ITO 16(2)(2), MUMBAI V. MINOO KRISHNALAL CHOKSI, MUMBAI

ITA 2437/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3671 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 12-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY N KAP ADIA
• Keywords: Capital asset; Surrender of tenancy right
• Section: 54F; 54

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI . . , !'#$ , % & BEFORE SHRI B.R. MITTAL, JM AND SHRI N.K. BILLAIYA , AM ./I.T.A. NO.2437/MUM/2012 ( ' ' ' ' / ASSESSMENT YEAR : 2008-09 THE ITO 16(2)(2), 214, 2 ND FLOOR, MATRU MANDIR, TARDEO ROAD, MUMBAI-400 007 / VS. SHRI MINOO KRISHNALAL CHOKSHI, C/O HANSA CLINIC, 166-B, TARDEO ROAD, TARDEO, MUMBAI-400 034 ( % ./ )* ./PAN/GIR NO. :ADDPC 1910D ( (+ /APPELLANT ) .. ( ,-(+ / RESPONDENT ) (+ . / APPELLANT BY: SHRI MOHIT JAIN ,-(+ / . / RESPONDENT BY : SHRI SANJAY N. KAPADIA / 01% / DATE OF HEARING : 25.04.2013 23' / 01% / DATE OF PRONOUNCEMENT : 25.4.2013 4 / O R D E R PER N.K. BILLAIYA, AM: REVENUE HAS PREFERRED THIS APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-27, MUMBAI DT. 201.2012 PERTAINING TO ASSESS MENT YEAR 2008-09. THE SUM AND SUBSTANCE OF THE GRIEVANCE OF THE REVEN UE IS THAT THE LD. CIT(A) ERRED IN NOT TREATING THE SURRENDER OF TENAN CY RIGHTS AS CAPITAL ASSETS LIABLE TO LONG TERM CAPITAL GAINS AND FURTHE R THE LD. CIT(A) ERRED IN ALLOWING RELIEF U/S. 54F OF THE ACT. 2. THE ASSESSEE IS AN INDIVIDUAL. FOR THE YEAR UND ER CONSIDERATION, THE ASSESSEE HAS SHOWN INCOME FROM BUSINESS AT RS. 1,44 ,413/-, SHORT TERM CAPITAL GAIN OF RS. 46,698/- AND INCOME FROM OTHER SOURCES AT RS. 713/-. ITA NO. 2437/M/2012 2 DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND AS PER THE DETAILS RECEIVED THROUGH AIR, THE ASSESSING OFFICER OBSERVE D THAT THE ASSESSEE IS A TENANT OF SELF CONTAINED RESIDENTIAL PREMISES OCC UPYING APPROXIMATELY 630 SQ. FT OF CARPET AREA ON THE GROUND FLOOR OF PA TIL ESTATE OF MALABAR AND CUMBALLA HILL DIVISION, OFF. TARDEV ROAD, MUMBA I. THE SAID RESIDENTIAL PREMISES WERE OWNED BY DESHBHUSHAN CHS LTD., A CO- OPERATIVE HSG. SOC. THE ASSESSEE WAS PAYING RS. 54. 50 PER MONTH AS RENT. THE AO FOUND THAT ON 9.5.2007, THE SOCIETY HAS ENTE RED INTO A DEVELOPMENT AGREEMENT WITH SACHINAM ESTATE DEVELOPE RS PVT. LTD FOR THE DEVELOPMENT OF THE SAID SOCIETY PREMISES. AS PER T HIS DEVELOPMENT AGREEMENT, THE DEVELOPER WAS TO DEMOLISH THE EXISTI NG STRUCTURE AND TO GIVE THE TENANTS ALTERNATIVE ACCOMMODATION IN THE N EWLY CONSTRUCTED BUILDING. THE AO FURTHER OBSERVED THAT AS PER THIS AGREEMENT, THE ASSESSEE WAS GOING TO RECEIVE TWO FLATS AT 18 TH FLOOR ADMEASURING TOTAL 630 SQ.FT OF CARPET AREA. VIDE ANOTHER AGREEMENT DT. 2 5.7.2007, IN LIEU OF THE TENANCY RIGHTS IN THE SAME PROPERTY, THE DEVELOPER HAS AGREED TO GIVE ADDITIONAL PREMISE ON OWNERSHIP BASIS TO THE ASSESS EE. THE MARKET VALUE OF THE SAID FLAT AS PER STAMP DUTY AUTHORITIES COME S TO RS. 46,37,160/-. THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS RECEIVED 3 PROPERTIES WORTH RS. 1,39,11,480/- IN EXCHANGE OF TENANCY RIGH TS IN HIS OLD PROPERTY SINCE THE ASSESSEE HAS INCURRED NIL COST OF ACQUISI TION. AS REGARDS TENANCY RIGHTS IS CONCERNED, THE AO WAS OF THE OPIN ION THAT THE ASSESSEE HAS RECEIVED LONG TERM CAPITAL GAIN OF RS. 1,39,11, 480/-. THE AO FURTHER PROCEEDED ON THE BELIEF THAT THE ASSESSEE IS NOT EN TITLED FOR EXEMPTION U/S. 54F ON TRANSFER OF THE TENANCY RIGHTS. THE AO HAS GIVEN REASONS AT PARA-8 PAGE-3 OF HIS ORDER STATING THAT THE ASSESSEE HAS R ECEIVED TWO FLATS VIDE AGREEMENT DT. 9.4.2007 AND ANOTHER FLAT VIDE AGREEM ENT DT. 25.7.2007 SINCE THE ASSESSEE HAS RECEIVED THREE RESIDENTIAL P ROPERTIES THAT ITSELF IS IN CONTRAVENTION TO THE PROVISIONS OF SEC. 54F OF THE ACT. THEREFORE, THE ITA NO. 2437/M/2012 3 BENEFIT OF SEC. 54F IS NOT AVAILABLE TO THE ASSESSE E. THE AO WENT ON TO COMPUTE THE TAXABLE INCOME OF THE ASSESSEE BY TAKIN G LONG TERM CAPITAL GAIN ON TRANSFER OF TENANCY RIGHT AT RS. 1,39,11,48 0/-. 3. THE ASSESSEE CARRIED THIS MATTER BEFORE THE LD. CIT(A) AND STRONGLY SUBMITTED THAT THE ACTION OF THE AO IS ERRONEOUS AN D NOT ACCORDING TO THE FACTS OF THE CASE. THE MAIN CONTENTION OF THE ASSE SSEE BEFORE THE LD. CIT(A) WAS THAT HE HAS NOT RECEIVED ANY ALTERNATE A CCOMMODATION AND HE IS STILL A TENANT OF THE ALLEGED RESIDENTIAL PREMIS ES. WHATEVER HAS BEEN STATED BY THE AO IS A FUTURE EVENT TO TAKE PLACE AT A FUTURE DATE. TO SUBSTANTIATE, THE ASSESSEE FILED COPIES OF RENT REC EIPT OF THE TENANTED PROPERTY TO SHOW THAT HE IS STILL IN THE POSSESSION OF THE TENANTED PROPERTY. IN ORDER TO ASCERTAIN THIS FACT, THE LD. CIT(A) DIR ECTED THE AO TO MAKE A FIELD ENQUIRY AND SUBMIT THE REPORT. THE OFFICE IN SPECTOR OF THE AO VISITED THE IMPUGNED PROPERTY AND FURNISHED THE REP ORT VIDE HIS LETTER DT. 24.11.2011. THE OFFICER INSPECTOR CONFIRMED THAT T HE ASSESSEE IS RESIDING ON THE GIVEN ADDRESS. THE OFFICE INSPECTOR FURTHER STATED THAT HE COULD NOT VISIT NEW BUILDING SINCE BUILDING CONSTRUCTION WORK IS AT STANDSTILL AND INCOMPLETE. AFTER CONSIDERING THE ENTIRE FACTS BRO UGHT ON RECORD AND ALSO THE REMAND REPORT OF THE AO AND OFFICE INSPECTOR, T HE LD. CIT(A) THUS HELD AS UNDER: AT THE OUTSET, THE AO LACKS CLARITY IN APPRECIATIO N OF THE LEGAL POSITION OF THE IMPUGNED TRANSACTION. AS CAN BE SEEN FROM THE EXTRACT OF THE ASSESSMENT ORDER AT PARAS 3.3 AND 3. 4, AO CONSIDERS THAT THERE WAS A TRANSFER INVOLVED BY SALE OF TENAN CY RIGHTS AND THE ALTERNATE ACCOMMODATION TO BE RECEIVED IN EXCHANGE IS NOTHING BUT PURCHASE OF A NEW PROPERTY. IN OTHER WORDS AO CONSI DERS THAT THERE ARE TWO SEPARATE TRANSACTIONS INVOLVED IN THI S REGARD, THE FIRST EVENT RESULTING IN THE CAPITAL GAINS AND THE SECOND EVENT RESULTING IN EXAMINATION OF THE APPELLANTS ENTITLE MENT OR OTHERWISE OF RELIEF U/S 54F. ON CONSIDERING THE RELEVANT CLAU SES OF THE AGREEMENT I HOLD THAT THERE IS ONLY ONE TRANSACTION AGREED UPON I.E., THE SURRENDER OF TENANCY RIGHTS SUBJECT TO TH E CONDITION THAT THE ITA NO. 2437/M/2012 4 APPELLANT IS GIVEN POSSESSION OF THE ALTERNATE ACCO MMODATION AS STATED IN THE AGREEMENT. IT IS NEITHER A SALE OF TE NANCY RIGHTS NOR PURCHASE OF NEW PROPERTY BY THE APPELLANT. SECONDLY T IS ALSO NOT AN EXCHANGE SINCE AN EXCHANGE PRESUPPOSES EXISTENCE OF TWO PROPERTIES TO BE EXCHANGED AND THE ALTERNATE ACCOMM ODATION WAS NOT IN EXISTENCE ON THE DATE OF AGREEMENT. NOW COMI NG TO THE CONTENTS OF THE IMPUGNED AGREEMENT, APPARENTLY THE AO HAS EITHER NOT GONE THROUGH THE ENTIRE AGREEMENT OR CONVENIENT LY IGNORED THE RELEVANT PORTIONS. I NOTE THAT THE IMPUGNED AGREEME NT WAS ENTERED FOR THE PURPOSE OF DEVELOPING THE ENTIRE PROPERTY F OR WHICH IT IS ESSENTIAL TO DEMOLISH THE TENANTED STRUCTURES AS AN D WHEN REQUIRED AND THE CONSTRUCTION PLANS NEED TO BE APPROVED IN A DVANCE. THEREFORE, THE DEVELOPER HAD TO ENTER INTO AN AGREE MENT WITH THE TENANTS WHICH IS A TRI-PARTE AGREEMENT AMONG THE OW NERS, DEVELOPER AND THE TENANTS WHICH PROVIDES FOR SURREN DER OF TENANCY RIGHTS ON HANDING OVER AND PUTTING THE TENANTS IN T HE ALTERNATE ACCOMMODATION AS AGREED THEREIN. AT CLAUSE 7 OF THE AGREEMENT IT IS CLEARLY AGREED THAT THE TENANT SHALL CEASE TO PA Y RENT ONLY ON BEING HANDED OVER THE VACANT POSSESSION OF ALTERNAT E ACCOMMODATION. FURTHER CLAUSE 16 STATES THAT TENANC Y RIGHTS SHALL STAND SURRENDERED SIMULTANEOUSLY ON HANDING OVER TH E VACANT POSSESSION OF THE ALTERNATE ACCOMMODATION TO THE TE NANT. FURTHER VIDE CLAUSE 9 OF THE AGREEMENT THE TENANT SHALL NOT BE REQUIRED TO SHIFT TO ALTERNATE ACCOMMODATION UNLESS IT IS COMPL ETE IN ALL RESPECTS INCLUDING OBTAINING OF THE OCCUPATION CERT IFICATE. THUS WHILE THE EVENT OF SURRENDERING THE TENANCY RIGHTS IS GOVERNED BY CLAUSE 16, THE OWNER AND TENANT ARE PROTECTED BY PR OVISIONS OF CLAUSE 7 AND 9 OF THE AGREEMENT AGAINST ANY ARBITRA RY ACTION OF THE DEVELOPER. FURTHER AS NOTED FROM THE REPORT OF THE INSPECTOR WHO MADE THE FIELD VISIT OF THE IMPUGNED PROPERTY THE A PPELLANT STILL OCCUPIES THE TENANTED PROPERTY AND THERE WAS NO CHA NGE IN HIS POSITION VIS--VIS THE OWNER. ALL THE DOCUMENTS PLA CED ON RECORD IN THE FORM OF RENT RECEIPTS, LIC/MTNL BILLS PAID, BAN K ACCOUNTS OPERATED AND THE AADHAAR CARD ISSUED ETC., WITH THE ADDRESS OF THE TENANTED PROPERTY WOULD GO TO ESTABLISH THE APPELLA NTS CLAIM BEYOND DOUBT THAT HE CONTINUES TO BE IN THE POSSESS ION OF THE TENANTED PREMISES. THE INSPECTORS REPORT FURTHER S TATES THAT THE CONSTRUCTION OF THE ALTERNATE ACCOMMODATION IS NOT COMPLETE AS ON DATE. APPELLANT ALSO STATED THAT THE MATTER STAND S TILL DUE TO THE PENDING LITIGATION. FURTHER, SETTLEMENT OF TERMS BETWEEN THE PARTIES IS ONE OF THE CONDITIONS ESSENTIAL FOR THE COMPLETION OF A CONTRA CT AND THERE WAS ITA NO. 2437/M/2012 5 NO CONCLUDED CONTRACT BETWEEN THE PARTIES TILL SUCH TIME. THEREFORE, AGREEING UPON A CONDITION CANNOT BE CONSIDERED AS E QUIVALENT TO PERFORMANCE OF THE CONDITION IN THE EYES OF LAW, DE VOID OF THE FACTUAL MATRIX. IN THE FACTUAL BACK GROUND DISCUSSE D ABOVE, IT APPEARS CLEARLY THAT THE DOMINANT INTENTION OF THE PARTIES TO THE AGREEMENT AND THE APPELLANT IN SPECIFIC WAS NOT TO CONSIDER THE IMPUGNED AGREEMENT AS CONCLUSION OF THE CONTRACT. I N THE TRANSFER OF PROPERTY ACT THE WORD TRANSFER OF PROPERTY IS DEFINED AS TRANSFER OF PROPERTY MEANS AN ACT BY WHICH A LIVIN G PERSON CONVEYS PROPERTY, IN PRESENT OR IN FUTURE, TO ONE O R MORE OTHER LIVING PERSONS OR TO HIMSELF, OR TO HIMSELF ONE OR MORE LIVING PERSONS; AND TO TRANSFER PROPERTY IS TO PERFORM SUC H ACT. IN OTHER WORDS, A TRANSFER IS CONTEMPLATED THAT OF A PROPERT Y WHICH IS IN EXISTENCE AND NOT THAT OF A FUTURE PROPERTY. A PROP ERTY IN EXISTENCE TODAY CAN BE TRANSFERRED WITH EFFECT FROM A FUTURE DATE, BUT A PROPERTY THAT COMES INTO EXISTENCE AT A FUTURE DATE CANNOT BE TRANSFERRED TODAY. IN THE PRESENT CASE, THE PROPERT Y THAT WAS TO BE RECEIVED BY THE APPELLANT IN THE FORM OF CONSTRUCTE D FLATS AND THE RIGHTS THEREIN CAN ACCRUE TO THE APPELLANT ONLY FRO M THE DATE ON WHICH TERMS OF THE IMPUGNED AGREEMENT ARE FULFILLED BY BOTH THE PARTIES I.E., UPON FULFILLMENT OF THE CONDITIONS OF THE CONTRACT BY BOTH THE PARTIES VIZ., HANDING OVER THE TENANTED PR OPERTY/SURRENDER OF TENANCY RIGHTS TO THE DEVELOPER BY THE APPELLANT AND COMPLETION OF THE CONSTRUCTION OF ALTERNATIVE ACCOMMODATION AN D HANDING IT OVER TO THE APPELLANT THERE UPON BY THE DEVELOPER. AS NOTED FROM CLAUSE 16 OF THE IMPUGNED AGREEMENT, THE CONTRACT C ONTEMPLATES THAT SURRENDER OF TENANCY RIGHTS SHALL TAKE PLACE O N TERMS SETTLED BETWEEN THE PARTIES. THE IMPUGNED AGREEMENT DOES NO T, OF ITSELF CREATE ANY INTEREST IN THE PROPERTY VIZ., ALTERNATI VE ACCOMMODATION AND AGREEMENT IS MERELY A DOCUMENT CREATING A RIGHT TO OBTAIN ANOTHER DOCUMENT OF CONVEYANCE ON FULFILLMENT OF TE RMS AND CONDITIONS SPECIFIED THEREIN. IN FACT THE IMPUGNED AGREEMENT CREATES A RIGHT IN FAVOUR OF THE DEVELOPER TO GET T HE TENANT VACATED/ DISPOSSESSED OF TENANTED PROPERTY ONCE THE CONSTRUC TION IS COMPLETE AND THE ALTERNATIVE ACCOMMODATION IS READY FOR OCCUPATION WITH ALL NECESSARY CLEARANCES AND IN SO FAR AS APPELLANT IS CONCERNED IT ONLY PROTECTS HIM NOT TO VACATE THE TENANTED PROPERTY TILL SUCH TIME AND IT DOES NOT GIVE ANY RI GHT TO THE TENANT TO FORCE THE DEVELOPER TO COMPLETE THE CONSTRUCTION . THUS THE CLAUSE 9 OF THE IMPUGNED AGREEMENT ON WHICH AO PLACED RELI ANCE IN THE ASSESSMENT AS WELL AS THE REMAND PROCEEDINGS ONLY A CTS AS A NEGATIVE COVENANT AGAINST THE DEVELOPER IN PROTECTI NG THE APPELLANTS RIGHTS AND DOES NOT GIVE THE RIGHT TO T HE APPELLANT FOR ITA NO. 2437/M/2012 6 INSISTING ANY TIME BOUND SPECIFIC PERFORMANCE BY TH E BUILDER. EVEN SECTION 54 OF THE TRANSFER OF PROPERTY ACT, IN WHIC H SALE IS DEFINED, STATES THAT A CONTRACT OF SALE OF IMMOVABLE PROPER TY IS A CONTRACT THAT A SALE OF SUCH PROPERTY SHALL TAKE PLACE ON TE RMS SETTLED BETWEEN THE PARTIES. FURTHER EVEN IN CASE OF A PAR T PERFORMANCE, THE ESSENTIAL CONDITIONS REQUIRED TO BE FULFILLED F OR THE PURCHASER TO DEFEND OR PROTECT HIS POSSESSION U/S.53A OF THE TRA NSFER OF PROPERTY ACT IS THAT THE PURCHASER MUST HAVE DONE S OME ACT IN FURTHERANCE OF THE CONTRACT AND MUST HAVE PERFORMED HIS PART OF CONTRACT. IN THE PRESENT CASE THE DEVELOPER HAS NOT COMPLETED THE CONSTRUCTION OF ALTERNATE ACCOMMODATION. THEREFORE, IN MY CONSIDERED OPINION, THERE IS NEITHER A FULL PERFORM ANCE NOR A PART PERFORMANCE OF THE IMPUGNED AGREEMENTS. IN OTHER WO RDS, HAVING REGARD TO THE FACTS BROUGHT ON RECORD AND ALSO THE POSITION OF LAW IT IS BEYOND DOUBT THAT THE TENANCY RIGHTS WERE NOT SU RRENDERED ON THE DATE O AGREEMENT I.E., EITHER ON 9/5/2007 OR 25 /7/2007. IN VIEW OF THE ABOVE DISCUSSION I AM OF THE CONSID ERED OPINION THAT THE SURRENDER OF TENANCY RIGHTS AS CON TEMPLATED IN CLAUSE 16 OF THE IMPUGNED AGREEMENT HAS NOT TAKEN P LACE DURING THE YEAR UNDER CONSIDERATION. THE LOGICAL COROLLARY TO THIS FINDING IS THAT THERE IS NO TAXABLE EVENT GIVING RISE TO CA PITAL GAINS ON ACCOUNT OF THE IMPUGNED AGREEMENT. ACCORDINGLY I HO LD THAT THERE ARE NO TAXABLE CAPITAL GAINS AND THE ADDITION MADE BY THE AO CANNOT SURVIVE. APPELLANT SUCCEEDS ON THIS GROUND. 4. AGGRIEVED BY THIS ORDER OF THE LD. CIT(A), REVEN UE IS IN APPEAL BEFORE US. 5. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY REL IED UPON THE ORDER OF THE AO. PER CONTRA, THE LD. COUNSEL FOR T HE ASSESSEE RELIED UPON THE DECISION OF THE LD. CIT(A). 6. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES. AFTER CONSIDERING THE FACTS DISCUSSED AT THE TIME O F ASSESSMENT AND ALSO CONSIDERED AT THE TIME OF FIRST APPELLATE STAGE AND IN THE LIGHT OF THE CATEGORICAL FINDING OF THE LD. CIT(A), WE ARE OF TH E CONSIDERED VIEW THAT THE ENTIRE EXERCISE OF ASSESSMENT IS PRE-MATURE AND NOT RELEVANT FOR THE ITA NO. 2437/M/2012 7 YEAR UNDER CONSIDERATION. WE ARE IN FIRM AGREEMENT WITH THE FINDING OF THE LD. CIT(A) THAT THERE IS NO TAXABLE EVENT GIVI NG RISE TO CAPITAL GAINS FOR THE YEAR UNDER CONSIDERATION. WE THEREFORE DO NOT FIND ANY REASON TO TAMPER WITH THE FINDINGS OF THE LD. CIT(A). THIS GR OUND OF THE REVENUE IS DISMISSED. 7. THE SECOND GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN ALLOWING RELIEF U/S. 54F OF THE ACT. 8. A PERUSAL OF THE ORDER OF THE LD. CIT(A) SHOW TH AT AT PARA-10, THE LD. CIT(A) HAS CATEGORICALLY STATED THAT RELIEF CLA IMED BY THE ASSESSEE U/S. 54F IS INFRUCTUOUS. THEREFORE, WE DO NOT SEE A NY MERIT IN THIS GRIEVANCE OF THE REVENUE WHEN THE LD. CIT(A) HAS NO T ALLOWED ANY RELIEF U/S. 54F OF THE ACT. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 5 06 ) / 7 %5) / )0 8# ORDER PRONOUNCED IN THE OPEN COURT ON 25.4.2013 4 / 3' % 7 96 25.4.2013 3 / : SD/- SD/- (B.R. MITTAL ) (N. K. BILLAIYA ) /JUDICIAL MEMBER % / ACCOUNTANT MEMBER MUMBAI; 9 DATED 25.4.2013 . . ./ RJ , SR. PS ITA NO. 2437/M/2012 8 4 4 4 4 / // / ,0! ,0! ,0! ,0! ;!'0 ;!'0 ;!'0 ;!'0 / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. < ( ) / THE CIT(A)- 4. < / CIT 5. !=: ,0 , , / DR, ITAT, MUMBAI 6. :> ? / GUARD FILE. 4 4 4 4 / BY ORDER, -!0 ,0 //TRUE COPY// @ @@ @ / 8 8 8 8 ) ) ) ) (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI