PRAKASH SAMANT, MUMBAI V. ACIT CEN CIR 20, MUMBAI

ITA 4665/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5856 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 05-03-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 10-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A C TEJPAL
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Capital asset; Fair market value; Capital receipt; Surrender of tenancy right

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI R.C SHARMA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 4665/MUM/2011 ASSESSMENT YEAR: 2006-07 SHRI PRAKASH SAMANT SUNDRA NARAYAN NIWAS, OPP. IIT GATE NO. 2, POWAI MUMBAI- 400 076 VS. ACIT CENTRAL CIR-20 MUMBAI. (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAEPS 0065 P ASSESSEE BY : MR. HARI S. RAHEJA REVENUE BY : SHRI A.C. TEJPAL DATE OF HEARING : 05.03.2014 DATE OF PRONOUNCEMENT : 28.03.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A)-39, MUMBAI DATED 24.03.2011 FOR THE ASSES SMENT YEAR 2006-07. 2. IN THIS APPEAL, THE ASSESSEE HAS AGITATED THE AC TION OF THE LD.CIT(A) IN CONFIRMING THE ADDITION OF RS.20,27,250/- MADE BY T HE AO ON ACCOUNT OF LONG TERM CAPITAL GAINS ARISING OUT OF SURRENDER OF TENANCY R IGHT. 3. BRIEFLY STATED, THE IMPUGNED ADDITION OF RS.20,2 7,250/- ON ACCOUNT OF LONG TERM CAPITAL GAIN ARISING OUT OF RELINQUISHMENT OF TENANCY RIGHT WAS MADE BY THE AO ON THE GROUND THAT THE ASSESSEE WAS HAVING TENANCY RIGHT IN THE PREMISES WHICH WAS DEVELOPED BY UNIQUE ESTATE DEVELOP CO. LTD. AT CHAN DIWALI AND IN LIEU OF THE RELINQUISHMENT OF THE TENANCY RIGHT, THE ASSESSEE G OT OWNERSHIP RIGHT IN FLAT NO. 705. THE AO THEREBY ADOPTED THE STAMP VALUE OF RS.2 0,63,250/- AS THE SALE CONSIDERATION AND ALLOWED THE DEDUCTION OF RS.36,00 0/- PAID TO THE DEVELOPER AS PER ITA NO. 4665/MUM/2011 SHRI PRAKASH SAMANT ASSESSMENT YEAR: 2006-07 2 THE AGREEMENT WHICH IS THE COST OF THE ACQUISITION. ACCORDINGLY, THE AO TREATED THE DIFFERENCE OF RS.20,63,250/- AS LONG TERM CAPITAL G AIN AND BROUGHT THE SAME TO TAX. ACCORDING TO THE ASSESSEE, THE FLAT WAS RECEIVED IN LIEU OF THE ASSESSEES TENANCY RIGHT AND THE BUILDING DEVELOPED BY NEST DEVELOPERS IS IN THE SAME RIGHT AS HIS TENANCY RIGHT WHICH IS NOT TRANSFER OF TENANCY RIGH T. THE TENANCY RIGHT IS TREATED AS CAPITAL ASSET ONLY WHEN SUCH A TENANCY RIGHT IS TRA NSFERRED OR SURRENDERED FOR CONSIDERATION. SINCE THE ASSESSEE GOT ONLY AN ALTER NATIVE ACCOMMODATION, THE SAME CANNOT BE TREATED AS SURRENDER OF TENANCY RIGHT BEC AUSE IN SUCH AN INCIDENT THE PERSON ACQUIRING THE TENANCY RIGHT FOR A CONSIDERAT ION GETS A RIGHT TO SELL THE PROPERTY ACQUIRED BY HIM. SINCE THE ASSESSEE GOT TH E ALTERNATE ACCOMMODATION AND DID NOT TRANSFER ANY ASSET AS HE ONLY GETS AN IMPRO VEMENT IN HIS RIGHT, BY PAYING CERTAIN PREMIUM, SUCH PREMIUM CAN BE TREATED AS IMP ROVEMENT IN HIS RIGHT OF TENANCY. HOWEVER, THE AO DID NOT ACCEPT THE CONTENT ION OF THE ASSESSEE BY RELYING ON THE TERMS OF THE AGREEMENT AND BROUGHT THE CAPIT AL GAINS OF RS.20,27,250 [MARKET VALUE OF THE FLAT (RS.20,63,250) MINUS THE AMOUNT PAID BY THE ASSESSEE FOR THE PURCHASE OF THE FLAT (RS.36,000)]. ON APPEAL, T HE LD.CIT(A) CONFIRMED THE ORDER OF THE AO. AGGRIEVED BY THE IMPUGNED DECISION THE A SSESSEE IS IN APPEAL BEFORE US. 4. HAVING HEARD BOTH THE SIDES AND PERUSED THE MATE RIAL ON RECORD, IT IS THE CASE OF THE ASSESSEE THAT THERE IS NO TRANSFER OR RELINQ UISHMENT OF TENANCY RIGHT BUT HE HAS PURCHASED ONLY THE REVERSIONARY RIGHT OF THE LE ASE HOLD INTEREST THAT HE POSSESSED IN THE ERSTWHILE PROPERTY. HE HAS PAID SO ME PREMIUM TOWARDS THE IMPROVEMENT OF THE TITLE WHICH CANNOT BE SUBJECTED TO TAX UNDER THE HEAD CAPITAL GAIN. IT IS THE CASE OF THE REVENUE THAT THE ASSES SEE GOT THE NEW FLAT FOR A REDUCED PRICE WHICH IS FAR BELOW THE MARKET VALUE OF THE PR OPERTY ONLY BY WAY OF RELINQUISHMENT OF TENANCY RIGHT WHICH IS LIABLE TO BE TAXED UNDER THE HEAD CAPITAL GAINS. 4.1 IT IS PERTINENT TO MENTION THAT CLAUSE (O) OF T HE AGREEMENT DATED 11.05.2005 BETWEEN THE ASSESSEE AND THE DEVELOPER STATES THAT THE PURCHASER (ASSESSEE) IS A MONTHLY TENANT OF FLAT NO. 705 IN THE BUILDING PAYI NG A RENT OF RS.300/- PER MONTH IN TERMS OF THE AGREEMENT DATED 28 TH NOVEMBER 1997 BETWEEN UNIQUE (LESSOR) AND ASSESSEE. PARA 10 OF THE SAID AGREEMENT STATES THAT THE ASSESSEE SHALL PAY TO THE ITA NO. 4665/MUM/2011 SHRI PRAKASH SAMANT ASSESSMENT YEAR: 2006-07 3 BUILDERS, A PURCHASE PRICE OF RS.36,000/- IN RESPEC T OF THE SAID REVERSIONARY RIGHT INTEREST IN THE SAID FLAT BEING A SUM 120 TIMES THE MONTHLY RENT SO AS TO ACQUIRE THE OWNERSHIP RIGHTS IN THE SAID FLAT ON WHAT IS KNOWN AS OWNERSHIP BASIS. A COMBINED READING OF BOTH THE CLAUSES INDICATES THAT THE ASSE SSEE HAS PAID A CONSIDERATION OF RS.36,000/- FOR THE ALLEGED CONVERSION OF THE TITLE IN THE NEW FLAT FROM LEASE HOLD INTEREST TO OWNERSHIP. HOWEVER, IT IS NOTED THAT TH E AO HAS BROUGHT ON RECORD THAT THE GOVERNMENT VALUE OF THE SAID FLAT IS RS.20,63,2 50/- BEING THE FAIR MARKET VALUE OF THE PROPERTY. 4.2 CONSIDERING THE FACT THAT THE FAIR MARKET VALUE IS FAR BELOW THE CONSIDERATION PAID FOR ACQUISITION OF THE FLAT/IMPROVISING THE TI TLE ON OWNERSHIP BASIS, THE SAID FACTS RESULT IN THE PRESUMPTION THAT THE DEVELOPER CONFER RED THE OWNERSHIP RIGHT IN THE NEW FLAT IN LIEU OF SURRENDERING THE TENANCY RIGHT BY THE ASSESSEE IN THE ERSTWHILE PROPERTY AND FOR A CONSIDERATION OF RS.36,000/-. AS REGARDS THE CONTENTION OF THE ASSESSEE THAT HIS TENANCY RIGHT HAS BEEN INTACT IN THE ERSTWHILE PROPERTY AND HE HAS RECEIVED ONLY THE TENANCY RIGHT BACK ON THE BASIS O F THE REVERSIONARY RIGHT AND THEREBY PAID THE PREMIUM FOR IMPROVEMENT OF THE TIT LE AS OWNER, IN OUR VIEW IS NOT LEGALLY TENABLE AS THE INTEREST IN THE PROPERTY HAS NOT BEEN TRANSFERRED WITH THE RIGHT OF GETTING ANY REVERSIONARY INTEREST IN THE PROPERT Y. THE FACT THAT ALL THE TRANSACTIONS NAMELY, THE TRANSFER OF LEASE HOLD INTEREST, ACQUIS ITION OF PROPERTY BACK ON OWNERSHIP BASIS ON PAYMENT OF PREMIUM ARE CONTAINED IN A SING LE DOCUMENT, JUST BY DIFFERENTLY WORDING THAT THE ASSESSEE GOT THE REVERSIONARY RIGH T BY PAYING SMALL AMOUNT FOR IMPROVEMENT IN THE TITLE TO THE OWNERSHIP CANNOT SU PPORT THE CONTENTION OF THE ASSESSEE THAT HE HAS ACQUIRED ONLY LEASE HOLD INTER EST AS THE REVERSIONARY RIGHT. THEREFORE, THE WORKING BY THE AO THAT RS.20,27,250/ - AS THE LONG TERM CAPITAL GAIN EARNED BY THE ASSESSEE ON RELINQUISHMENT OF TENANCY RIGHT IS SUSTAINABLE. 4.3 THE CONTENTION ON THE BASIS OF THE DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. M/S HAJRA I MEMON IN ITA NO. 3848/MUM/2010 RELIED BY THE ASSESSEE TO SUPPORT THE PROPOSITION THAT THE TENANCY RIGHT GOT CONVERTE D INTO OWNERSHIP DOES NOT ATTRACT CAPITAL GAIN, IN OUR VIEW IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE FOR THE REASON THAT IN THE SAID CASE THE ASSESSEE WAS POSSESSING A DVERSE POSSESSION/TENANT OF THE ITA NO. 4665/MUM/2011 SHRI PRAKASH SAMANT ASSESSMENT YEAR: 2006-07 4 LAND AND THERE HAS BEEN A LITIGATION BETWEEN CO-OWN ERS OF THE LAND AND THE OCCUPIERS. SUBSEQUENTLY IN THE LITIGATION BETWEEN T HEM, A CONSENT DECREE ARRIVED AT BETWEEN THEM IN A FULL AND FINAL SETTLEMENT AND HEN CE IT IS NOT THE CASE OF ANY TRANSFER OF RELINQUISHMENT OF TENANCY RIGHT. ON THE OTHER HAND, IN THE CASE OF CIT VS. D.P. SANDU BORS. CHEMBUR P. LTD. 273 ITR (1), THE HONBLE APEX COURT HAS HELD THAT IT IS WELL SETTLED THAT THE TENANCY RIGHT IS A CAPI TAL ASSET, THE SURRENDER OF THE TENANCY RIGHT IS A TRANSFER AND A CONSIDERATION RECEIVED TH EREFORE, IS A CAPITAL RECEIPT WITHIN THE MEANING OF SECTION 45. ALSO, THE TRIBUNAL IN SE VERAL CASES INCLUDING SMT. MAHARUKH MURAD OOMRIGAR VS. ITO IN ITA NO.3144 (MUM) 2010 HAS HELD THAT SURRENDER OF TENANCY RIGHT IS ASSESSABLE AS CAPITAL GAIN. 4.4 CONSIDERING THE ENTIRETY OF THE FACTS, WE ARE I NCLINED TO ACCEPT THE CONTENTIONS OF THE REVENUE THAT THE ASSESSEE HAD AC QUIRED THE NEW FLAT IN LIEU OF THE SURRENDER OF TENANCY RIGHT IN ADDITION TO THE PAYME NT OF THE CONSIDERATION OF RS.36,000/- AND THEREFORE, THE DIFFERENCE IN VALUE THAT IS GOVERNMENT VALUE OF THE FLAT PURCHASED BY THE ASSESSEE WHICH IS DETERMINED AS THE FAIR MARKET VALUE OF THE FLAT MINUS THE CONSIDERATION OF RS.36,000/- PAID BY THE ASSESSEE IS TO BE EQUATED WITH THE CONSIDERATION RECEIVED BY THE ASSESSEE FO R THE RELINQUISHMENT OF THE TENANCY RIGHT IN THE ERSTWHILE FLAT POSSESSED BY TH E ASSESSEE AND THE SAME IS LIABLE TO BE TAXED AS LONG TERM CAPITAL GAIN. IN VIEW OF T HE FACT THAT THE LOWER AUTHORITIES HAVE CORRECTLY APPRECIATED THE FACTS AND THE POSITI ON OF LAW, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A) CONFIRMING THE SAID ADDITION MADE BY THE AO AND THUS THE SAME IS UPHELD. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF MARCH, 2014. SD/- SD/- (R.C. SHARMA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 28.03.2014. *SRIVASTAVA ITA NO. 4665/MUM/2011 SHRI PRAKASH SAMANT ASSESSMENT YEAR: 2006-07 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.