CLEARLY ASCERTAINABLE WHICH WAS TO BE SUBSTITUTED BY FAIR MARKET VALUE AS ON 01.04.81. THE FACTS OF THE CASE IN HAND ARE ENTIRELY DIFFERENT. THE ASSESSEE WAS NOT HAVING ANY OCCUPAN CY RIGHTS IN THE PROPERTY IN QUESTION. THE ASSESSEE ORIGINALLY WAS A LICENSEE I N THE SAID PROPERTY FOR WHICH THE ASSESSEE HAD PAID LICENSE FEE FOR OCCUPATION OF THE PROPERTY. HOWEVER, BY WAY OF SUBSEQUENT CONSENT TERMS FILED IN THE COURT, THE ASSESSEE WAS ADMITTED AS DEEMED TENANT OF THE PROPERTY UNDER THE BOMBAY R ENT ACT. THE RENT WAS AGREED AT THE RATE OF RS.670/- PER MONTH COMMENCING FROM 01.04.77 WHICH WAS DULY PAID BY THE ASSESSEE. THE ASSESSEE DID NOT PA Y ANY CONSIDERATION FOR GETTING/PURCHASING THE SAID TENANCY RIGHTS IN THE P ROPERTY. AS PER THE PROVISIONS OF SECTION 55(2) OF THE ACT, IT HAS BEEN SPECIFICALLY PROVIDED THAT THE COST OF ACQUISITION FOR THE PURPOSE OF SECTIONS 48 & 49 OF THE ACT IN RESPECT OF TENANCY RIGHTS WILL BE THE AMOUNT OF THE PURCHASE P RICE PAID BY THE ASSESSEE FROM A PREVIOUS OWNER AND IN ANY OTHER CASE THE SAM E SHALL BE TAKEN TO BE NIL. ADMITTEDLY, IN THIS CASE THE ASSESSEE HAD NOT PURCH ASED THE TENANCY RIGHTS FOR ANY CONSIDERATION. HENCE, AS PER THE SPECIFIC PROV ISIONS OF SECTION 55(2), THE COST OF ACQUISITION OF TENANCY RIGHTS IS TO BE TREA TED AS NIL FOR THE SAKE OF COMPUTATION OF CAPITAL GAINS. THE OTHER CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE HAS BEEN THAT THE RIGHTS OF THE ASSESSEE W ERE THE RIGHTS BY WAY OF ADVERSE POSSESSION. WE FIND THAT THE SAID CONTENTI ON OF THE LD. A.R. IS ALSO NOT TENABLE SO FAR AS THE FACTS OF THE PRESENT CASE ARE CONCERNED. THE ADVERSE POSSESSION IS A POSSESSION IN WHICH A PERSON REMAIN S IN THE POSSESSION OF THE PROPERTY CLAIMING HIMSELF TO BE THE OWNER ADVERSE T O THE RIGHTS OF ACTUAL OWNER OF THE PROPERTY. HOWEVER, IN THIS CASE, THE ASSESSEE HAD ADMITTED THE SHAH SILK MILLS AS THE LANDLORD TO THE PROPERTY AND HAD AGREED TO PAY THE RENT AND EVEN HIS SUIT WAS DECREED IN TERMS OF THE CONSE NT AGREEMENT WHEREIN HE ITA NO.2399/M/2012 M/S. SAROJ SALES ORGANISATION 7 ADMITTED HIMSELF TO BE A TENANT AT THE RATE OF RS.6 70/- PER MONTH. UNDER SUCH CIRCUMSTANCES, THE ASSESSEE NEVER CLAIMED ANY OWNER SHIP RIGHTS ADVERSE TO THAT OF THE ORIGINAL LANDLORD/OWNER. THE CASE LAW IN TH E CASE OF CIT VS. STAR CHEMICALS (BOM.) (P.) LTD. (SUPRA) DOES NOT APPLY TO THE FACTS OF THE CASE OF THE ASSESSEE. 7. SO FAR AS THE CONTENTION OF THE LD. A.R. THAT D EEMED TENANT IS DIFFERENT FROM THE TERM TENANT AND THAT THE DEEMED TENANCY RIGHTS ARE DIFFERENT FROM TENANCY RIGHTS IS CONCERNED, WE DO NOT FIND ANY M ERIT IN THE SAID CONTENTION ALSO. THE ASSESSEE IN THE SUIT BEFORE THE COURT OF SMALL CAUSES, MUMBAI ITSELF PRAYED FOR DECLARING ITSELF THE DEEMED TENANT UNDER THE BOMBAY RENT ACT WHICH MEANS THAT THE ASSESSEE WILL BE TREATED AS TE NANT PROTECTED UNDER THE BOMBAY RENT ACT AND WILL HAVE THE SAME RIGHTS AS AR E AVAILABLE TO THE TENANTS UNDER THE ACT. HENCE, UNDER SUCH CIRCUMSTANCES, IT CANNOT BE SAID THAT THE ASSESSEE WAS HAVING ANY DIFFERENT RIGHTS OTHER THAN THE TENANCY RIGHTS IN THE BUILDING IN QUESTION. SINCE THE ASSESSEE HAD NOT I NCURRED ANY COST OF ACQUISITION OF THE PROPERTY, HENCE AS PER THE PROVI SIONS OF SECTION 55(2), THE LOWER AUTHORITIES HAVE RIGHTLY COMPUTED THE LONG TE RM CAPITAL GAINS TREATING THE COST OF ACQUISITION OF TENANCY RIGHTS AT NIL. WE T HEREFORE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SA ME IS ACCORDINGLY UPHELD. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HER EBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.12.2015. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 11.12.2015. * KISHORE, SR. P.S. ITA NO.2399/M/2012 M/S. SAROJ SALES ORGANISATION 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.