M/s. DBH International (P) Ltd., New Delhi V. ACIT, New Delhi

ITA 911/DEL/2011

• Counselvise Citation: 91120114 RSA 2011
• Duration Of Justice: 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-08-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 17-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROHIT GARG SENIOR
• Assessee Lawyers: JASPAL SINGH SAH NI CAS

Judgement Text

BEFORE THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH B, NEW DELHI BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.911/DEL.2011 (ASSESSMENT YEAR : 2005-06) M/S. DBH INTERNATIONAL (P) LIMITED, VS. ACIT, CIRC LE 10 (1), N 75, CONNAUGHT PLACE, NEW DELHI. NEW DELHI 110 001. (PAN NO.AAACD0085D) (APELLANT) (RESPONDENT) ASSESSEE BY : SHRI RANJAN CHOPRA & JASPAL SINGH SAH NI, CAS DEPARTMENT BY : SHRI ROHIT GARG, SENIOR DR O R D E R PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE ARISES OUT OF THE ORDER OF THE CIT (APPEALS)-XIII, NEW DELHI DATED 10.01.2011 FOR THE ASSESSMENT YEAR 2005-06. THE GROUNDS OF APPEAL READ AS UNDER :- 1. THE LEARNED CIT (A) XIII, NEW DELHI HAS ERRED I N UPHOLDING THE DISALLOWANCE MADE BY THE LD. ASSESSIN G OFFICER OF RS.8,52,391/- BEING EXPENSES INCURRED WI TH RELATION TO TRANSFER OF TENANCY RIGHTS. 2. THE ASSESSEE CRAVES TO ADD OR DELETE ANY GROUND OF APPEAL BEFORE THE APPEAL IS HEARD. 2. THE ONLY ISSUE INVOLVED IN THE APPEAL UNDER CONS IDERATION IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.8,52 ,391/- WHICH THE ASSESSEE CLAIMED AS INCURRED WITH RELATION TO TRANS FER OF TENANCY RIGHTS. ITA NO.911/DEL/2011 2 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MINING OPERATIONS, STATIONERY ITEMS LIKE CARBON PAPERS, ET C. AND ALSO CARRYING ON THE BUSINESS OF COMMISSION AGENT FOR PROCUREMENT OF CORN. IN THE RETURN OF INCOME, THE ASSESSEE DECLARED SALE OF THE TENANC Y RIGHTS AND THE CAPITAL GAINS OF RS.51,47,609/- WERE DECLARED. THIS AMOUNT WAS RECEIVED BY A COMPROMISE DEED AND AS PER THIS COMPROMISE DEED, TH E ASSESSEE WAS TO RECEIVED RS.60 LACS. ASSESSEE RECEIVED ONLY RS.51, 47,609/- AFTER DEDUCTION OF PROPERTY TAX DUES AND ELECTRICITY & WA TER CHARGES. THE AO MADE ADDITION AND CIT (A) HAS CONFIRMED THE SAME BY TREATING THE AMOUNT OF DEDUCTION FOR PROPERTY TAXES AND ELECTRIC ITY & WATER CHARGES OF RS.8,52,391/- AS APPLICATION OF INCOME AND ALSO HEL D THAT THE FULL PRICE MENTIONED IN AGREEMENT FOR THE SALE OF TENANCY RIGH TS HAS TO BE TAKEN FOR COMPUTING THE CAPITAL GAIN. 4. THE LEARNED AR SUBMITTED THAT THE ASSESSEE COMPA NY TAKEN A PREMISES AT RENT AT 543, B.L. SHAH ROAD, KOLKATA FR OM BHARAT CARBON & RIBBON MANUFACTURING CO. LTD. (BCR) AND THESE PREMI SES WERE USED FOR OFFICE PURPOSES. IN THE COURSE OF THE TENANCY, THE ASSESSEE DEVELOPED THE TENANCY RIGHTS IN RESPECT OF THEIR PREMISES. THIS PROPERTY WAS SOLD BY BCR TO SANT NIRANKARI MANDAL (SNM) IN THE YEAR 1981 . THE ASSESSEE COMPANY CONTINUED THE OCCUPATION OF THE PROPERTY. THERE WAS A LONG LITIGATION AND THE MATTER WENT UP TO THE HON'BLE SU PREME COURT. ULTIMATELY THERE WAS A COMPROMISE AGREEMENT DATED 1 3.09.2004 BETWEEN THE ASSESSEE AS A CONFIRMING PARTY AND THE SELLER B CR AND THE PURCHASER SNM. AS PER THIS COMPROMISE AGREEMENT, THE PURCHAS ER SNM AGREES TO PAY RS.60 LACS TO THE ASSESSEE BUT AFTER CLEARING T HE DUES PERTAINING TO THE PERIOD OF OCCUPANCY IN RESPECT OF THE PROPERTY TAX, WATER AND ELECTRICITY CHARGES. THESE EXPENSES WERE NOT PAID BY THE SELLE R BCR. CLEARING OF THESE DUES WAS A CONDITION FOR REALIZATION OF THE A MOUNT FOR TENANCY RIGHTS. ULTIMATELY, THE ASSESSEE RECEIVED THE COMP ENSATION FOR TENANCY ITA NO.911/DEL/2011 3 ONLY OF RS.51,47,609/-. THE PURCHASER DEDUCTED RS. 8,52,391/- TOWARDS THE ARREARS OF PROPERTY TAX AND ELECTRICITY & WATER CHARGES ETC. ETC. THE ASSESSEE HAS DECLARED THIS AMOUNT AS A CAPITAL GAIN . AS PER THE CLAUSES OF THE COMPROMISE DEED, TO EARN THE AMOUNT FOR TENANCY RIGHTS THERE WAS A LEGAL OBLIGATION ON THE ASSESSEE TO CLEAR ALL THE A RREAR DUES IN RESPECT OF PROPERTY TAX, WATER AND ELECTRICITY CHARGES, ETC. SINCE THE AMOUNT PERTAINING TO THESE ITEMS WAS IN BUILT IN THE TOTAL AMOUNT AGREED UPON OF RS.60 LACS. THEREFORE, THE ASSESSEE WAS ENTITLED O NLY TO THE BALANCE AMOUNT TOWARDS COMPENSATION OF TENANCY RIGHTS AND T HE SAME HAS BEEN RECEIVED AND OFFERED FOR TAXATION. IT WAS OBLIGATO RY ON THE ASSESSEE TO CLEAR ALL THESE DUES AND THEN ONLY THE ASSESSEE COU LD HAVE BECOME ENTITLED THE AMOUNT OF RS.60 LACS. THE AMOUNT WAS IN BUILT IN THE TOTAL AMOUNT AGREED, THEREFORE, IT WAS NOT AN APPLICATION OF INC OME BUT IT WAS TO DISCHARGE THE LEGAL OBLIGATIONS AS PER THE TERMS AN D CONDITIONS OF COMPROMISE AGREEMENT. HE THEREFORE PRAYED THAT THE ORDERS OF THE AUTHORITIES BELOW DESERVE TO BE SET ASIDE. 5. ON THE OTHER HAND, LEARNED DR RELIED ON THE ORDE RS OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD BOTH THE SIDES IN DETAIL AND AFTER HEARING BOTH THE SIDES, WE FIND THAT THE ASSESSEE HAD RECEIVED THE A MOUNT AS PER THE DEED OF COMPROMISE AS THERE WAS PROVISION IN DEED TO CLE AR ALL THE DUES TOWARDS PROPERTY TAXES AND ELECTRICITY & WATER CHAR GES. IN THE DEED OF COMPROMISE ITSELF, THERE WAS A CLAUSE WHICH PUTS LE GAL OBLIGATION ON THE ASSESSEE TO CLEAR ALL THE PRIOR PERIOD DUES OR CHAR GES. AFTER CLEARING ALL THESE, THE ASSESSEE WAS ENTITLED THE AMOUNT AGREED IN THE DEED OF COMPROMISE. THUS, THIS AMOUNT WAS LEGAL OBLIGATION OF THE ASSESSEE AS PER THE TERMS OF DEED OF COMPROMISE AND WITHOUT MEE TING OUT THESE TERMS, THE ASSESSEE WAS NOT ENTITLED TO RECEIVE THE COMPENSATION TOWARDS THE TENANCY RIGHTS. THUS, THE AMOUNT WHICH COULD B E ATTRIBUTABLE TOWARDS ITA NO.911/DEL/2011 4 SALE OF TENANCY COULD BE ONLY RS.60 LACS MINUS SUCH OUTSTANDING AMOUNTS. IN OUR CONSIDERED VIEW, THE AMOUNT PAID TO CLEAR THESE DUES CANNOT BE THE APPLICATION OF INCOME EARNED BY SALE OF TENANCY RIGHTS. RATHER THESE WERE THE EXPENSES WHICH WERE NECESSARY TO EARN THE COMPENSATION ON THE TRANSFER/ TENANCY RIGHTS. THUS , THESE WERE THE EXPENDITURE INCURRED IN CONNECTION WITH THE TRANSFE R OF THE TENANCY RIGHTS WHICH ARE DEDUCTIBLE AS PER LAW. KEEPING THESE FAC TS IN VIEW, WE SET ASIDE THE ORDER OF AUTHORITIES BELOW AND ALLOW THE ASSESSEES APPEAL. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 26 TH DAY OF AUGUST, 2011. SD/- SD/- (RAJPAL YADAV) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : THE 26 TH DAY OF AUGUST, 2011 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-XIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT