SANJIV N NAIK, MUMBAI V. ITO 18(1)(2), MUMBAI

ITA 7253/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48631 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2006-2007
• Appeal Filed On: 25-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SONGATE
• Assessee Lawyers: MANDAR TELANG ANI L SATHE
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Cost of acquisition; Surrender of tenancy right
• Section: 50C; 54F; 54

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI RAJENDRA SINGH(AM) AND SHRI VIJAY PA L RAO (JM) ITA NO.7253/M/2010 ASSESSMENT YEAR 2006-07 SHRI SANJIV N. NAIK THE ITO 18(1)(2), MUMBAI 703, SAI APARTMENT OPP. SHIV SENA SHAKHA PAREL VILLAGE, PAREL MUMBAI 400 012. PAN : ABFPN0180N APPELLANT RESPONDENT ASSESSEE BY : S/SHRI MANDAR TELANG/ ANI L SATHE REVENUE BY : SHRI D. SONGATE O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 12.07.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-0 7. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING COMPUTATION OF CAPITAL GAIN IN RESPECT OF FLAT SOLD BY THE ASSESSEE DURING THE YEAR. THE AO HAD NOTED FROM THE AIR DATA THAT THE ASSESSEE HAD SOLD THE FLAT DURING THE YEAR WHICH HA D BEEN VALUED AT RS.47,52,510/- FOR THE PURPOSE OF STAMP DUTY. THE A O ALSO NOTED THAT FATHER OF THE ASSESSEE SHRI NANABHAI NAIK HELD TENANCY RIGHTS IN THE PREMISES LOCATED AT GANESH PETH LANE, OFF N.C.KELKAR ROAD, DADAR (W), M UMBAI 400 028 AND AFTER HIS DEATH, THE TENANCY RIGHTS DEVOLVED UPON THE FO LLOWING FOUR PERSONS: 2 I) SMT. SHALINI NANABHAI NAIK II) SHRI RAJIV NANABHAI NAIK III) SHRI SANJEEV NANABHAI NAIK IV) SHRI BIPIN NANABHAI NAIK 2. THE LANDLORD OF THE ABOVE BUILDING HAD GIVEN THE ABOVE PREMISES TO THE DEVELOPER FOR DEVELOPMENT AND IN LIEU OF SURRENDER OF TENANCY RIGHTS, THE ASSESSEE AND THE OTHER THREE PERSONS WERE ALLOTTED FLAT NO.701, A-WING, IN THE BUILDING SANSKAR GANESH PETH LANE, OFF. N.C.KELKA R ROAD, DADAR (W), MUMBAI 400 028 ON 28.11.2005. AO OBSERVED THAT THE ASSESSEE AND OTHER THREE PERSONS HAD BEEN ALLOCATED FLAT IN LIEU OF TE NANCY RIGHTS AND THEREFORE THEY BECAME ENTITLED FOR EXEMPTION OF CAPITAL GAIN ON TRANSFER OF TENANCY RIGHTS UNDER SECTION 54F OF THE INCOME-TAX ACT. THE FLAT A LLOTTED WAS SOLD ON 29.12.2005. SINCE THE FLAT HAD BEEN SOLD WITHIN A P ERIOD OF THREE YEARS FROM THE DATE OF ACQUISITION, CAPITAL GAIN ARISING ON SU RRENDER OF TENANCY RIGHTS BECAME TAXABLE IN THE YEAR OF SALE UNDER THE PROVIS IONS OF SECTION 54F(3). THE AO TREATED THE CAPITAL GAIN AS SHORT TERM CAPITAL G AIN AS THE FLAT HAD BEEN SOLD WITHIN A SHORT PERIOD. THE TOTAL GAIN WAS COMPUTED BY HIM AT RS.47,52,570/- ON THE BASIS OF SALE VALE AS PER STAMP DUTY VALUATI ON, 1/4 TH OF WHICH AMOUNTING TO RS.11,88,127/- WAS ASSESSED AS SHORT TERM CAPITA L GAIN IN CASE OF THE ASSESSEE. 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUB MITTED BEFORE CIT(A) THAT ACTUAL SALE PRICE OF THE FLAT WAS ONLY RS.38 L ACS AND REQUESTED FOR MODIFICATION OF THE ORDER. CIT(A) HOWEVER OBSERVED THAT ASSET BEING A HOUSE PROPERTY PROVISIONS OF SECTION 50C WERE APPLICABLE AND THEREFORE HE UPHELD THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN A PPEAL BEFORE THE TRIBUNAL. 3 4. BEFORE US, THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT UNDER THE PROVISIONS OF SECTION 54F(3), IN CASE, THE NEW ASSE T WHICH IN THIS CASE WAS A FLAT, WAS SOLD WITHIN THE PERIOD OF THREE YEARS FRO M THE DATE OF ACQUISITION, THE CAPITAL GAIN ARISING ON SURRENDER OF TENANCY RIGHT HAS TO BE ASSESSED AS LONG TERM CAPITAL GAIN. THE AO WAS THEREFORE NOT JUSTIFI ED IN ASSESSING THE GAIN AS SHORT TERM CAPITAL GAIN. THE LEARNED DR ON THE OTHE R HAND SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. THE ISSUE IS REGARDING COMPUTATION OF CAPITAL GAIN ON S ALE OF THE FLAT ACQUIRED BY THE ASSESSEE IN LIEU OF SURRENDER OF TENANCY RIGHTS IN A BUILDING. THE LANDLORD OF THE BUILDING HAD GIVEN THE BUILDING TO THE DEVELOPER AN D IN LIEU OF THE SURRENDER OF TENANCY RIGHTS, THE ASSESSEE ALONG WITH OTHER THREE CO-OWNERS IN THE TENANCY RIGHT HAD BEEN ALLOTTED FLAT IN THE NEW BUILDING ON 28.11.2005. SINCE THE TENANCY RIGHT WAS A LONG TERM CAPITAL ASSET, GAIN A RISING ON SURRENDER OF TENANCY RIGHTS WHICH WAS INVESTED IN THE ACQUISITIO N OF THE RESIDENTIAL FLAT, WILL BE EXEMPT UNDER SECTION 54F. THERE IS NO MATERIAL B ROUGHT ON RECORD TO SHOW THAT THE PROVISIONS OF SECTION 54F WERE NOT APPLICA BLE AND IN FACT THE AO HAD ACCEPTED THE ENTITLEMENT OF ASSESSEE FOR EXEMPTION UNDER SECTION 54F. AS PER THE PROVISIONS OF SECTION 54 F, IN CASE THE NEW ASS ET WHICH IN THIS CASE IS THE FLAT IS SOLD WITHIN A PERIOD OF THREE YEARS FROM DA TE OF ACQUISITION, THE CAPITAL GAIN ARISING ON TRANSFER OF THE ORIGINAL ASSET WHIC H IS THE TENANCY RIGHT IN THIS CASE WILL BE TAXABLE AS A LONG TERM CAPITAL GAIN IN THE YEAR OF SALE. THEREFORE IN A.Y.2006-07 DURING WHICH THE FLAT WAS SOLD, THE CAP ITAL GAIN ARISING ON ACCOUNT OF SURRENDER OF TENANCY RIGHTS WILL BECOME TAXABLE AS LONG TERM CAPITAL GAIN. THE VALUE OF THE SURRENDER OF TENANCY RIGHTS WILL B E THE VALUE OF FLAT WHICH WAS TO BE ALLOTTED TO THE ASSESSEE ON THE DATE OF SURRE NDER OF TENANCY RIGHTS. THE 4 DATE OF SURRENDER OF THE TENANCY RIGHT IS NOT CLEAR FROM THE RECORDS, WHICH IS EXPECTED TO BE MUCH BEFORE THE DATE OF ALLOTMENT OF FLAT TO THE ASSESSEE AS IT WOULD HAVE TAKEN SOME TIME FOR CONSTRUCTION OF THE BUILDING AND THE ALLOTMENT OF THE FLAT. THUS THE VALUE OF SURRENDER OF THE TEN ANCY RIGHT WILL BE THE MARKET VALUE OF SIMILAR FLAT ON THE DATE OF SURRENDER OF T ENANCY RIGHTS. THIS HAS TO BE ASCERTAINED. IN CASE, SOME OTHER PERSONS WERE ALSO ALLOTTED FLACTS IN THE NEW BUILDING, THE SURRENDER VALUE OF TENANCY RIGHT WILL BE EQUAL TO THE COST OF THE SIMILAR FLAT TO THE OTHER ALLOTEES. THE COST OF ACQ UISITION OF TENANCY RIGHT IS NIL AND THEREFORE THE MARKET VALUE OF THE FLAT ON THE D ATE OF SURRENDER OF TENANCY RIGHT WILL BE THE LONG TERM CAPITAL GAIN WHICH WILL BE REQUIRED TO BE ASSESSED IN A.Y.2006-07 IN WHICH THE FLAT WAS SOLD. IN ADDITION THERE WILL ALSO BE A SHORT TERM CAPITAL GAIN ON SALE OF THE FLAT BECAUSE THE F LAT WAS ACQUIRED ON 28.11.2005 AND SOLD ON 29.12.2005. THE SALE VALUE O F THE FLAT HAS IN OUR VIEW, BEEN RIGHTLY ADOPTED BY THE AO AS THE SALE VALUE FO R THE PURPOSE OF STAMP DUTY VALUATION UNDER THE PROVISIONS OF SECTION 50C, WHIC H IS RS.47,52,501/-. THE COST OF ACQUISITION OF THE FLAT WILL BE THE MARKET VALUE OF THE FLAT ON THE DATE OF SURRENDER OF TENANCY RIGHTS WHICH AS POINTED OUT EA RLIER HAS TO BE ASCERTAINED CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE . THUS THE ASSESSMENT HAS TO BE MADE IN CASE OF THE ASSESSEE ON ACCOUNT OF LO NG TERM CAPITAL GAIN ARISING ON SURRENDER OF TENANCY RIGHTS AND THE SHORT TERMS CAPITAL GAIN ON THE TRANSFER OF FLAT WHICH HAS TO BE COMPUTED IN THE LIGHT OF DI SCUSSION MADE ABOVE. THE ORDERS OF AUTHORITIES BELOW ASSESSING THE ENTIRE AM OUNT OF RS.47,52,570/- AS SHORT TERM CAPITAL GAIN CANNOT BE SUSTAINED. WE THE REFORE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 5 5. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6. THE DECISION PRONOUNCED IN THE OPEN COURT ON 27. 04.2011. SD/- SD/- ( VIJAY PAL RAO ) (RAJENDRA SIN GH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 27.04.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR E BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK