INDULAL METHA (HUF), MUMBAI V. ITO WD 14(3)(1), MUMBAI

ITA 7510/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79102 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 07-05-2014
• Assessment Year: 2001-2002
• Appeal Filed On: 23-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Surrender of tenancy right
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BEN CH, MUMBAI JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOT; IKY JKO] U;KF;D LNL; ,OA JH JKTSUNZZ JH JKTSUNZZ JH JKTSUNZZ JH JKTSUNZZ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K ] YS[KK LNL; DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER VK;DJ VIHY LA[;K / ITA NO.7510/MUM/2013 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2001-02 INDULAL MEHTA (HUF) 201, KESAR BUILDING, PRINCESS STREET, MUMBAI -400 002. VS. THE INCOME TAX OFFICER - 14(3)(1) PAN:-AABHVI5929H APPELLANT RESPONDENT ASSESSEE BY / FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS FU/KKZFJRH DH VKSJ LS SHRI D.D. ANJARIYA REVENUE BY/ JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS JKTLO DH VKSJ LS SHRI MAURYA PRATAP ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 7.10.2013 OF CIT FOR A.Y. 2001-02. THE ASSESSEE HAS RAISED FOLLO WING GROUNDS IN THIS APPEAL:- 1. THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.21 ,35,000/ - ON ACCOUNT OF SURRENDER OF TENANCY RIGHT AS INCOME FROM OTHER SOU RCE AGAINST LONG TERM CAPITAL GAIN CLAIMED BY ASSESSEE AND NOT ALLOWED EX EMPTION U/S 54EA. 2. THE LD. CIT(A) FAILED TO APPRECIATE THAT- A) TRANSACTION IS GENUINE AND CANNOT BE TERMED AS A CO LORABLE DEVISE. B) MERE SUSPICION CANNOT TAKE THE PLACE OF EVIDENCE. C) LIST OF TENANTS PROVIDED BY MHADA CANNOT BE IGNORED AS MHADA 1S DATE OF HEARING 28.5.2014 DATE OF PRONOUNCEMENT 04.6.2014 INDULAL MEHTA (HUF) 2 | P A G E APPROPRIATE AUTHORITY. D) IN CASE OF BUILDER, TENANCY RIGHT WAS ACCEPTED AS G ENUME BY HON'BLE BOMBAY HIGH COURT. E) EVEN IF TENANCY RIGHT IS NOT CONSIDERED AS GENUINE THAN ALSO GAIN IS LONG TERM CAPITAL GAIN AS 'CONSTRICTION COST' OF RS.2,65 ,000 I-WAS PAID IN 1995. HENCE, ACQUIRING ALTERNATE ACCOMMODATION IS A 'RIGH T TO ACQUIRE PROPERTY'. F) 'RIGHT TO ACQUIRE PROPERTY' IS CAPITAL ASSET, HENCE TAXABLE UNDER THE HEAD CAPITAL GAIN AND CANNOT BE TAXED UNDER 'INCOME FROM OTHER SOURCE. G) 'CAPITAL ASSET' IS HELD FOR MORE THAN 3 YEARS THERE FORE ASSET IS LONG TERM CAPITAL ASSET, AND GAIN ON SALE OF SAME IS LONG TER M CAPITAL GAIN. H) EXEMPTION ULS 54EA IS ALLOWABLE ON LONG TERM CAPITAL GAIN. 3. THE LD. CIT(A) ERRED IN CONFIRMING THE CHARGE ABILI TY OF INTEREST ULS 234B & 234C OF THE INCOME TAX ACT, 1961. 4. THE LD. CIT(A) ERRED IN CONFIRMING INVOCATION OF PR OV1SLON OF PENALTY ULS 271 (1)( C) OF THE INCOME TAX ACT, 1961. 2. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE AS WELL AS LD. DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE GRO UND RAISED BY THE ASSESSEE IN THIS APPEAL AS WELL AS THE FACTS GIVING RISE TO THE DISPUTE ARE COMMON TO THE CASE OF BHOGILAL M. MEHTA (HUF) IN I.T. APPEAL NO. 6705/MU M/2013. WE FURTHER NOTE THAT THE TRANSACTION IN THIS CASE IS ARISING OUT OF THE COMMON AGREEMENT OF SURRENDER OF TENANCY RIGHT. THE ASSESSEE IN PRESENT APPEAL, IS B ROTHER (HUF) OF ASSESSEE IN I.T. APPEAL NO. 6705/MUM/2013. AN IDENTICAL ISSUE HAS BE EN CONSIDERED AND DECIDED BY US IN ITA NO. 6705/MUM/2013 VIDE EVEN DATED ORDE R IN PARA 7 AND 9 AS UNDER;- 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSEE HAS RECEIVED RS. 36,00,000/- F ROM THE BUILDER M/S. SHRIPATI GROUP OF COMPANIES. THIS FACT OF RECEIPT OF RS. 36, 00,000/- OUT OF TOTAL OF RS. 60,00,000/- SHARED BETWEEN THE ASSESSEE AND HIS BRO THER (HUF) HAS NOT BEEN DISPUTED BY THE AUTHORITIES BELOW. THE DISPUTE IS O NLY ON THE POINT WHETHER THIS INDULAL MEHTA (HUF) 3 | P A G E AMOUNT RECEIVED BY THE ASSESSEE IS AGAINST THE SURR ENDER OF TENANCY AND THE SURRENDER OF RIGHT IN THE PROPERTY TO BE DEVELOPED BY THE DEVELOPER AND TO BE CONSIDERED AS CAPITAL GAIN OR NOT. AUTHORITIES BELO W HELD THAT THIS AMOUNT CANNOT BE TREATED AS CAPITAL GAIN AS THE ENTIRE TRANSACTION W AS JUST A COLOURABLE DEVICE TO EVADE PAYMENT OF TAX. THE ASSESSING OFFICER HAS REF USED TO ACCEPT THE RENT RECEIPT, THE LIST OF TENANTS PROVIDED BY MHADA AS WELL AS BE ST. THE ASSESSING OFFICER HAS ATTEMPTED TO POINT OUT SOME DEFICIENCIES IN THE RE CEIPT AS WELL AS THE AGREEMENT DATED 10.4.1995 IN WHICH THE NAME OF THE ASSESSEE W AS WRITTEN IN TYPING BHOGILAL M. MEHTA AND THEN HUF HAS BEEN INSERTED WITH PEN. W E FIND THAT THE SAID TYPINT MISTAKE HAS BEEN CORRECTED AT THE TIME OF SIGNING T HE AGREEMENT AND PARTIES HAVE ENDORSED BY SIGNING THE SAID CORRECTION IN THE AGRE EMENT. THEREFORE, MERELY BECAUSE THE CORRECTION IS MADE IN THE AGREEMENT WOU LD NOT RENDER ENTIRE AGREEMENT AS NON GENUINE WHEN ALL OTHER PLACE THE N AME OF THE ASSESSEE IS CORRECTLY APPEARING IN THE AGREEMENT EVEN THIS IS I MMATERIAL MISTAKE WHICH HAS BEEN CORRECTED IN THE NAME OF THE ASSESSEE, THEREFO RE, IT DOES NOT AFFECT THE TERMS AND CONDITIONS OF THE AGREEMENT. FURTHER WE NOTE TH AT THE RENT RECEIPTS PLACED ON RECORD ARE DULY SIGNED AND ALSO APPEARING DATES AND MONTH FOR WHICH THE RENT WAS PAID. THE RENT RECEIPT COUPLED WITH THE AGREEMENT I N RESPECT OF THE PREMISES IN QUESTION ESTABLISH THE FACT THAT THE ASSESSEE WAS H AVING TENANCY RIGHT IN RESPECT OF THE PREMISES. THE SAID TENANCY RIGHT WAS SURRENDERE D BY THE ASSESSEE IN LIEU OF ALTERNATIVE ACCOMMODATION TO BE CONSTRUCTED BY THE DEVELOPER UNDER THE REDEVELOPMENT PLAN. IN THIS RESPECT THE MOU WAS EXE CUTED BETWEEN THE ASSESSEE AND THE DEVELOPER ON 5.12.1995. THE RELEVANT CLAUSE S OF THE MOU ARE AS UNDER:- ( PARA 6 AND 7 AS RECITALS AND CLAUSE 7 OF THE TERM S AND CONDITIONS OF THE AGREEMENT) 6. THE OWNERS HEREBY COMMIT AND AGREE WITH THE TEN ANT THAT A RESIDENTIAL PREMISES ADMEASURING APPROX. 840 .45 SQ. FT. CARPET AREA AND LEDGE AREA OF 14.85 SQ. FT. I.E. TOTAL BUILD UP AREA OF 1145.67 S Q. FT. SHALL BE RESERVED FOR THE TENANT/OCCUPANT BETWEEN 8 TH AND 10 TH FLOOR AND SAME SHALL NOT BE ALLOTTED OR GIVEN POSSESSION OF TO ANYBODY ELSE. INDULAL MEHTA (HUF) 4 | P A G E 7. THE TENANT/OCCUPANT HEREBY AGREES TO PAY A NOMIN AL CONSTRUCTION CHARGE OF RS. 6,15,000/- TO THE SAID OWNERS. CLASUE 7 IT IS FURTHER AGREED BY AND BETWEEN THE PARTIES HE RETO THAT, ON COMPLETION OF ALL THE CIGVIL WORKS PERTAINING TO THE FLAT TO BE A LLOTTED BETWEEN 8 TH AND 10 TH FLOOR THE SAID OWNERS SHALL, INTIMATE THE SAID TENA NT/OCCUPANT TO TAKE THE INSPECTION OF THE SAID PERMANENT ALTERNATE ACCOMMO DATION AND IF THE TENANT/OCCUPANT DOES NOT APPROVE THE SAID PERMANENT ALTERNATE ACCOMMODATION AND DECLINES TO ACCEPT POSSESSION OF THE SAME THEN THE SAID OWNERS SHALL PAY TO THE SAID TENANT/OCCUPANT A N AMOUNT OF RS. 60,00,000/- AS COMPENSATION IN LIEU OF THE PERMANE NT ALTERNATE ACCOMMODATION, INCLUSIVE OF RS. 6,15,000/- TO BE P AID BY THE TENANT/OCCUPANT. 8. IT IS CLEAR FROM THE MOU THAT IN LIEU OF SURREND ER OF TENANCY/OCCUPANCY RIGHTS OF THE EXISTING PREMISES THE ASSESSEE ALONG WITH HI S BROTHER (HUF) WAS TO BE GIVEN THE BUILD UP AREA OF 1145. 67 SQ. FT. THE ASSESSEE AND HIS BROTHER (HUF) ALSO AGREED TO PAY CONSTRUCTION CHARGES OF RS. 6,15,000/ - OVER AND ABOVE THE SURRENDER OF TENANCY RIGHTS. AS PER THE SAID MOU THE ASSESSEE AND HIS BROTHER (HUF) WERE GIVEN THE OPTION TO DECLINE TO ACCEPT THE POSSESSIO N OF THE ALTERNATIVE ACCOMMODATION AND TO RECEIVE AN AMOUNT OF RS. 60,00 ,000/- AS COMPENSATION IN LIEU OF PERMANENT ALTERNATIVE ACCOMMODATION INCLUS IVE OF RS. 6,15,000/- CONSTRUCTION COST PAID BY THE ASSESSEE AND HIS BRO THER (HUF). ON 25 TH MARCH 2000, THE PARTIES ENTERED INTO AN AGREEMENT WHEREBY THE A SSESSEE AND HIS BROTHER HUF AGREED TO RECEIVE RS. 60,00,000/- AGAINST THE SURRE NDER OF TENANCY RIGHTS AND THE RIGHTS IN THE ALTERNATIVE ACCOMMODATION. THE AMOUNT OF RS. 6,15,000/- WAS COMPRISING OF PAYMENT OF RS. 3,15,000/- AND RS. 2, 65,000/- BY ASSESSEE AND BROTHER (HUF) ACCORDING TO THE AREAS UNDER TENANCY. THERE IS NO DISPUTE THAT THE RENT WAS BEING PAID IN RESPECT OF PREMISES IN QUES TION AND THE BUILDER WANTED TO RECONSTRUCT THE PROPERTY UNDER THE REDEVELOPMENT A GREEMENT, THEREFORE, THE ASSESSEE ALONG WITH HIS BROTHER (HUF) WAS OFFERED A LTERNATIVE ACCOMMODATION BY THE BUILDER. THE TENANCY RIGHT HAS BEEN RECOGNIZED AS THE CAPITAL ASSET U/S 55(2) OF THE INCOME TAX ACT. THEREFORE, THERE IS NO DOUBT TH AT THE CONSIDERATION TO BE RECEIVED BY THE ASSESSEE AGAINST THE SURRENDER OF T ENANCY RIGHTS IS CAPITAL IN NATURE AND TO BE ASSESSED AS CAPITAL GAIN. THE QUESTION AR ISES WHETHER THE CAPITAL GAIN IS LONGER CAPITAL GAIN OR SHORT TERM CAPITAL GAIN. SIN CE THE ASSESSEE HAS AGREED TO INDULAL MEHTA (HUF) 5 | P A G E SURRENDER THE TENANCY RIGHT IN THE YEAR 1995 AND AL SO PAID THE CONSTRUCTION COST AS AGREED BETWEEN THE PARITES, THEREFORE, THE VALUE OF TENANCY RIGHTS ALONG WITH THE CONSTRUCTION COST WAS CONVERTED/SUBSTITUTED INTO TH E ALTERNATIVE ACCOMMODATION TO BE PROVIDED BY THE BUILDER IN THE YEAR 2000. IN STE AD OF ACCEPTING THE ALTERNATIVE ACCOMMODATION, THE ASSESSEE PREFERRED TO RECEIVE TH E AGREED SUM OF RS. 36,00,000/- INCLUSIVE OF 3,50,000/- AS CONSTRUCTIO N COST PAID BY THE ASSESSEE. THUS THE ASSESSEE HAS FINALLY SURRENDERED ITS TENANCY RI GHT AS WELL AS ALTERNATIVE ACCOMMODATION RIGHTS ONLY BY WAY OF THE AGREEMENT D ATED 25 TH MARCH 2000. THEREFORE, THIS AMOUNT WAS RECEIVED AFTER MORE THAN THREE YEARS. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. R . R. CHATURVEDI IN INCOME TAX APPEAL NO. 11/96 OF 2011 HAS ACCEPTED THE STATUS O F THE TENANTS AS PER THE LIST OF TENANTS CERTIFIED BY MUMBAI BUILDINGS REPAIRS AND R ECONSTRUCTION BOARD (MBRRB). HONBLE JURISDICTIONAL HIGH COURT IN THE C ASE OF CIT VS. REJENDRA R. CHATURVEDI (SUPRA), THE EARLIER TENANT IN RESPECT O F THE BUILDING IN QUESTION HAS OBSERVED IN PARA 3 AS UNDER:- 3) THIS APPEAL FILED BY THE REVENUE RELATES TO CON SIDERATION RECEIVED BY THE TENANTS IN RESPECT OF SURRENDER OF TENANCY. ONCE, IT IS ACCEPT ED THAT THE AMOUNTS PAID BY M/S. R.R. CHATURVEDI (AOP) TO THE RESPONDENT ASSESSEE HE REIN, WAS FOR THE TRANSFER/SURRENDER OF TENANCY IT FOLLOWS THAT THE A MOUNT RECEIVED BY THE RESPONDENT ASSESSEEE HEREIN, IN HIS HANDS WOULD BE AMOUNTS REC EIVED AS TRANSFER OF TENANCY ASSESSABLE AS CAPITAL GAIN AND NOT AS INCOME FRO M OTHER SOURCES. IN THE ABOVE CIRCUMSTANCES WE SEE NO REASON TO ENTERTAIN QUESTIO N (A). 9. THE HONBLE HIGH COURT HAS HELD THAT THE AMOUNT RECEIVED AGAINST THE TRANSFER OF TENANCY IS ASSESSABLE AS CAPITAL GAIN A ND NOT INCOME FROM OTHER SOURCES. IN THE CASE IN HAND, THE AMOUNT RECEIVED B Y THE ASSESSEE IS AGAINST THE TRANSFER OF CAPITAL ASSET AND, THEREFORE, WE DO NOT FIND ANY JUSTIFICATION IN TREATING THE SAME AS INCOME FROM OTHER SOURCES BY THE AUTHORITIE S BELOW. THE ASSESSEE HAS PRODUCED SUFFICIENT MATERIAL TO ESTABLISH THE TENAN CY RIGHTS AND SURRENDER OF TENANCY RIGHTS AND CREATING THE RIGHT TO HAVE ALTERNATIVE A CCOMMODATION. FINALLY THE ASSESSEE SURRENDERED THE RIGHT IN ALTERNATIVE ACCOM MODATION AND RECEIVED THE AMOUNT IN QUESTION WHICH IS CAPITAL GAIN IN NATURE. THE CIT(A) HAS ALLOWED THE DEDUCTION OF RS. 3,50,000/- FROM THE TOTAL RECEIPT OF RS. 36,00,000/-. SINCE THE INDULAL MEHTA (HUF) 6 | P A G E AMOUNT HAS BEEN INVESTED IN THE PRESCRIBED UNITS U/ S 54EA, THEREFORE, THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 54EA AGAINST THE SAID RECEIPT. 3. IN VIEW OF THE FINDING IN THE ASSESSEES BROTHER (HUF) CASE THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. 4. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 04 -6-2014 SD/- SD/- ( RAJENDRA ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 04-6 -2014 SKS SR. P.S, COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, J BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI