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2016 (5) TMI 1532 - AT - Income TaxDeduction u/s 54EC - CIT(A) directing AO to assess premium received by appellant company on transfer of tenancy right of the shops from one tenant to another as capital gains - Whether premium received by the assessee company on transfer of tenancy rights of the shops from one tenant to another should be treated as income from other sources and not as capital gains as claimed by the assessee ? - HELD THAT - We agree with the observations of the CIT(A) that during the course of time the assessee acquired bundle of rights with respect to the impugned shops. These rights include inter-alia rights of possession in tenancy. As per section 2(14) capital asset means property of any kind held by an assessee whether or not connected with his business or profession. A perusal of this definition shows that the legislature has intended to define the term capital asset in the widest possible manner. This definition has been curtailed to the extent of exclusions given in section 2(14) itself which include stock-in-trade and personal effects. The impugned asset does not clearly fall in the aforesaid exclusions given in section 2(14). The bundle of rights acquired by the assessee is undoubtedly valuable in terms of money - The said tenancy rights shall form part of a capital asset in the hands of the assessee and therefore any gains arising there from would be assessable under the head Income from capital gains eligible for deduction u/s 54EC - Decided against revenue.
Issues:
Characterization of premium received on transfer of tenancy rights as capital gains or income from other sources. Analysis: 1. The appeal was filed by the revenue against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2009-10. The revenue contended that the premium received by the assessee company on the transfer of tenancy rights should be treated as income from other sources, not as capital gains as claimed by the assessee. The revenue also challenged the action of allowing deduction u/s 54EC of the Act by the CIT(A). 2. The revenue raised the issue that the premium received by the assessee should be considered as income from other sources and not as capital gains. The Assessing Officer held that there was no transfer of capital asset as the assessee remained the owner of the shops even after the transfer of tenancy rights. The Assessing Officer disallowed the deduction claimed by the assessee u/s 54EC, stating that the premium should be taxed as income from other sources. However, the CIT(A) accepted the submissions of the assessee and held that the premium was to be assessed under the head "Income from capital gains." 3. The CIT(A) considered the facts of the case and observed that the appellant was the owner of the shops and received premium from old tenants in lieu of giving consent for the transfer of possession to new tenants. The CIT(A) analyzed the nature of the premium received and concluded that it was on account of the transfer of a capital asset, i.e., the right of consent connected to the shops. The CIT(A) explained that the right of consent was a property in the hands of the appellant and, therefore, the premium received should be assessed as capital gains, eligible for deduction u/s 54EC. 4. The ITAT upheld the order of the CIT(A) and dismissed the appeal of the revenue. The ITAT agreed with the CIT(A) that the bundle of rights acquired by the assessee, including the right of possession in tenancy, constituted a capital asset. The ITAT noted that the definition of "capital asset" is broad and includes any property held by an assessee. Therefore, the ITAT concluded that the premium received on the transfer of tenancy rights should be assessed under the head "Income from capital gains" and allowed the deduction u/s 54EC. 5. In conclusion, the ITAT affirmed the decision of the CIT(A) and upheld that the premium received by the assessee on the transfer of tenancy rights should be treated as income from capital gains, eligible for deduction u/s 54EC. The ITAT found the findings of the CIT(A) to be well-reasoned and in accordance with the law and facts of the case, leading to the dismissal of the revenue's appeal.
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