TMI Blog2012 (10) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... tion received from M/s. Veera &. Gala Developers on surrender of tenancy rights is right - order of the CIT(A)is sustained - Decided in favor of assessee. - I.T.A. NO. 4167/Mum/2008 - - - Dated:- 13-6-2012 - SHRI R. S. SYAL, SHRI VIVEK VARMA, JJ. Appellant by : Mr. Pravin Verma. Respondent by : Mr. S. Subramanian. O R D E R Per VIVEK VARMA, JM: The appeal filed by the department arises from the order of the CIT(A) XXIII, Mumbai dated 25-03-2009. 2. The department has raised the following grounds of appeal: 1. On the facts and in the circumstances of the case and in law the Ld.CIT(A) erred in holding that consideration of Rs. 2.5 crores on surrender of tenancy rights belongs to the partners and not to the assessee firm inspite of the fact that the assessee firm was occupying the premises and paying rent. 2. On the facts and in the circumstances of the case and in law, the ld.C1T(A) erred in deleting the addition made by the A.O., of Rs.2,50,00,000/- as long term capital gain on account of compensation received from M/s. Veera . Gala Developers on surrender of tenancy rights. 3. The solitary issue in these grounds pertains to whether the tenancy righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on the business from the premises. 6. In the assessment proceedings, the assessee submitted that since 04-04-1990, the business was being carried on between Mr. Sugnomal Rawtnani, Mrs. Mira Rawtnani, Mrs. Bharti Rawtani, Mr. Kamal Rawtani and Mr. Kumar Rawtani, and as per clause 13 of the deed of partnership, the tenancy rights in the said property shall belong to them in individual capacity . 7. The partners on receipt of their shares in surrender of tenancy rights, invested the same in NABARD Bonds. As an abandoned caution, the assessee took on alternative plea before the AO, that if in case, the facts does not impress the AO then the benefits claimed by the individuals u/s 54EC be extended to the firm. 8. On considering the above arguments, the AO, rejected the claim made by the assessee on both the grounds, wherein the AO held that it was the firm, M/s Bombay Electric Laundry who was the tenant and not the five partners, who were claiming to be having exclusive tenancy rights, he therefore held that the amount of Rs. 2.50 crores received as compensation against the surrender of tenancy rights was the income of the firm i.e. M/s Bombay Electric Laundry and not its partn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the existing partners stepped in, i.e. Meera L. Rawtani, Bharatibai R. Rawtani, Sugnomal A. Rawtani, Kumar Ramchand and Kamal Ramchand. The DR also took us through the Partnership Deeds which came into existence from time to time and pointed out that in the first partnership deed dated 22-09-1960, clause 5 read. the assets and liabilities taken over by the partnership firm shall be as per schedule attached herewith . He pointed out that in the deed dated 13-07-1964, clause 5 read, It is hereby agreed between the parties that the parties of the first and second part shall make available to the new partnership the premises inside Rajkamal Studios Govt. Gate Road, Parel, Bombay, but tenancy in respect thereof shall remain with them . The DR then went on to read that tenancy in respect thereof shall remain with partners . The DR in support of his arguments referred to various case laws as under: a) Sri Hari Lodge v/s CIT, 172 ITR 386 (Ker), wherein the Hon'ble Kerala High Court held as under: One of the partners sold his share in the assets of the firm on 8th April, 1974 to the purchaser The three remaining partners executed a release deed in favour of the purchaser on 17t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the person claiming the benefit must have realised profit or gain by the transfer of a capital asset. In this case, the capital gain accrued to the firm and, on such accrual, it became part of the firm s total income just like any other receipt that satisfied the attributes of income as understood in law. What the partner S was entitled to get at the end of the year was his share in the divisible profits of the firm, and not a share in each category of income derived by the firm. It cannot, therefore, be held that S realised capital gains on the sale of a building used for his residence so as to attract s. 54(i); and the claim him for deduction of Rs. 20,000 in computing his taxable income for the relevant year has only to be repelled. In a case where a partner of a firm purchases a residential property out of the share in the profits firm which earned capital gains on sale of a house property belonging to the firm, the partner would entitled to a deduction under s. 54(i). Capital gains Chargeability Assessee-firm purchasing a house property for residential use b partners and subsequently selling the same A firm is treated distinct from its owners for purposes of IT Act Firm c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. After her death the will was probated. Bai Maniben was not a contractual tenant but her right to tenancy was only a right protected by the Bombay Rent Control Act. The respondent instituted a suit in Bent Suit No. 47 of 1975 on the file of the Small Causes Court at Baroda for recovering vacant possession of the said building contending that the petitioner was not a tenant and could not continue any longer in it. By way of defense the petitioner set up the will and asserted that he had become a tenant thereunder and could not be evicted from the premises. The Small Causes Court agreeing with the petitioner that h had acquired the tenancy right under the will dismissed the suit The Extra Assistant Judge, Baroda a11owed the landlord s appeal holding that the tenancy right could not have been bequeathed under the will, in favour of a third party like the petitioner who was not a member of the tenant s family doing business with the tenancy before her death. Consequently the petitioner was directed to deliver possession of the premises to the landlord. The petitioner preferred Civil Revision Application NO. 1500 of 2 1978 in the High Court of Gujarat against the said judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T decides to take a contrary view to the view of the CIT(A). On enquiry from the Bench, as to what actually was acquired by M/s Assandas S. Rawtnani and Mrs. Vishnibai S. Rawtnani, the A.R. pointed out that it was only the tenancy that was acquired and not the ownership vide the Deed of Conveyance executed on 27-07-1957. The A.R. pointed out that vide deed of conveyance on 27-07-1957, the rights, titles and interests of Shri Yusuf Ismail in the business concern with stock-in-trade, machinery etc. and tenancy rights formerly known as Mohamed Issac Ibrahim Laundry known as Bombay Electric Laundry were sold to Mr. Assandas Shamndas Rawtani. He further pointed out that vide letter dated 21.12.1959, Managing Officer, Office of Deputy Custodian of Evanesce Property informed/directed Mr. V. Shantaram, owner of the property where M/s. Bombay Electric laundry was running that, You, are, therefore, requested to treat the purchases as your direct tenants. Further, you are, requested to recover the rent direct from the tenants and issue rent receipts in their names. Copy forwarded to Shri Assandas S. Rawtani and Smt. Uishnibai S. Rawtani . The AR submitted that the property in question was gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the five individuals who are the present partners in the firm. 18. We have gone into the history and we find that the owner of the entire premises, Mr. V. Shantaram, had given on rent a portion of the premises to Mr. Yusuf Ismail, who was conducting his business in the name and style of M/s Bombay Electric Laundry, well before the partition took place in 1947. On the formation of Pakistan Mr. Yusuf Ismail migrated to Pakistan leaving behind the premises and business thereon. This premises and business was taken over by the Custodian of Evacuee Properties, who in 1957 sold the rights, titles and interests of Mr. Yusuf Ismail in the business concern and stock-in-trade and tenancy rights formerly known as Muhamed Issac Ibrahim Laundry known as Bombay Electric Laundry, to Mr. Assandas Shamandas Rawtani vide Conveyance Deed dated 27-07-1957. On 21-12-1959, Deputy Custodian of Evacuee Properties wrote to the owner Mr. V. Shantaram to treat the purchasers (i.e. Mr. Assandas S. Rawtani and Mrs. Vishnibai S. Rawtani) as his direct tenants. Nowhere, do we see that M/s Bombay Electric Laundry is considered as the tenant, even if we go into the history. 19. Coming to the last Partnership ..... X X X X Extracts X X X X X X X X Extracts X X X X
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