George John, Bangalore V. ITO, Bangalore

ITA 889/BANG/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7766 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 12-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Keywords: Capital receipt
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO. 889/BANG/2011 (ASST. YEAR 2006-07) SHRI GEORGE JOHN, NO.201, SILVERDALE, # 5, HUTCHINS ROAD, BANGALORE-560 005. . APPELLANT VS. THE INCOME-TAX OFFICER, WARD-1(2), BANGALORE. . RESPONDENT APPELLATE BY : SHRI S PARTHASARATHI, ADVOCATE RESPONDENT BY : SMT. SUSAN THOMAS JOSE, JCIT DATE OF HEARING : 04-06-2012 DATE OF PRONOUNCEMENT : -06-2012 O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE. THE APPEAL I S DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) I AT ITA NO.889/B/11 2 BANGALORE DATED 28.4.2010. THE APPEAL ARISES OUT O F THE ASSESSMENT COMPLETED U/S 143(3) OF THE INCOME-TAX ACT, 1961. 2. THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE CI T(A) IN UPHOLDING THE ORDER OF THE AO TREATING RS.8 LAKHS R ECEIVED BY THE ASSESSEE ON RELINQUISHMENT OF TENANCY RIGHTS AS I NCOME FROM OTHER SOURCES AND NOT AS CAPITAL GAINS OFFERED BY THE ASSESSEE AND IN NOT ALLOWING THE RELIEF U/S 54EC OF THE INCOME-TAX ACT, THOUGH THE ASSESSEE HAS DEPOSITED THE SAID AMOUNT IN SPECIFIED INVESTMENT IN TIME. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS AN INDIVIDUAL HAVING INCOME FROM OTHER SOURCES AND CAPITAL GAINS. FOR THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE FILED HIS RETURN OF I NCOME ADMITTING INCOME OF RS.1,49,248/-. DURING THE ASSESSMENT PRO CEEDINGS U/S 143(3) OF THE INCOME-TAX ACT, THE AO OBSERVED THAT AS PER THE INFORMATION AVAILABLE FROM THE ANNUAL INFORMATION R ETURN FILED WITH THE DEPARTMENT, THE ASSESSEE HAD MADE AN INVESTMENT OF RS.8 LAKHS IN NABARD CAPITAL GAINS BONDS. THE ASSESSEE WAS REQUES TED TO SUBMIT THE DETAILS OF THE SOURCE FOR THIS INVESTMENT, AS N O MENTION OF THE SAME WAS MADE IN THE RETURN OF INCOME FILED FOR THE ASSESSMENT YEAR ITA NO.889/B/11 3 2006-07. IN RESPONSE TO THE SAME, THE ASSESSEE VID E LETTER DATED 8.1.2008 EXPLAINED THAT THE ASSESSEE WAS A PARTNER IN A FIRM CALLED GEORGE NAINAN & CO., AND THAT THE ASSESSEE HAS SUR RENDERED HIS TENANCY RIGHT ON THE PROPERTY TO THE OTHER PARTNER OF THE FIRM AND THAT ON RECEIVING AN AMOUNT OF RS.8 LAKHS FROM HIM DURIN G THE RELEVANT PREVIOUS YEAR, THE AMOUNT WAS INVESTED IN NABARD CA PITAL GAINS BONDS. THE ASSESSEE ALSO SUBMITTED COPIES OF THE R ELEVANT DOCUMENTS. AFTER PERUSAL OF SAID DOCUMENTS, THE AO OBSERVED TH AT THE OWNERS OF THE PROPERTY HAD ORIGINALLY LET OUT THE PROPERTY I N MUMBAI TO ONE MR. LOUIS TAURO WHO SURRENDERED HIS TENANCY RIGHTS ON 1 0.10.82 AND THE LANDLORD HAD ENTERED INTO AN AGREEMENT WITH GEORGE JOHN AND SHRI SUNNY NAINON ON 3.10.1982 FOR THE TENANCY. IT WAS ALSO OBSERVED THAT THOUGH THE OCCUPATION OF THE PREMISES WAS SPILT BE TWEEN THE PARTNERS NAMELY SHRI GEORGE JOHN AND SHRI SUNNY NAINON, THE TENANT OF THE PROPERTY WAS IN FACT THE FIRM AND NOT THE INDIVIDUA L PARTNERS. HE, THEREFORE, HELD THAT THE ASSESSEE WAS NOT THE TENAN T AND, THEREFORE, THERE ARISES NO QUESTION OF RELINQUISHMENT OF TENAN CY RIGHT TO OTHER PARTNER FOR ANY CONSIDERATION. HE, THEREFORE, DID NOT ACCEPT THE ASSESSEES OFFERING OF INCOME AS CAPITAL GAINS AN D TREATED THE SAME AS INCOME FROM OTHER SOURCES AND BROUGHT IT TO TA X AND THUS DID NOT GIVE ANY BENEFIT U/S 54EC OF THE ACT. ITA NO.889/B/11 4 4. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT(A), WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE, WHILE REIT ERATING THE SUBMISSIONS MADE BY THE ASSESSEE BEFORE THE AO, SUB MITTED THAT THE ASSESSEE WAS A TENANT OF MEZZANINE FLOOR OF SHOP NO.15 OF PIPLEWALA BUILDING, SHAHEED BHAGAT SINGH ROAD, COLABA, BOMBAY FROM1964 TO OCTOBER 1982. HE SUBMITTED THAT THE ASSESSEE CARRIE D ON THE BUSINESS OF AN ADVERTISING AGENT AT THIS PREMISES AND THAT G ROUND FLOOR OF SHOP NO.15 WAS OCCUPIED BY ONE SHRI SONNY NAINAN WHO W AS CARRYING ON CERAMICS BUSINESS. IT WAS SUBMITTED THE ENTRANCE TO BOTH THE FLOORS WAS A COMMON DOOR AND THAT BOTH THE ASSESSEE AND SHRI SONNY NAINAN HAD TAKEN THE PREMISES ON RENT FROM MR. LOUI S TAURO. IT WAS SUBMITTED THAT THERE WAS A DISPUTE BETWEEN THE LAND LORDS AND SHRI LOUIS AND AS PER THE SETTLEMENT OF DISPUTE BET WEEN THEM, THE TENANT HAD UNCONDITIONALLY SURRENDERED HIS TENANCY RIGHT TO THE LANDLORDS WITH AN OPTION TO THE LANDLORDS TO ENTER INTO SEPARATE AGREEMENTS WITH HIS TENANTS I.E ASSESSEE HEREIN AND SHRI SUNNY NAINON AND THEREBY THE ASSESSEE AND SHRI SUNNY NAINAN HAD BECOME PROTECTED LICENSEES OF SHOP NO.15 OF PIPEWALA BUILI DNG. IT WAS ITA NO.889/B/11 5 SUBMITTED THAT SINCE THE BOMBAY RENT CONTROL ACT DI D NOT PERMIT JOINT TENANCY, IN ORDER TO RETAIN THE TENANCY RIGHT OF TH E TWO UNITS OF SHOP NO.15, THE ASSESSEE AND SHRI SUNNY NANINAN DECIDED TO FORM A PARTNERSHIP FIRM TO HOLD THE TENANCY RIGHT AS A SIN GLE TENANT AND THUS PARTNERSHIP FIRM WAS FORMED BY A DEED OF PARTNERSHI P DATED 3.10.1982 IN THE NAME AND STYLE OF M/S GEORGE, NAINAN AND CO. IT WAS SUBMITTED THAT THOUGH THE BUSINESS OF THE FIRM WAS MENTIONED AS OF ESTATE AGENTS, THE FIRM NEVER CARRIED OUT ANY BUSINESS AND AS PROV IDED IN THE PARTNERSHIP DEED, THE TENANCY RIGHT OVER THE SHOP N O.15 COULD NOT BE SEPARATED WITHOUT MUTUAL CONSENT. HE SUBMITTED TH AT THE ASSESSEE, DISCONTINUED HIS BUSINESS AND SETTLED DOWN IN BANGA LORE AND, THEREFORE, PARTNERS DECIDED TO DISSOLVE THE PARTNER SHIP FIRM IN ACCORDANCE WITH THE TERMS OF PARTNERSHIP AND AS PE R MEMORANDUM OF UNDERSTANDING DATED 20.12.2001, THE ASSESSEE AGREED TO SURRENDER HIS SHARE OF TENANCY RIGHT TO SHRI SUNNY NAINON FOR A S UM OF RS.10 LAKHS AS CONSIDERATION. HE SUBMITTED THAT THE ASSESSEE R ECEIVED A CASH OF RS. 2 LAKHS ON THE DATE OF THE AGREEMENT, WHILE RS. 8 LAKHS WAS RECEIVED DURING THE PREVIOUS YEAR 2005-06 RELEVANT TO THE ASSESSMENT YEAR 2006-07 AND THE SAID AMOUNT HAS BEEN INVESTED IN NABARD BOND AND CLAIMED EXEMPTION U/S 54C OF THE ACT. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PARTNERSHIP FIR M EXISTED ONLY ON ITA NO.889/B/11 6 PAPER FOR THE PURPOSE OF SECURING TENANCY RIGHT OVE R THE PROPERTY IN MUMBAI AND NOT WITH ANY INTENTION OF CARRYING ON AN Y BUSINESS. HE DREW OUR ATTENTION TO VARIOUS CLAUSES OF PARTNERSHI P DEED TO DEMONSTRATE THAT THOUGH IT IS MENTIONED THAT THE TE NANT IS THE PARTNERSHIP FIRM, THE INDIVIDUAL RIGHT OF EACH OF T HE PARTNER OVER THE RESPECTIVE FLOORS AND TO CARRY ON RESPECTIVE BUSIN ESS WAS RECOGNIZED IN THE PARTNERSHIP DEED. THUS ACCORDING TO HIM, TH E ASSESSEE AND HIS PARTNER EXERCISED THEIR INDIVIDUAL TENANCY RIGHT OV ER THE PROPERTY WHICH IS SURRENDERED BY THE ASSESSEE TO THE OTHER P ARTNER AND, THEREFORE, AMOUNT RECEIVED FOR RELINQUISHMENT OF TE NANCY RIGHT WOULD AMOUNT TO CAPITAL RECEIPT. EVEN ASSUMING THAT THE A MOUNT IS TAXABLE, THEN AS REGARDS THE YEAR OF TAXABILITY, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER PRINCIPLES OF MERCAN TILE SYSTEM OF ACCOUNTING, THE SUM OF RS.8 LAKHS ALSO ACCRUED TO T HE ASSESSEE IN THE YEAR OF ENTERING INTO MOU I.E FOR THE ASSESSMENT YE AR 2002-03 AND NOT IN THE ASSESSMENT YEAR 2006-07, WHICH IS THE YE AR OF RECEIPT. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THA T IF THE SUM OF RS.8 LAKHS IS TO BE CONSIDERED AS CAPITAL GAINS FOR THE ASSESSMENT YEAR 2006-07 ON THE BASIS OF RECEIPT, THEN HE SHOULD BE ALLOWED THE EXEMPTION U/S 54EC OF THE INCOME-TAX ACT, AS THE AS SESSEE HAS ITA NO.889/B/11 7 DEPOSITED THE SAID AMOUNT IN THE SPECIFIED BONDS AS REQUIRED UNDER LAW. 6. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE O RDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE CLAUSES IN THE PARTNERSHIP DEED CLEARLY DEMONSTRATE THAT THE TENANT WAS THE FI RM AND NOT THE INDIVIDUAL PARTNERS. SHE SUBMITTED THAT THE INTENT ION OF THE FIRM WAS TO CARRY ON ESTATE BUSINESS AND THERE WAS COMMON IN TENTION TO CONTRIBUTE CAPITAL AND SHARE THE REVENUE IN THE SAM E PROPORTION. ACCORDING TO HER IN SUCH A SITUATION, THE PARTNERS HIP EXISTED AND TENANT WAS THE FIRM AND NOT THE INDIVIDUAL PARTNERS . SHE SUBMITTED THAT WHEN THE INDIVIDUAL PARTNERS DID NOT HAVE ANY RIGHT OF TENANCY, THERE IS NO QUESTION OF ANY RELINQUISHMENT OF SUCH RIGHT RESULTING IN ANY CAPITAL RECEIPT. THUS ACCORDING TO HER, THE AMO UNT RECEIVED BY THE ASSESSEE WAS IN FACT INCOME FROM OTHER SOURCES AS RIGHTLY BEEN ASSESSED BY THE AO. AS REGARDS THE YEAR OF TAXABI LITY, THE LEARNED DR SUBMITTED THAT THE ASSESSEE HAS ITSELF OFFERED I NCOME ON RECEIPT BASIS IN THE ASSESSMENT YEAR 2006-07 AND, THEREFORE , THE SAME HAS TO BE CONSIDERED IN THE ASSESSMENT YEAR 2006-07 ONLY A ND NOT IN THE ASSESSMENT YEAR 2002-03 AS SUBMITTED BY THE ASSESSE E. SHE ALSO SUBMITTED THAT THE ASSESSEE HAS NOT RAISED ANY GROU ND OF APPEAL ITA NO.889/B/11 8 RELATING TO THE YEAR OF TAXABILITY EITHER BEFORE TH E CIT(A) OR BEFORE THE TRIBUNAL AND THEREFORE, IT CANNOT BE ADJUDICATED AT THIS STAGE. 7. HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDE RED THEIR RIVAL CONTENTIONS, WE FIND THAT THE QUESTION BEFORE US FO R CONSIDERATION IS WHETHER THE ASSESSEE POSSESSED ANY RIGHT OF TENANCY OF THE PROPERTY IN MUMBAI. IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS IN POSSESSION OF PART OF THE PROPERTY FROM 1964 TO 2002. IN 1964, T HE ASSESSEE HAD TAKEN THE PROPERTY ON RENT FROM THE TENANT MR. TAUR O AND ON HIS SURRENDERING HIS RIGHT, BECAME THE PROTECTED LICENC E OF THE LANDLORDS. THUS, THE RIGHT AND INTEREST OF THE ASSESSEE OVER T HE PROPERTY CONTINUED EVEN AFTER THE SURRENDER OF THE RIGHT BY MR. TAURO. THE LANDLORDS BY EXTENDING THE LEASE IN FAVOUR OF THE OCCUPANTS OF T HE PROPERTY THOUGH IN A SEPARATE NAME, HAVE IN FACT RECOGNIZED THIS RI GHT OF PROTECTED LICENCEES AND HAVE ALSO RECOGNIZED THE INDIVIDUAL B USINESS AND THEIR OCCUPATION OF THE RESPECTIVE FLOORS. IT IS NOW SET TLED POSITION THAT IT IS THE ESSENCE OF THE CONTRACT AND NOT THE NOMENCLATUR E WHICH DECIDES THE NATURE OF A TRANSACTION AND THE STATUS OF THE P ARTIES TO THE TRANSACTION. THOUGH IN THE LEASE DEED, THE LESSEE IS SHRI GEORGE NAINON AND CO., IT IS IN FACT THE PARTNERS WHO ARE OCCUPYING THE PREMISES INDIVIDUALLY. IT IS ALSO NOT IN DISPUTE T HAT EVEN AFTER 1982, ITA NO.889/B/11 9 THE PROPERTY WAS NOT OCCUPIED JOINTLY AND SEVERALLY BUT WAS OCCUPIED INDIVIDUALLY AND SEPARATELY. THUS, THE ADVANTAGE O F COMMON OCCUPATION AND ENJOYMENT IS ABSENT. IT IS ALSO WOR TH NOTING THAT IT WAS NOT NECESSARY TO MENTION THAT THE TENANCY RIGHT OVE R THE PROPERTY COULD NOT BE SEPARATED WITHOUT MUTUAL CONSENT HAD I T BEEN THE RIGHT OF THE FIRM. THUS THE INTENTION OF THE PARTIES TO HOL D THE RIGHT OF TENANCY OVER THE RESPECTIVE PORTION OF THE PROPERTY WAS CLE AR FROM THE CLAUSES OF THE LEASE DEED ITSELF. THUS IN LINE WITH THE SA ID CLAUSE, WHEN THE ASSESSEE RELINQUISHED HIS RIGHT, IT HAS RESULTED IN CAPITAL RECEIPT AND THUS THE ASSESSEE HAS RIGHTLY CLAIMED IT TO BE A CA PITAL RECEIPT AND IS ALSO ELIGIBLE FOR DEDUCTION U/S 54EC OF THE ACT FOR THE AMOUNT INVESTED IN NABARD CAPITAL GAINS BONDS. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12TH JUN , 2012. SD/- SD/- (JASON P BOAZ) (MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 12/06/2012 ITA NO.889/B/11 10 COPY TO : 1.THE ASSESSEE 2.THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SENIOR PRIVATE SECRETARY , ITAT, BANGALORE.