KEWAL SILK MILLS, MUMBAI V. ASST CIT RG 14(1), MUMBAI

ITA 4335/MUM/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8721 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-10-2012
• Assessment Year: 2009-2010
• Appeal Filed On: 25-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURINDER VIT SING H
• Assessee Lawyers: HEMEN CHANDRIYA
• Keywords: Capital asset; Capital receipt
• Section: 2(14)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI I.P.BANSAL,JUDICIAL MEMBER & SHRI RAJENDRA, ACCOUNTANT MEMBER ITA NO.4335/MUM/2012(A.Y. 2009-10) KEWAL SILK MILLS, C/O. JYOREN ENTERPRISES, 308/B, NIRANJAN BUILDING, 99, MARINE DRIVE, MUMBAI - 400 002 PAN: AAEFK 4964F (APPELLANT) VS. THE ASSTT. COMMISSIONER OF INCOME TAX, RANGE 14(1), 202, EARNEST HOUSE, NARIMAN POINT, MUMBAI. (RESPONDENT) APPELLANT BY : S/SHRI RAJAN VORA & HEMEN CHANDRIYA RESPONDENT BY : SHRI SURINDER VIT SING H DATE OF HEARING : 01/10/2012 DATE OF PRONOUNCEMENT : 1 2 /10/2012 ORDER PER I.P.BANSAL, J.M THIS APPEAL IS FILED BY THE ASSESSEE. IT IS D IRECTED AGAINST THE ORDER PASSED BY LD. CIT(A)-25, MUMBAI DATED 20/06/2012 FOR ASSESSMENT YEAR 2009-10. THE GROUNDS OF APPEAL RAISED BY THE ASSES SEE READ AS UNDER: 1. THE LEARNED CIT (APPEALS) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN SUSTAINING THE ORDER OF THE ASSESSING OFFICER IN TA XING THE CONSIDERATION OF RS. 3,75,00,000/- RECEIVED AGAINST TRANSFER OF SUB TENA NCY RIGHTS, DEEMED TENANCY RIGHTS UNDER THE HEAD INCOME FROM OTHER SO URCES INSTEAD OF UNDER THE HEAD CAPITAL GAINS HOLDING THAT THE CONSIDERA TION RECEIVED BY THE ASSESSEE CANNOT BE TREATED AS CONSIDERATION FOR TRA NSFER OF A CAPITAL ASSET AND HOLDING THAT THE AMOUNT RECEIVED IS IN THE NATU RE OF COMPENSATION IN CONNECTION WITH LOSS OF BUSINESS, PROFIT AS ALSO CO NVENIENCE AND HARDSHIP ON ACCOUNT OF SHIFTING ELSEWHERE. 2. THE ASSESSEE COMPANY CRAVES LEAVE TO ADD, ALTER OR AMEND THE ABOVE GROUND OF APPEAL. ITA NO.4335/MUM/2010(A.Y. 2009-10) 2 2. THE ASSESSEE IS A PARTNERSHIP FIRM. IN THE RETU RN OF INCOME THE ASSESSEE HAS DECLARED LONG TERM CAPITAL GAIN ON SU RRENDER OF SUB-TENANCY RIGHT AND CLAIMED EXEMPTION UNDER SECTION 54EC OF T HE INCOME TAX ACT,1961(THE ACT) OF RS.50.00 LACS BY MAKING INVES TMENT INTO THE NHAI BONDS. THE AO DID NOT ACCEPT SUCH CLAIM OF THE ASS ESSEE ON THE GROUND THAT THE AGREEMENT OF THE ASSESSEE DATED 13/06/1972 WI TH M/S. MODERN TEXTILES AND SILK MILLS PVT. LTD.(MODERN) BEING TH E ORIGINAL TENANT WAS ONLY IN RESPECT OF TAKING LICENCE ON LOOMS AND MACHINERY , MORE PARTICULARLY DESCRIBED IN THE SCHEDULE ANNEXED TO THAT. THUS A CCORDING TO AO CLAUSE ONE OF THE SAID AGREEMENT DESCRIBED THE LICENCE OF LOOMS AND MACHINERY; CLAUSE-5 OF THE AGREEMENT DESCRIBES THE SHED BY WAY OF PERMISSIBLE USE ON LICENCE BASIS ONLY, THEREFORE, IT WAS INCIDENTAL TO USE THE LOOMS AND MACHINERY AND CANNOT BE CONSTRUED AS SUB-LESSEE; C LAUSE -6 OF THE AGREEMENT SPEAKS OF LEASE OF MACHINERY AND EQUIPMEN T ONLY; CLAUSE-7 OF THE AGREEMENT STATES THAT THE ORIGINAL LICENSOR NAMELY MODERN TEXTILE RAYONS SHALL PAY REGULARLY IN RESPECT OF RENT OF THE SHED AND PREMISES TO THE LAND LORD NAMELY MR. PARESH S. SHAH AND WAS NOT JEOPARD IZE THEIR RIGHT OF TENANCY BY ANY ACT OR DEFAULT DURING THE SUBSTANCES OF THE AGREEMENT, THEREFORE, ASSESSEE CANNOT BE CONSTRUED AS SUB-LESS EE IN ANY FORM OF THE SAID PORTION OF THE SHED THUS THERE WAS NO EXISTENC E OF RIGHT OF TENANCY WITH THE ASSESSEE; CLAUSE -8 OF THE AGREEMENT STATES A N OBLIGATION OF THE ASSESSEE FOR PROMPT AND REGULAR PAYMENT TO THE ORIGINAL LICE NSOR OF ALL TAXES AND PAYMENTS AND THAT PAYMENT DOES NOT INCLUDE ANY PAYMENT FOR U SE OF PORTION OF THE SHED ON WHICH THE LOOMS HAVE BEEN AFFIXED; CLAUSE-10 OF T HE AGREEMENT STATES ABOUT THE OBLIGATION OF THE ASSESSEE FOR INSURANCE OF MACHINE RY AND FACTORY WHICH ALSO DOES NOT CREATE ANY RIGHT IN THE SHED IN FAVOUR OF THE ASSESSEE; CLAUSE-11 STATES THAT ASSESSEE SHALL NOT BE ENTITLED TO MAKE ANY STRUCTUR AL ALTERATION IN ANY OF THE PORTION OF THE SHED WITHOUT PERMISSION OF THE MODER N AND IF ANY ALTERATION IS DONE THAT WILL BECOME THE ABSOLUTE PROPERTY OF THE MODER N; CLAUSE-12 STATES THE ASSESSEE IS NOT ENTITLED TO CARRY ON ANY OTHER BUSINESS ON T HE PORTION OF THE SAID SHED EXCEPT WITHOUT PRIOR PERMISSION OF THE MODERN. REF ERRING TO THE AFOREMENTIONED ITA NO.4335/MUM/2010(A.Y. 2009-10) 3 CLAUSES OF THE AGREEMENT, LD. A.O HAS COME TO A CO NCLUSION THAT ASSESSEE CANNOT BE SAID TO HAVE SUB-TENANCY RIGHT PARTICULAR LY WITH REGARD TO LAND FOR WHICH THE COMPENSATION HAS BEEN RECEIVED BY THE ASS ESSEE AND, THEREFORE, THE AMOUNT RECEIVED BY THE ASSESSEE IS NOT ASSESSA BLE UNDER THE HEAD CAPITAL GAIN. 3. THE AO ALSO EXAMINED THE PURCHASERS OF THE SAID LAND NAMELY ARE MR. PRAVIN RAGHAVJI MAKWANA AND MR. RAJESH RAGHAVJI M AKWANA AND ASKED THEM THE QUESTION THAT IN THE DEED OF PURCHASE NO N AME OF THE ASSESSEE FIRM WAS MENTIONED. IT WAS REPLIED THAT ACCORDING TO TH E PURCHASE DEED MODERN AND M/S. SAURDEEP CHEMICALS PVT. LTD., WERE THE TENANT. HOWEVER, THE ACTUAL POSSESSION AND OCCUPATION WAS HELD BY TH E ASSESSEE AND THE PAYMENT HAS BEEN MADE TO THE ASSESSEE IN ORDER TO G ET PEACEFUL AND VACANT POSSESSION OF THE PROPERTY. THE AO ALSO REFERRED T O THE REPLY OF THE ASSESSEE VIDE LETTER DATED 21/11/2011 IN WHICH IT WAS MENTIO NED THAT THE ASSESSEE FIRM HAD GOT LEASE RIGHTS OF LOOMS, MACHINERY AND PREMISES FROM MODERN VIDE AGREEMENT DATED 13/06/1972. MODERN WAS LIC ENSOR AND ASSESSEE IS IN THE CONTINUOUS OCCUPATION OF THE PREMISES AND HA D ENJOYED EXCLUSIVE AND UNFITTED POSSESSION OF THE PREMISES SINCE 13/06/197 2. THE AO OBSERVED THAT THE PAYMENT RECEIVED BY THE ASSESSEE IS IN THE NATURE OF NUISANCE VALUE AND ASSESSEE DOES NOT HAVE ANY CAPITAL RIGHT. THE POSSESSION OF THE PORTION OF THE SHED WAS INCIDENTAL TO THE LICENCE GRANTED T O IT FOR THE USE OF MACHINERY. THEREFORE, AO CAME TO THE CONCLUSION TH AT THE AMOUNT RECEIVED BY THE ASSESSEE IS MERELY GRATUITOUS AND NOTHING EL SE AND IS ASSESSABLE AS INCOME FROM OTHER SOURCES. THE AO ALSO REFERRED TO THE DEFINITION OF TENANT UNDER MAHARASHTRA RENT CONTROL ACT AND HAS DENIED T HE CLAIM OF ASSESSEE OF BEING SUB-TENANT AS ASSESSEE WAS NOT CONFERRED W ITH ANY LEGAL RIGHT OVER THE PROPERTY AT ANY POINT OF TIME. HE DISTINGUISHE D THE DECISIONS RELIED UPON BY THE ASSESSEE AND HAS ASSESSED THE AMOUNT RECEI VED BY THE ASSESSEE AS INCOME FROM OTHER SOURCES AND BENEFIT OF SECTION 5 4EC IS ALSO DENIED. ITA NO.4335/MUM/2010(A.Y. 2009-10) 4 4. ARGUMENTS SUBMITTED BEFORE AO WERE REITERATED BE FORE LD. CIT(A). FOR DECIDING THE ISSUE AGAINST THE ASSESSEE LD. CIT(A) HAS TAKEN INTO ACCOUNT THE FOLLOWING 15 POINTS AND HAS UPHELD THE ACTION OF THE AO. 1. THE LICENSE AGREEMENT DATED 13.06.1972 IS BETWEE N MODERN TEXTILE AND SILK MILLS PVT.LTD. (HEREINAFTER REFERRED AS M TRSMPL) AS LICENSOR AND THE ASSESSEE M/S. KEWAL SILK MILLS (HEREINAFTER REFERRED AS KSM) AS A LICENSEE. THE OWNER OF THE LAND IS NOT A PARTY TO THE AGREEMENT. 2. THE LICENSE AGREEMENT WAS ESSENTIALLY FOR THE PU RPOSE OF TAKING ON LICENSE(RENT), LOOMS AND MACHINERY ONLY AS DESCRIBE D IN SCHEDULE (REF.: SECOND UN-NUMBERED PARA OF 1ST PAGE OF THE AGREEMEN T). 3. THE AGREEMENT WAS NOT REGISTERED UNDER THE REGIS TRATION ACT, 1908, PERHAPS DUE TO REASON OF LEASE OF MOVABLE PROPERTY OR OTHERWISE (ANY AGREEMENT RELATING TO IMMOVABLE PROPERTY EXCEEDING VALUE OF RS.100/- IS COMPULSORILY REGISTABLE WHEREAS REGISTRATION OF AGREEMENT RELATING TO MOVABLE PROPERTY IS OPTIONAL (REF.: SECTION 17 & 18 OF REGISTRATION ACT, 1908). 4. THE LICENSOR I.E. TO SAY MTRSMPL IS NOT THE OWNE R OF THE IMPROVABLE PROPERTY I.E. TO SAY LAND IN QUESTION. IT HAD ONLY TENANCY RIGHT ON THE LAND. 5. THE OWNER OF THE LAND/IMMOVABLE PROPERTY SHRI PA RESH SHANTILAL SHAH WHO INCIDENTALLY HAPPENS TO BE A DIRECTOR OF MTRSMPL. HOWEVER, THE OWNERSHIP OF LAND IN QUESTION IS OF S HRI. PARESH SHAH IN HIS INDIVIDUAL CAPACITY AND AS AN INDIVIDUAL RIGHT I.E. TO SAY NOT AS A DIRECTOR OF MTRSMPL. IT IS WELL SETTLED UNDER CORPO RATE JURISPRUDENCE THAT SHAREHOLDER / DIRECTOR AND. COMPANY ARE DIFFER ENT ENTITIES. THE COMPANY IS A DEFINITE LEGAL ENTITY, AND A JURIDICAL PERSON DISTINCT FROM ITS MEMBERS AND DIRECTORS, CAPABLE TO SUE AND TO BE SUED UPON. 6. IT IS CRYSTAL CLEAR THAT THE LICENSOR MTRSMPL IS NOT THE OWNER OF IMPUGNED PROPERTY BUT IS A TENANT ONLY WHO HAD CARR IED OUT HIS BUSINESS ACTIVITIES THEREON. 7. THE ASSESSEE I.E. TO SAY LICENSEE HAD TAKEN 18 L OOMS AND ALLIED MACHINERY ON LICENSE(RENT) FROM MTRSMPL I.E. TO SAY ON RENT. IN OTHER WORDS, THE ASSESSEE HAD TAKEN ON LICENSE ONLY MACHI NERIES FROM MTRSMPL WHICH IS EVIDENT FROM LICENSE AGREEMENT. ITA NO.4335/MUM/2010(A.Y. 2009-10) 5 8. THE CLAUSE 1 OF THE AGREEMENT STATES THAT THE LI CENSOR SHALL GIVE TO THE LICENSEE AND THE LICENSEE SHALL TAKE FROM LICEN SOR THE LOOMS AND MACHINERY, MORE PARTICULARLY DESCRIED IN THE SCHEDU LE. 9. THE SECOND UN-NUMBERED PARA OF THE AGREEMENT STA TES THAT LICENSEE (I.E. THE ASSESSEE) DESIROUS OF TAKING ON LICENSEE LOOMS AND MACHINERY MORE PARTICULARLY DESCRIBED IN SCHEDULE FOR A CERTA IN PERIOD FOR MANUFACTURING CLOTHS AND LICENSOR HAD AGREED THAT T OO. CLAUSE S OF THE AGREEMENT CLARIFIES THIS FACTS WITH MORE CLARITY WH ICH READS AS UNDER: DURING THE PERIOD OF THIS AGREEMENT, A LICENSEE SH ALL BE ENTITLED TO USE A PORTION OF THE SAID SHED IN WHICH LOOMS ARE SITUA TED BYWAY OF PERMISSIVE USE ON LICENSEE BASIS ONLY AS INCIDENTAL TO USING THE SAID LOOMS AND MACHINERY AND SHALL NEVER BE CONSTRUED AS SUB-LESSEES IN ANY FORM OF THE SAID PORTION OF THE SAID SHED 10. CLAUSE 6 OF THE AGREEMENT STATES THAT THE LICE NSEES, (M/S. KEWAL SILK MILLS) SHALL HAVE THE OPTION TO RENEW THE LEA SE OF MACHINERY AND EQUIPMENT FOR FURTHER TWO YEARS. THE LICENSEES CAN TERMINATE THE LEASE HEREBY GIVEN BY GIVING TO THE LICENSORS THREE MONTHS NOTICE IN ADVANCE IN WRITING OF THEIR INTENTION TO TERMINATE THE LEASE OR VIS-- VIS. THUS THE LICENSOR HAD CATEGORICALLY MENTIONED IN TH E AGREEMENT THAT THE LEASE IS EXCLUSIVELY FOR THE MACHINERY AND EQ UIPMENT AND THE RENEWAL IS EXCLUSIVELY FOR THE MACHINERY AND NOTHI NG HAS BEEN MENTIONED ABOUT THE SHED SINCE THE USE OF THE SHED WAS ONLY INCIDENTAL AND THE LOOMS AND MACHINERY COULD NOT BE TRANSPORTED SINCE THE SAME ARE MARRIED TO THE GROUND ON WHICH T HEY HAVE BEEN FIXED. 11. CLAUSE 7 OF THE AGREEMENT STATES THAT THE LICE NSORS, (MODERN TEXTILE RAYON & SILK MILLS PRIVATE LIMITED) SHALL PAY REGUL ARLY THE RENT IN RESPECT OF THE SAID SHED AND PREMISES TO THE LANDLO RD, (MR. PARESH S. SHAH) AND SHALL NOT JEOPARDIZE THEIR RIGHT OF TENAN CY BY ANY ACT OR DEFAULT DURING THE SUBSISTENCE OF THIS AGREEMENT. IN OTHER WORDS, THE LICENSOR, MODERN TEXTILE RAYON & SILK MILLS PRIVATE LIMITED WAS ITSELF NOT THE OWNER OF THE SAI D SHED AND PREMISE AND MODERN TEXTILE RAYON & SILK MILLS PRIVATE LIMIT ED, WITH WHOM THE ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR THE LEA SE OF MACHINERY AND EQUIPMENT HAD (I.E. LICENSOR MTRSMPL) ITSELF E NTERED INTO A LEASE AGREEMENT WITH HIS LANDLORD FOR THE SHED AND PREMIS E AND THE MTRSMPL HAD LEASE TO THE ASSESSEE WAS ONLY FOR THE LOOMS. THE MACHINERY AND EQUIPMENT WERE GIVEN ON RENT TO THE A SSESSEE ITA NO.4335/MUM/2010(A.Y. 2009-10) 6 EXCLUSIVELY FOR THE PURPOSE OF WEAVING CLOTHS AND I N THE AGREEMENT, MODERN TEXTILE RAYON & SILK MILLS PRIVATE LIMITED H AD CLAIMED HIMSELF, LICENSOR FOR THE LEASE OF MACHINERY AND EQUIPMENT A ND THE ASSESSEE, M/S. KEWAL SILK MILLS AS THE LICENSEE. FURTHER, IN THE AGREEMENT THE LICENSOR, MODERN TEXTILE RAYON & SILK MILLS PRIVATE LIMITED HAD CATEGORICALLY MENTIONED IN CLAUSE 5 OF THE AGREEMEN T THAT THIS AGREEMENT IS EXCLUSIVELY FOR THE PURPOSE OF THE LIC ENSE OF THE LOOMS AND THE PORTION OF THE SHED WHERE THESE LOOMS HAVE BEEN AFFIXED TO THE GROUND IS FOR PERMISSIVE USE ONLY BEING INCIDENTAL TO THE GRANT OF THE LICENSE FOR THE LOOMS WHICH BEING LARGE COULD NOT B E TRANSPORTED AND IT IS CLARIFIED IN CLAUSE 5 THAT THE LICENSEE OF THE L OOMS WOULD NEVER CLAIM ANY RIGHT IN THE SHED - QUOTE SHALL NEVER BE CONSTRUED AS SUB- LESSEES IN ANY FORM OF THE SAID PORTION OF THE SAI D SHED AND THERE WILL NOT BE ANY RIGHT OF TENANCY BY ANY ACT OR DEFAULT D URING THE SUBSISTENCE OF THIS AGREEMENT. 12. CLAUSE 8 OF THE AGREEMENT STATES THAT THE LICE NSEE, THE ASSESSEE SHALL PROMPTLY AND REGULARLY PAY TO THE LICENSOR A LL THE TAXES AND PAYMENT WHAT SO EVER OR EXTRA TAXES PAYABLE BY THE M IN RESPECT OF FOR RELATING TO THEIR BUSINESS CARRIED ON IN THE SAID P ORTION OF THE SHED INCLUDING ELECTRIC BILLS AND WATER BILLS FOR THE EL ECTRICITY AND WATER CONSUMED BY THEM AND SHALL NOT DO OR SUFFER TO BE D ONE ANYTHING THEREBY THE INTEREST OF LICENSOR IN THE SAID SHED M AY JEOPARDIZED. 13. AS PER CLAUSE 11 OF THE AGREEMENT THE LICENSEE, THE ASSESSEE HAD NO RIGHT FOR ANY CHANGE. THE ASSESSEE HAD RIGHT TO CARRY OUT HIS BUSINESS WITH THE HELP OF LOOMS AND MACHINERIES TAK EN ON LEASE/LICENSEE FROM MTRSMPL. IN THE AGREEMENT THERE IS NO INVOLVEMENT OF THE OWNER OF THE PROPERTY I.E. TO SA Y LAND. THE LICENSOR IS THE TENANT OF THE LAND WHO HAD GIVEN ON LICENSE/ LEASE CERTAIN LOOMS AND MACHINERIES TO THE ASSESSEE. THE AGREEMENT DID NOT DIVULGE THAT THE ASSESSEE HAD ANY TENANCY OR SUB-TENANCY ON THE SAID LAND. ON THE CONTRARY, THE AGREEMENT CLEARLY STATES THAT IT SHAL L NEVER BE CONSTRUED AS SUB-LEASE IN ANY FORM OF ANY PORTION BEING USED AS INCIDENTAL OR PERMISSIBLE USE. 14. AS PER DEED OF SURRENDER OF TENANCY DATED 07.10 .2008 ENTERED BETWEEN PURCHASER OF THE LAND I.E. TO SAY SHRI. PR AVIN / RAJESH MAKWANA AND THE ASSESSEE M/S. KEWAL SILK MILLS, THE COMPENSATION OF RS.3.75 CRORES WAS GIVEN TO FIND OUT MORE ALTERNATI VE PREMISE AND ALSO TO COMPENSATE IN CONNECTION WITH LOSS OF BUSINESS, AND PROFIT AS ALSO THE INCONVENIENCE AND HARDSHIP CAUSED ON ACCOUNT OF SHIFTING ELSEWHERE. 15. THERE WAS NO AGREEMENT WITH THE OWNER OF THE LA ND SHRI. PARESH SHAH WITH THE ASSESSEE OR THE LICENSOR MTRSMPL TO GIVE ANY TENANCY ITA NO.4335/MUM/2010(A.Y. 2009-10) 7 OR SUB-TENANCY RIGHT TO THE ASSESSEE. THERE IS /WAS NO PERMISSION OR CONSENT OF THE LAND LORD I.E. OWNER OF THE LAND TO CONFER TENANCY OR SUB-TENANCY TO THE ASSESSEE. THERE WAS NO INTENTION ON THE PART OF THE OWNER OF THE LAND OR THE LICENSOR TO THAT EFFECT. S IMILARLY THERE WAS NO EXPRESS OR IMPLIED INTENTION OF THE LICENSOR TO GIV E ANY TENANCY OR SUB- TENANCY RIGHT TO THE ASSESSEE, WHICH IS CLEARLY EVI DENT FROM THE AGREEMENT. 5. AFTER NARRATING THE FACTS LD. A.R SUBMITTED TH AT THOUGH IT IS THE MAIN CASE OF THE ASSESSEE THAT THE LEAVE AND LICENCE AGR EEMENT DATED 13/06/1972 IN ITSELF IS SUFFICIENT TO ESTABLISH THE POSSESSORY RIGHTS OF THE ASSESSEE OVER THE LAND IN RESPECT OF WHICH THE IMP UGNED AMOUNTS HAVE BEEN RECEIVED BUT EVEN IF THE CASE OF AO IS ACCEPTED THA T THE SAID AGREEMENT DOES NOT GIVE ANY RIGHT TO THE ASSESSEE IN THE LAND WHIC H CAN CONSTITUTE CAPITAL ASSET THEN ALSO AMENDMENT IN THE BOMBAY RENT, HOTE L & LODGING AND HOUSE RATES CONTROL ACT, 1947 (RENT CONTROL ACT), WHICH IS BROUGHT INTO THE STATUTE BY AMENDMENT ACT OF 1973, HAS CONVERTED TH E STATUS OF THE ASSESSEE FROM LICENSEE TO THE DEEMED TENANT AS PER SECTION 5(11)(BB). HE FURTHER SUBMITTED THAT AS PER SECTION 15A, WHICH WAS INSERTED BY MAHARASHTRA ACT 17 OF 1973, CERTAIN LICENSEES IN OC CUPATION ON 1 ST FEBRUARY 1973 WILL BECOME TENANT. HE SUBMITTED THAT BY VIRT UE OF SUCH AMENDMENT THE STATUS OF ASSESSEE HAD CHANGED FROM LICENSEE TO TENANT AND THUS THE PAYMENT RECEIVED BY THE ASSESSEE WAS IN RESPECT OF SUB-TENANCY WHICH IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN. FOR THE SA KE OF CONVENIENCE THE RELEVANT PROVISIONS OF RENT CONTROL ACT ARE REPROD UCED BELOW: SECTION -5 (1) TO 10) . (11) TENANT MEANS ANY PERSON BY WHOM OR ON WHOSE ACCOUNT RENT IS PAYABLE FOR ANY PREMISES AND INCLUDES -- (A) SUCH SUB-TENANTS AND OTHER PERSONS AS HAVE DERI VED TITLE UNDER A TENANT [BEFORE THE 1ST DAY OF FEBRUARY 1973;] [(AA) ANY PERSON TO WHOM INTEREST IN PREMISES HAS B EEN ASSIGNED OR TRANSFERRED AS PERMITTED OR DEEMED TO BE PERMITTED, UNDER SECTION 15;] (B) ANY PERSON REMAINING, AFTER THE DETERMINATION O F THE LEASE, IN POSSESSION, WITH OR WITHOUT THE ASSENT OF THE LANDLORD, OF THE PREMISES LEASED TO SUCH ITA NO.4335/MUM/2010(A.Y. 2009-10) 8 PERSON OR HIS PREDECESSOR WHO HAS DERIVED TITLE [BE FORE THE FIRST DAY OF FEBRUARY 1973]; [(BB) SUCH LICENSEES AS ARE DEEMED. TO BE TENANTS F OR THE PURPOSES OF THIS ACT BY SECTION 1.5A;] [(BBA) THE STATE GOVERNMENT, OR AS THE CASE MAY BE, THE GOVERN- MENT ALLOTTEE, REFERRED TO IN SUB-CLAUSE (B) OF CLAUSE ( 1A), DEEMED TO BE A TENANT, FOR THE PURPOSES OF THIS ACT BY SECTION 15B;] . [115A. CERTAIN LICENSEES IN OCCUPATION ON 1ST FEBRU ARY 1973 TO BECOME TENANTS - (1) NOTWITHSTANDING ANYTHING CONTAINED EL SEWHERE IN THIS ACT OR ANYTHING CONTRARY IN ANY OTHER LAW FOR THE TIME BEI NG IN FORCE, OR IN ANY CONTRACT, WHERE ANY PERSON IS ON THE 1ST DAY OF FEB RUARY 1973 IN OCCUPATION OF ANY PREMISES, OR ANY PART THEREOF WHICH IS NOT L ESS THAN A ROOM, AS A LICENSEE, HE SHALL ON THAT DATE BE DEEMED TO HAVE B ECOME, FOR THE PURPOSES OF THIS ACT, THE TENANT OF THE LANDLOR D, IN RESPECT OF THE PREMISES OR PART THEREOF, IN HIS OCCUPATION. (2) THE PROVISIONS OF SUB-SECTION (1) SHALL NOT AFF ECT IN ANY MANNER THE OPERATION OF SUB-SECTION (1) OF SECTION 15 AFTER TH E DATE AFORESAID.] 5.1 LD. A.R SUBMITTED THAT THE AFOREMENTIONED POSIT ION OF LAW OF CONVERTING LICENSEE INTO PROTECTIVE TENANT AND PROT ECTIVE SUB-TENANT REGARDLESS OF THE INTENTION OF THE ORIGINAL GRANT E ITHER OF THE LESSOR OR OF THE LESSEE HAS BEEN EXPLAINED BY HONBLE SUPREME COURT IN ITS DECISION IN THE CASE OF ANANDRAM CHANDANMAL MUNOT & ANR VS BANSILA L CHUNILAL KABRA AND OTHERS, 2000 AIR 288(SC) (COPY OF THIS DECISIO N FILED AT PAGES 43 TO 59 OF THE PAPER BOOK). HE INVITED OUR ATTENTION TOW ARDS FOLLOWING OBSERVATIONS OF HONBLE SUPREME COURT: AFTER THE COMMENCEMENT OF THE AMENDING ACT OF ,1 973 A TENANT IS BARRED EVEN TO GIVE ON LICENCE THE WHOLE OR ANY PART OF T HE PREMISES LET TO HIM. SUB- SECTION (2) OF SECTION 15 VALIDATES ANY SUB-TENANCY CREATED BEFORE THE FIRST DAY OF FEBRUARY 1973 AND IN THAT CASE A TENANT IS N OT 1IABIE TO EVICTION UNDER CLAUSE (E) OF SUB-SECTION (1) OF SECTION 13 O F THE ACT. WE MAY AT THIS STAGE REFER TO THE RELEVANT PROVISIONS OF LAW UND ER THE ACT. SECTION 5(11) OF THE ACT DEFINES TENANT WHICH IS AS UNDER - 5 (11) TENANT MEANS ANY PERSON BY WHOM OR ON WHO SE ACCOUNT RENT IS PAYABLE FOR ANY PREMISES AND INCLUDES :- ITA NO.4335/MUM/2010(A.Y. 2009-10) 9 (A) SUCH SUBTENANT AND OTHER PERSONS AS HAVE DERIVED TITLE UNDER A TENANT BEFORE THE 1ST DA Y OF FEBRUARY 1973; (AA) ANY PERSON TO WHOM INTEREST IN PR EMISES HAS BEEN ASSIGNED OR TRANSFERRED AS PERMITTED OR DEEMED TO BE PERMITTED, UNDER SECTION 15; (B) ANY PERSON REMAINING, AFTER THE DETERMINATION O F THE LEASE, IN POSSESSION, WITH OR WITHOUT THE ASSENT OF THE LANDL ORD, OF THE PREMISES LEASED TO SUCH PERSON OR HIS PREDECESSOR WHO HAS DE RIVED TITLE BEFORE THE 1 ST DAY OF FEBRUARY 1973; (BB) SUCH LICENSEES AS ARE DEEMED TO BE TENANTS FOR THE PURPOSES OF THIS ACT BY SECTION 15A, (BBA) THE STATE GOVERNMENT, OR AS THE CASE MAY BE, THE GOVERNMENT ALLOTTEE REFERRED TO IN SUB-CLAUSE (B) OF CLAUSE (1 A), DEEMED TO BE A TENANT, FOR THE PURPOSES OF THIS ACT BY SECTION 15B ; THUS IT WAS SUBMITTED BY LD. A.R THAT SECTION 15A R.W.S. 5 (11)(BB), THE ASSESSEE HAS BECOME THE TENANT AND AMOUNTS RECEIVED BY THE ASSESSEE IS IN RESPECT OF SURRENDER OF TENANCY AND IS ASSESSABLE AS CAPITAL GAIN. 5.2 LD. A.R REFERRED TO THE DECISION OF HONBLE KA RNATAKA HIGH COURT IN THE CASE OF CIT VS. JOY ICE CREAMS (BANG) P LTD. 20 1 ITR 894 TO CONTEND THAT PAYMENT IN LIEU OF ALTERNATIVE PREMISES TO BE PROVI DED TO THE ASSESSEE BY PURCHASER OF THE PREMISES IS NOT ASSESSABLE AS BUS INESS RECEIPTS. THE CONSIDERATION WAS TOWARDS THE RELINQUISHMENT OR SUR RENDER OF TENANCY RIGHTS AND CONSEQUENTLY IT WAS A CAPITAL RECEIPT. 5.3 LD. A.R FURTHER REFERRED TO THE DECISION OF HO NBLE DELHI HIGH COURT IN THE CASE OF BABA SHIVCHARAN VS. CIT, 149 ITR 29, WH EREIN ASSESSEES TENANCY RIGHT WAS HELD TO BE CAPITAL ASSET AND SURRENDER TH EREOF WAS CONSIDERED AS EXTINGUISHMENT OF THE RIGHT. THUS IT WAS HELD THA T IT WAS A TRANSFER OF CAPITAL ASSET WITHIN THE MEANING OF INCOME TAX ACT. ITA NO.4335/MUM/2010(A.Y. 2009-10) 10 5.4 LD. A.R ALSO REFERRED TO THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. CADELL WEAVING MILL (CO) PVT. LTD., 273 ITR 1(SC), WHEREIN ALSO TENANCY RIGHTS WAS HELD TO BE GIVING RISE TO CAPITAL GAINS. 5.5 REFERENCE WAS ALSO MADE TO NARANG OVERSEAS P VT. LTD. VS. ACIT 100 ITD(SB) 1, WHEREIN MESNE PROFITS AWARDED UNDER THE DECREE OF THE COURT BY WAY OF COMPENSATION FOR WRONGFUL POSSESSION OF PROP ERTY AFTER TERMINATION OF LEAVE AND LICENSE AGREEMENT WAS HELD TO BE CAPITAL RECEIPT. 5.6 THUS LD. A.R PLEADED THAT AMOUNT RECEIVED BY T HE ASSESSEE WAS NOTHING BUT WITH REGARD TO CAPITAL ASSET AND AO HAS WRONGLY ASSESSED THE SAME UNDER THE HEAD INCOME FROM OTHER SOURCES AND L D. CIT(A) HAS ALSO WRONGLY CONFIRMED THE SAME. 6. ON THE OTHER HAND, LD. D.R RELYING UPON THE 15 P OINTS RELIED UPON BY LD. CIT(A) PLEADED THAT LD. CIT(A) HAS RIGHTLY UPH ELD THE ACTION OF THE AO. 6.1 IN THE REJOINDER IT WAS SUBMITTED BY LD. AR THA T THE ASSESSEE HAD POSSESSORY RIGHT OF THE PROPERTY AND BY VIRTUE OF T HESE POSSESSORY RIGHT FOR MORE THAN 36 YEARS THE RIGHT WAS CONVERTED INTO CAPITAL ASSET AND TRANSFER / SURRENDER THEREOF WILL BE ASSESSABLE UNDER THE HE AD CAPITAL GAIN. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. COPY OF AGREEMENT DATED 13/06/1972 IS FILED BY THE ASSESSEE IN THE PAPER BOOK AT PAGES 20 TO 24. THE ASSESSEE BEING A PARTNERSHIP THROUGH ITS PARTNERS HAS BEEN REFERRED AS LICENSEES WHO WERE DESIROUS OF TAKING LICENSES OF LOOM AND MACHINERY M ORE PARTICULARLY DESCRIBED IN SCHEDULE FOR A PERIOD OF ONE YEAR FROM THE DATE OF THE AGREEMENT ON A MONTHLY COMPENSATION OF RS.3250 PER MONTH. TH E LICENSOR HAVE BEEN REFERRED TO BE MODERN TEXTILE RAYON AND SILK MILLS PVT. LTD. (MODERN) AND IN CLAUSE-5, IT HAS BEEN MENTIONED THAT LICENSEES ARE ENTITLED TO USE A PORTION OF ITA NO.4335/MUM/2010(A.Y. 2009-10) 11 THE SAID SHED IN WHICH THE SAID LOOMS ARE SITUATED BY WAY OF PERMISSIBLE USE ON LICENSE BASIS ONLY AS INCIDENTAL TO USING THE SA ID LOOMS AND MACHINERY AND SHALL NEVER BE CONSTRUED AS SUB-LESSEE IN ANY FORM OF THE SAID PORTION OF THE SAID SHED. THE ASSESSEE HAS ALSO BEEN PROVI DED WITH THE ACCESS TO THE SAID PORTION OF THE SAID SHED THROUGH PORTION OF THE SHED RETAINED BY LICENSORS OR OTHERWISE. IN NUTSHELL THE ASSESSEE HAS BEEN REFERRED TO AS LICENSOR. FROM THE AGREEMENT DEED IT IS CLEAR THA T ASSESSEE HAD INCIDENTAL RIGHT OF THE PREMISES THROUGH WHICH THE LOOMS WERE TO BE USED. THE SAID RIGHT OF THE ASSESSEE HAS BEEN RECOGNIZED FROM THE DATE OF AGREEMENT TILL SURRENDER OF THE SAID RIGHT. EVEN THE ORIGINAL TEN ANT AND THE ORIGINAL OWNER DID NOT DISPUTE SUCH RIGHT OF THE ASSESSEE OVER TH E PROPERTY. NOW THE CASE OF THE REVENUE IS THAT THE AGREEMENT DATED 13/6/197 2 DID NOT PROVIDE ANY RIGHT TO THE ASSESSEE OF SUB-TENANT OF THE PREMISES BUT IT WAS ONLY WITH RESPECT TO LOOMS AND MACHINERY AND USER OF THE PREM ISES WAS ONLY INCIDENTAL. BUT THE FACT REMAINS THAT INCIDENTAL RIGHT TO USE THE PREMISES WAS PROVIDED BY THE AGREEMENT ITSELF. FACT ALSO RE MAINS THAT ASSESSEE HAS BEEN REFERRED TO AS LICENSEE IN THE SAID AGREEMENT. THE PROVISIONS OF SECTION 5(11)(BB) AND 15A OF THE RENT CONTROL ACT HAVE ALRE ADY BEEN REPRODUCED ABOVE. BY VIRTUE OF AMENDMENT IN 1973 I.E. SUBSEQU ENT TO THE DATE OF AGREEMENT OF THE ASSESSEE THAT THE LICENSEES WHO HAVE DEEMED TO BE TENANT UNDER SECTION 15A WERE TO BE CONSIDERED AS T ENANT. THEREFORE, IN ANY CASE THE ASSESSEE HAD ACQUIRED THE STATUS OF TENANT OF THE LAND LORD.AS PER PROVISIONS OF SECTION 55(2) TENANCY RIGHT HAS BEE N CONSIDERED TO BE CAPITAL ASSET. MOREOVER, THE DEFINITION OF CAPITAL ASSET A S PER SECTION 2(14) OF THE ACT IS WIDE ENOUGH TO COVER PROPERTY OF ANY KIND AND THE TYPE OF RIGHT ACQUIRED BY THE ASSESSEE IN THE PROPERTY USED BY IT CANNOT IN ANY MANNER BE SAID TO BE LESS THAN ANY KIND OF PROPERTY HELD BY THE AS SESSEE. 7.1 APART FROM THE ABOVE CONCLUSION IT MAY BE MENTI ONED HERE THAT ASSESSEE HAS FILED COPIES OF SOME RENT RECEIPTS OBTAINED BY IT FROM MODERN. FIRST COPY OF SUCH RECEIPT IS AT PAGE 25 OF THE PAPER BOO K VIDE WHICH A SUM OF ITA NO.4335/MUM/2010(A.Y. 2009-10) 12 RS.39,000/- HAS BEEN PAID BY THE ASSESSEE TO THE MO DERN ON 9/2/2002, BY CHEQUE NO.679943 TOWARDS RENT FOR THE MONTH OF FR OM JULY 2001 TO DEC.2001. THE SAID AMOUNT HAS BEEN DULY ACKNOWLED GE TO BE RECEIVED BY MODERN. THE SECOND RECEIPT IS DATED 3/4/2003 COPY OF WHICH IS PLACED AT PAGE 26 OF THE PAPER BOOK WHICH IS A RECEIPT DATED 3/4/2003 VIDE WHICH A SUM OF RS.19,500/- HAS BEEN PAID BY CHEQUE NO.62197 4 DATED 26/3/2003 TOWARDS RENT FOR MONTH FROM JAN.2003 TO MARCH, 200 3. THIRD RECEIPT IS DATED 9/2/2005 COPY OF WHICH IS PLACED AT PAGE 27 OF THE PAPER BOOK, WHEREBY A SUM OF RS. 13,000/- HAS BEEN PAID VIDE C HEQUE NO.013369 DATED 17/1/2005 TO THE MODERN TOWARDS RENT FOR MONTH OF DECEMBER 2004 AND JANUARY 2005. ALL THESE RECEIPTS DULY SHOW TH AT WHAT WAS BEING PAID BY THE ASSESSEE WAS CONSIDERED TO BE RENT BY THE OT HER PARTIES AND THUS PARTIES IN PRINCIPLE HAD ACCEPTED THAT ASSESSEE WAS THE TENANT FROM WHOM THE RENT WAS BEING RECEIVED BY THE OTHER PARTY. TH E FURTHER CORRESPONDENCE BETWEEN THE ASSESSEE AND ITS LICENSOR, THE PURCHASE R OF THE LAND AND THE ASSESSEE ARE ALSO DESCRIBING RIGHT OF THE ASSESSEE AS TENANCY RIGHT ONLY AND THE DEED EXECUTED BETWEEN PURCHASER OF THE PREMISES AND THE ASSESSEE IS ALSO DESCRIBED AS DEED OF SURRENDER OF TENANCY. TH US THE ASSESSEE WAS ENJOYING A RIGHT OVER THE PROPERTY IN THE NATURE OF BEING TENANT OF THE SAME FOR THE LAST SO MANY YEARS AND THAT RIGHT OF THE AS SESSEE CANNOT BE CONSIDERED OR EVALUATED MUCH LESS THAN THE RIGHT OF TENANCY RIGHT. 7.2 IN VIEW OF THE ABOVE DISCUSSION, IT IS TO BE HE LD THAT ASSESSEE, IN FACT WAS ENJOYING THE POSSESSION OF THE IMPUGNED PROPER TY AND FOR PEACEFUL VACATION THERE OF IT HAD RECEIVED THE IMPUGNED AMO UNT WHICH WAS DESCRIBED BY BOTH THE PARTIES AS THE AMOUNT PAID FOR SURREND ER OF TENANCY RIGHTS. THE ASSESSEE HAD ACQUIRED THE SAID RIGHT LONG BACK AND LICENSOR TO THE ASSESSEE ALSO HAD RECOGNIZED THE SAID RIGHT OF THE ASSESSEE . THE RIGHT OF THE ASSESSEE WAS UNDISPUTED AND NATURE THEREOF WAS PROPERTY OF ANY KIND WHICH WAS HELD BY THE ASSESSEE AND WAS TO BE TERMED AS CAPITA L ASSET WITHIN THE MEANING OF SECTION 2(14) OF THE ACT. TENANCY RIGHT HAS ALSO BEEN RECOGNIZED ITA NO.4335/MUM/2010(A.Y. 2009-10) 13 AS CAPITAL ASSET WITHIN THE MEANING OF SECTION 55(2 )(A) OF THE ACT. THE CASE LAW AND DECISIONS RELIED UPON BY THE LD. AR SUPPOR TS THE CASE OF THE ASSESSEE. THEREFORE, WE HOLD THAT THE AMOUNT RECEI VED BY THE ASSESSEE IS ASSESSABLE UNDER THE HEAD CAPITAL GAIN. THE SAME C ANNOT BE ASSESSED AS INCOME FROM OTHER SOURCES. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON THE 12TH DAY OF OCT., 2012 SD/- SD/- (RAJENDRA ) (I.P.BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 12 TH OCT., 2012. COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.R A BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.