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TMI Blog2013 (2) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... le to tax at all and ought to have directed Assessing Officer to reduce the same from total income." 3. Briefly stated relevant facts of the case are that assessee owned 'Vallabh Niwas' in an HUF status and occupied part of the property and the other part was rented to Smt. Bayabhai Velji in the year 1962. Smt. Damyanti Sanatkumar Shah, being the daughter and an accomplice of Smt. Bayabhai Velji, inherited the tenancy rights over the said rented property on the demise of her mother in 1986. Thus, Smt. Damayanti S. Shah acquired the tenancy rights and surrendered the said rights and the property in favour of the land lords to facilitate renting of the said property to the new tenants namely Smt. Akshita B. Haria and Shri Bhavesh K. Haria. In this connection, the 'new tenants' paid a sum of Rs. 14,74,000/- as a consideration to Smt. Damayanti S. Shah vide the cheques dated 21.6.2005. They also paid a sum of Rs 7.26 lakhs to the assesse vide two cheques dated 21.6.2005 for Rs. 2,63,000/- each. Assessee accepted to surrender of the tenancy rights and possession of the said property by the new tenants for a monthly rent of Rs.129.34 paisa and accepted a sum of Rs. 7,26,000/- from the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or consenting for transfer of tenancy to the new tenant, the sum received is not for surrender of tenancy and therefore, the same amount is not a capital receipt and consequently, the claim of exemption u/s 54EC does not arise. Finally, AO held that a sum of Rs. 7,26,000/- received from Akshita B. Haria and Shri Bhavesh K. Haria is nothing but income for the HUF chargeable to tax under the head "income from other sources". Thus, AO rejected the claim of exemption u/s 54EC of the Act. Aggrieved with the above decision of AO, assessee filed appeal before the first appellate authority. 4. Before the first appellate authority, assessee submitted that consent of the assessee is mandatory for the Original tenant with tenancy rights to allow the new tenant to enjoy the right of residence. Thus, the assesse gave up some of the bundle of rights attached to the said property, capital asset. Assessee relied on the judgments in the cases of CIT vs. D.P. Sandu Bros. Chembur (P) Ltd. (2005) 273 ITR 1 (SC) and Cadell Weaving Mill Co. P. Ltd. Vs Commissioner of Income-tax (2001) 249 ITR 265 (Bom) for the proposition that the amount received on surrender of tenancy rights as a capital receipt is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for transfer of residence in favour of the new tenant. Therefore, the consideration received the assessee is in the context of surrender of tenancy rights, which is a capital receipt and therefore, the claim of the assessee is valid. Right of residence granted to the new tenant against which assessee received a sum of Rs. 7,26,000/-, constitutes a capital asset, therefore, the gains made by the assessee is not 'windfall gain'; but it rightly attracts the provisions relating to capital gains under section 45 of the Act. Further, referring to the Tripartite Agreement named Declaration & Indemnity among the assessee, the original tenant - Smt. Damyanti S. Shah and the new tenants ie Smt. Akshita B. Haria and Shri Bhavesh K. Haria, Ld Counsel referred to para 4 of the said agreement and mentioned that Smt. Damyanti S. Shah is a sole owner of the tenancy rights and she surrendered the flat to the land lords including the tenancy rights. Ld Counsel also referred to the contents of para 6 of the said agreement. Ld Counsel relied on various decisions to suggest that the amount received by the assessee is a capital receipt taxable under the head "capital gains". 7. On the other hand, Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord for surrender of the tenancy rights; it is the land lord who received the sum of Rs 7.26 lakhs; the new tenant made the impugned sum to the land lord as well as the original tenant; it is known as to how the receipt in the hands of the original tenant was treated by the concerned AO etc. The case of the Revenue is that the assessee has not received the tenancy rights from the original tenant and assessee has not paid the consideration for receiving the same. Therefore, assessee is not the holder of tenancy rights and it only holds the ownership rights. Therefore, the consent given by the assessee is merely a windfall gains, which is taxable under the head 'income from other sources'. Per contra, the case of the assessee is that the clause 4 of the tripartite agreement enables the surrender of tenancy rights by the original tenant and the original tenant is divested of the said rights. Therefore, the gains made by the assessee is in the context of the surrender of certain capital rights attached to the immovable property and therefore the gains are not windfall gains but they are capital gains attracting the provisions relating to 'capital gains'. 9. Thus the parties in the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lieu of the surrender of the said tenancy rights by the tenant and certainly the land lords does not receive, which is the case in the instant appeal. Therefore the taxation principles relating to the tenancy rights should not apply in this case. 11. Now we shall examine if the assessee factually received the all rights over the property including the tenancy rights. Clause 4 of the agreement indicates that the Smt Shah surrendered the tenancy rights along with the property to the assessee. If that is true, where is the need for Smt Shah to be the signatory to the agreement in giving the property on monthly rent to the new tenants and why should there be a tripartite agreement? Letting off the impugned property becomes the matter for settlement between the landlord and the new tenant as per the terms and conditions of the land lord, which is not the case here. Further, unanswered questions relates to why the monthly rental and rental advance are so abnormally minimal ie rent of Rs.129.34 paisa per month and sum of Rs. 390/-only as interest from security deposit and why the sum of Rs 7.26 lakhs was paid to the land lord by the new tenant? Clause 4 gives the answer and the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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