ACIT CIR 5(3), MUMBAI V. SHREENATH MOTORS P.LTD, MUMBAI

ITA 4676/MUM/2012

• Counselvise Citation: 467619914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 12-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H S PARIKH
• Keywords: Capital asset; Surrender of tenancy right

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 4676/MUM/2012 ASSESSMENT YEAR : 2009-10 DCIT 5(3) 573, AAYAKAR BHAVAN, 5 TH FLOOR. MUMBAI-400 020 VS. M/S. SHREENATH MOTORS PVT. LTD. 1 ST FLOOR, ROOM NO.11 GURU NIWAS (SHANTI NIWAS), 292, 302, V.P. ROAD MUMBAI. 400 004 PAN:AAFCS 0033 D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI H.S. PARIKH REVENUE BY : SHRI SHISHIR SRIVASTAVA DATE OF HEARING : 20.08.2013 DATE OF PRONOUNCEMENT : 09.10.2013 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF THE LD.CIT(A) -9, MUMBAI DATED 10.04.2012 FOR THE ASSESSMENT YEAR 20 09-10. 2. IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLO WING GROUNDS: WHETHER ON THE FACT, CIRCUMSTANCES AND IN THE LAW, THE LD.CIT(A) ERRED IN HOLDING THAT THE ASSESSEE WAS A TENANT OF THE PREMISES WITH OUT APPRECIATING THE FACT THAT THE ASSESSEE WAS A MERE LICENSEE WITHOUT HAVING ANY CORRESPONDING RIGHT OF TENANCY OR SUB TENANCY? WHETHER ON THE FACTS, CIRCUMSTANCES AND IN THE LAW, THE LD.CIT(A) ERRED IN HOLDING THAT A SUM OF RS. 3 CRORES RECEIVED ON SURRENDER OF RIGHTS TO BE TAXED AS CAPITA GAINS WITHOUT APPRECIATING THE FACT THAT THE SAID C OMPENSATION WAS RECEIVED FOR SURRENDER OF THE PREMISES IN WHICH ASSESSEE HAD NO TENANCY RIGHTS? THE APPELLANT PRAYS THAT THE ORDER OF THE LD.CIT(A) BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. ITA NO. 4676/MUM/2012 M/S. SHREENATH MOTORS PVT. LTD. ASSESSMENT YEAR : 2009-10 2 3. BRIEFLY STATED, THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF SALES AND SERVICES OF MOTOR CARS AND BUSES WHILE DECLARING A TOTAL INCOME OF RS.2,36,45,046/- HAD CLAIMED A LONG TERM CAPITAL GAIN OF RS. 3 CRORES RE CEIVED FROM M/S. INDUSTRIAL LAUNDRY AND DRY CLEANING EQUIPMENT P.LTD. TO WHOM THE ASSESSEE ALLEGEDLY SURRENDERED THE TENANCY RIGHTS. HOWEVER, IN THE ASSESSMENT FRAMED U/S 143(3 ), THE AO TREATED THE IMPUGNED RECEIPT UNDER THE HEAD INCOME FROM OTHER SOURCES AS AGAINST THE CLAIM OF THE ASSESSEE UNDER THE HEAD LONG TERM CAPITAL GAIN. ACCORDINGL Y TO THE AO THE ASSESSEE WAS NOT A TENANT AND HENCE NOT ENTITLED TO TENANCY RIGHT OR A NY OTHER RIGHT/INTEREST THEREON. THE AO HAD COME TO THE SAID CONCLUSION ON THE BASIS THAT T HE LEAVE AND LICENSE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S. INDUSTRI AL LAUNDRY AND DRY CLEANING EQUIPMENT PVT. LTD. COMMENCED FROM 27.07.2001 WAS E NFORCED TILL 30.04.2004 AND THE NEXT AGREEMENT BETWEEN THE SAID PARTIES ENTERED INT O ON 15.10.2004 HAD THE TENURE OF 30 MONTHS COMMENCING FROM 01.10.2004 TO 31.03.2007. TH EREFORE, THE IMPUGNED AMOUNT RECEIVED FROM M/S. INDUSTRIAL LAUNDRY AND DRY CLEAN ING EQUIPMENT PVT. LTD. CANNOT BE SAID TO BE THE CONSIDERATION RECEIVED ON SURRENDER OF TENANCY RIGHTS AND HENCE NOT A CAPITAL GAIN. 4. ON APPEAL, THE LD.CIT(A) DIRECTED THE AO TO TAX THE COMPENSATION OF RS. 3 CRORES UNDER THE HEAD CAPITAL GAIN AS DISCLOSED BY THE A SSESSEE IN THE RETURN OF INCOME. ACCORDING TO THE LD.CIT(A), THE ASSESSEE HAD BEEN I N THE POSSESSION OF THE PREMISES SINCE 27.07.2001 BECAUSE OF THE TENANCY AGREEMENT. THE LD.CIT(A) HAS ALSO RELIED ON THE JUDGMENT OF THE APEX COURT IN THE CASE OF CIT VS. D . P. SANDU BROTHERS CHEMBUR PVT. LTD. (2005) 273 ITR 1 (SC), THE DECISION OF THE DELHI HI GH COURT IN THE CASE OF CIT VS. HITASHI ESTATES LTD AND THE DECISION OF THE PATNA HIGH COUR T IN THE CASE OF HIND MOSAIC & CEMENT WORKS VS. CIT (2011) 56 DTR 249 FOR ARRIVING AT A C ONCLUSION THAT THE COMPENSATION RECEIVED FOR SURRENDER OF TENANCY RIGHTS HAS TO BE TREATED AS A LONG TERM CAPITAL GAIN. AGGRIEVED BY THE IMPUGNED ORDER, THE REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LD.DR HAS RELIED ON THE ORDER OF THE AO AND HAS STATED THAT THE LD.CIT(A) OUGHT NOT TO HAVE DIRECTED THE AO TO TREA T THE COMPENSATION UNDER THE HEAD CAPITAL GAIN WHEN THE ASSESSEE IS NOT A TENANT. O N THE OTHER HAND, THE LD.AR HAS RELIED ON THE DECISION OF THE APEX COURT IN THE CASE OF CI T VS. D. P. SANDU BROTHERS CHEMBUR PVT. LTD. (SUPRA) TO SUPPORT THE PROPOSITION THAT T HE COMPENSATION RECEIVED FOR SURRENDER ITA NO. 4676/MUM/2012 M/S. SHREENATH MOTORS PVT. LTD. ASSESSMENT YEAR : 2009-10 3 OF TENANCY RIGHTS HAS TO BE TREATED AS CAPITAL GAI N. THE LD.DR HAS FURTHER RELIED ON THE ORDER OF THE LD.CIT(A) IN SUPPORT OF THE ASSESSEES CLAIM. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. FIRSTLY, THE PROPOSITION OF LAW IS VERY CLEAR THAT THE CONSIDERA TION FOR SURRENDERING TENANCY RIGHT IS CHARGEABLE TAX UNDER THE HEAD CAPITAL GAIN AND TE NANCY RIGHT IS A CAPITAL ASSET IN THE HANDS OF THE ASSESSEE IN THE LIGHT OF THE APEX COUR T DECISION IN THE CASE OF CIT VS. D. P. SANDU BROTHERS CHEMBUR PVT. LTD. (SUPRA). SECONDLY, THE LD.CIT(A) HAS COME TO A CONCLUSION THAT THE ASSESSEE HAS BEEN ENJOYING THE POSSESSION OF THE PREMISES SINCE 27.07.2001 ON THE BASIS OF THE EVIDENCES LIKE MTNL TELEPHONE INSTALLED IN THE SAID PREMISES AND THE ELECTRICITY CONNECTIONS IN THE NAM E OF THE ASSESSEE AND ALSO THE ASSESSEE HAS BEEN RECEIVING TAX INVOICES AND BILLS FROM GLOBAL ENTERPRISES, WHICH HAS NOT BEEN DISPUTED BY THE REVENUE. THIRDLY, AS REGARDS T HE CONTENTION OF THE REVENUE THAT THE SAID TENANCY AGREEMENT IS EXPIRED ON 31.03.2007 AND THE ASSESSEE CANNOT BE TREATED AS A TENANT HOLDING TENANCY RIGHT DURING THE YEAR UNDER CONSIDERATION IN WHICH THE ALLEGED COMPENSATION IS RECEIVED, IT IS PERTINENT TO MENTIO N THAT THE ASSESSEE HAS RECEIVED THE COMPENSATION/CONSIDERATION AS PER THE TERMS OF CONS ENT IN CIVIL SUIT NO. 46/70 OF 2008 FROM THE LESSOR I.E., M/S. INDUSTRIAL LAUNDRY AND D RY CLEANING EQUIPMENT PVT. LTD. FOR AGREEING TO VACATE THE PREMISES. THIS CLEARLY ESTAB LISHES THAT THE SAID COMPENSATION IS A CONSIDERATION TOWARDS SURRENDER OF TENANCY RIGHT. M ERELY, THE TENANCY AGREEMENT WAS NOT IN OPERATION, IN OUR VIEW, CANNOT NEGATE THE EXISTE NCE OF ACTUAL POSSESSION HELD BY THE ASSESSEE AS A TENANT IN THE LIGHT OF THE FACTS AS D ISCUSSED. IN VIEW OF THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD.CIT(A ) DIRECTING THE AO TO TREAT THE IMPUGNED COMPENSATION RECEIVED AS A CONSIDERATION BY THE ASS ESSEE FOR THE SURRENDER OF TENANCY RIGHTS UNDER THE HEAD CAPITAL GAIN AS CLAIMED BY TH E ASSESSEE. RESULTANTLY, THE ORDER OF THE LD.CIT(A) IS UPHELD. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 9 TH DAY OF OCTOBER, 2013. SD/- SD/- (P.M. JAGTAP) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 09.10.2013. *SRIVASTAVA ITA NO. 4676/MUM/2012 M/S. SHREENATH MOTORS PVT. LTD. ASSESSMENT YEAR : 2009-10 4 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR E BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.