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2016 (1) TMI 448 - ITAT MUMBAI

2016 (1) TMI 448 - ITAT MUMBAI - TMI - Long term capital gain in respect of leasehold rights - Held that:- The statutory definitions in other legislations explained that tenancy right includes lease right. Thus tenancy right is a wider and broader term capable of conceiving similar and such rights. Accordingly, we do not find any infirmity in the order of lower authorities for taxing the capital gains earned on transfer of leasehold rights. So far as expenses incurred on improvement is concerned .....

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ital gains. Accordingly, we are of the opinion that it is not a fit case for impose the penalty u/s 271(1)(c) of the Act. - I.T.A. No.3708/Mum/2014, I.T.A. No.1250/Mum/2013, I.T.A. No.4985/Mum/2014, I.T.A. No.4986/Mum/2014, I.T.A. No.179/Mum/2013, I.T.A. No.3709/Mum/2014 - Dated:- 21-10-2015 - SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER For The Assessee : Shri Neelkanth Khandelwal & Ms. Hetal Panchal Respondent : Shri Aarsi Prasad (D.R) ORDER PER R.C. SHARMA, .....

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Act, 1961. First, we shall take up assessee‟s appeals in ITA No. 1250/Mum/13 & ITA No. 179/Mum/13 for A.Y. 2010-11. 3. These are the appeals filed by the assessee against two separate orders of ld. CIT(A) - 25 dated 3-12-2012 and 29-11-2012 for the A.Y. 2010-11 in the matter of order passed u/s 143(3) of the Income Tax Act, 1961. 4. Common grounds are involved in both these appeals, therefore, these were heard together and disposed of by this consolidated order for the sake of convenie .....

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was also paid on such capital gains. The return was processed u/s 143(1) of the Act determining refund of ₹ 1,98,47,869/- thereafter return was taken under scrutiny and during the course of scrutiny proceedings, the A.O. observed that the assessee had paid advance tax of ₹ 1.99 crores at the fag end of the year, however, no corresponding income was offered in the return of income. On perusal of statement of income, the A.O. observed that the assessee had shown long term capital gain .....

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e computation provisions together constitute an integrated code. Where there is a case to which the computation provisions can not apply at all it is evident that such a case was not intended to fall within charging section. 6. After considering the assessee‟s contention, the A.O. observed that provisions of section 55(2)(a) inserted by Finance Act 1994 w.e,f. 01/04/1995 which says that cost of acquisition in relation to certain capital assets enumerated in the provision itself is to be ta .....

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ty reported in 128 ITR 294 is no longer applicable in view of the amendment made as above for which the Assessee did not feel tired in citing his various submissions. Further, the Assessee in his submission also stated that the provision of section 55(2)(a) of the IT Act is not applicable riding on the fact that the term leasehold right is not specifically mentioned in the provision u/s 55(2)(a) of the IT Act. The Assessee went on arguing that leasehold right is different than the tenancy right .....

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that the wording of leasehold right must have been embedded in the word tenancy right specially mentioned in section 55(2)(a) of the Act. By the impugned order the ld. CIT(A) confirmed the action of A.O. against which assessee is in further appeal before us. 8. Contention of ld. AR was as under :- 1.1 Section 55(2)(a) is a deeming provision and hence, has to be strictly construed 1.2 Interpretation of legal terms used in statute - (1958) 9 STC 353 (SC); AIR 1958 (SC) 560 - refer written submiss .....

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ion below sub-section (5A) - leasehold rights or other right of occupancy in any land (e)Section 139(1) first proviso (i) - ownership, tenancy or otherwise (f)"Leasehold" - Section 269UE(l), proviso Section 35D(3) - Explanation (g)"Tenancy" - section 1941 Explanation (i) -lease, sub-lease, tenancy (h)"Lease" Section 269UA(t) Section 44AE Section 696A(a)(1)(iii) (i)Section 54D, 54G - "right in land" - refer written submissions para 1.4 and 1.5 (j)Section 92 .....

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, consider this that the words "tenancy rights" in section 55(2)(a) is not added with the phrase "rights of similar nature" or "by whatever name called" Legislature has not qualified the words "tenancy rights" in section 55(2)(a) by these phrases though the Legislature has used such phrases wherever they intended to enlarge the scope of the section, examples - (i) section 33A Explanation below sub-section (8) - leasehold rights or other right of occupancy .....

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ehold rights, tenancy and tenancy rights are legal terms and if they have been used differently in different sections of Income-tax Act, it follows that the 2 carry different meanings. 1.5 (a) There is no cost of acquisition of leasehold rights - Cadell Weaving - 249 ITR 265 (Born) at page 270 - under the heading "Facts" and 273 ITR 1 (SC) (b) Section 55(2)(a) only refers to "tenancy rights" , cost of acquisition of which is deemed to be 'nil' and does not refer to le .....

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lue of leasehold rights may fluctuate The value of the rights may fluctuate with - (i) the area of the land, development in the vicinity, future prospect, (ii) any Government notification - declaring Special zone (iii) any Government notification derecognising a particular area for any future developments and so on Thus, the value may fluctuate with every factor relating to business. There can be no account in value of factors creating fluctuation. Thus, as the "leasehold rights" is no .....

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ail, charging section will not apply inasmuch as the "capital asset" was never intended to be taxed under the head "capital gains". Thus, Sun Engg.-198 ITR 297 (SC) does not apply. 9. On the other hand, ld. DR relied on the orders of lower authorities and contended that leasehold rights are similar to tenancy rights, therefore, AO was justified in taxing the same as capital gains. 10. We have considered the rival contentions, carefully gone through the orders of authorities b .....

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t was incurred in respect of leasehold rights acquired by the assessee, therefore, applying the principle laid down by the Hon‟ble Supreme Court in case of B.C. Srinivasan Shetty (supra), capital gain is not liable to tax. The A.O. found that the assessee has paid advance tax of ₹ 1.99 crores but no corresponding income was offered in the return of income. On A.O.‟s query as to why the assessee has not offered income of ₹ 10.83 crores, it was explained that the amount rec .....

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1-4-1995. It was the contention of the assessee that leasehold right which is a capital asset is not stated in section 55(2)(a) of the Act, therefore, it is not applicable. However, the A.O. did not accept the assessee‟s contention and came to the conclusion that leasehold right as claimed by the assessee is in the nature of tenancy right . The A.O. also discussed the judicial pronouncements cited by the A.R. and concluded that provisions of section 55(2)(a) (ii) of the Act are applicable .....

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and such rights. Accordingly, we do not find any infirmity in the order of lower authorities for taxing the capital gains earned on transfer of leasehold rights. So far as expenses incurred on improvement is concerned, we direct the A.O. to consider the same as claimed by the assessee while computing capital gains u/s.45 of the Act.. 11. In the result, both the appeals are allowed in part for statistical purposes. Now, we shall take up revenue s and assessee s appeal with regard to imposition of .....

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ber, 2010 declaring total income ₹ 14,26,550, which consists only of interest income from various sources. On the same date, i.e. on the date of filing of the return of income, assessee filed a letter dated September 20, 2010 with the Assessing Officer giving the relevant information/contention regarding computation of total income attached to the letter. It is clearly mentioned in the letter :- " ..... in the Computation of Total Income, any profit/ gain arising on account of sale of .....

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her, a note was given at the end of the computation of total income forming part of return, which mentions the fact of sale of leasehold rights and the claim of the appellant that the same is not exigible to tax. The assessee also paid advance tax on the impugned gains so that he does not have to bear the burden of interest under section 234B in the eventuality of his claim not being accepted. The assessee during the course of assessment proceedings furnished among other details, the following:- .....

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ntion of the assessee on the ground that leasehold rights is different from tenancy right so as to make the assessee eligible to claim exemption from long term capital gain. Accordingly by declining the assessee‟s claim, the A.O. added the amount of capital gains in the income of the assessee and also levied penalty u/s 271(1)(c) of the Act. 14. By the impugned order, the ld. CIT(A) confirmed the action of the A.O. in respect of levy of penalty u/s 271(1)(c). However, the CIT(A) deleted th .....

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the Court finds that the language of a taxing provision is ambiguous or capable of more meanings than one, then the Court has to adopt the interpretation which favours the assessee, more particularly so where the provision relates to the imposition of penalty. He further relied on the following decisions: CIT v. Vegetable Products Ltd. - (1973) 88 ITR 192,195 (SC) C.A. Abraham v. ITO - (1961) 41 ITR 425 (SC) CIT v. P.M. Shah - (1993) 203 ITR 792, 799 (Bom) Birla Cement Works v. State of Rajasth .....

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y will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty when there is a technical or venial breach of the provisions of the Act or where the breach .....

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CIT vs. Maya Rani Punj - (1973) 92 ITR 394 (Del) Poorna Biscuit Factory v. CIT - (1975) 99 ITR 41 (AP) CIT vs. Prafulla Kumar Malik - (1976) 104 ITR 648 (Ori) CIT vs. V.M. Modi & Sons- (1976) 102 ITR 548 (MP) B. Muniappa Goundere vs. CIT - (1976) 102 ITR 787 (Mad) The power to impose penalty has to be exercised judicially with due regard to all facts and circumstances of each case and cannot be exercised mechanically. M.P. Laxman v. Agri. ITO - (1986) 157 ITR 1, 9 (Karn Imposition of penalt .....

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s an additional tax in a certain sense and for certain purposes, it is not possible to hold that penalty proceedings are essentially a continuation of the proceedings relating to assessment where a return has been filed (Jain Bros. v. Union of India, (1970) 77 ITR 107, 116 (SC)). For all practical purposes, proceedings for imposition of penalty, though emanating from proceedings for assessment, are independent aspects of the proceedings and, therefore, the Tribunal is justified in considering th .....

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e income of the assessee. Such claim made in the return cannot amount to furnishing inaccurate particulars of income. Therefore, as per the ld. A.R. merely because the assessee claimed the impugned receipt as not chargeable to tax, which claim was not accepted by the Assessing Officer or was not acceptable to him, that, by itself, would not attract the penalty under section 271(1)(c). If the contention of the revenue was accepted, then in case of every return where the claim made is not accepted .....

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ever, the said transactions were reflected in the accounts of the assessee. The Apex Court observed thus : "So far as the question of penalty is concerned the items which were not included in the turnover were found incorporated in the appellant's account books. Where certain items which are not included in the turnover are disclosed in the dealer's own account books and the assessing authorities include these items in the dealer's turnover disallowing the exemption, penalty can .....

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s that since the assessee has paid advance tax, there was no reason available with the assessee for nurturing a belief that the amount received is a capital receipt not chargeable to tax. On absolutely similar facts, the Hon‟ble Delhi High Court in the case of Ravindra Bahl (42 taxmann.com 404) has deleted the penalty under section 271(1)(c). The ld. CIT(A) also in para 4.4 of his order considers the aforesaid issue and states that I feel that certainly the assessee had envisaged that in c .....

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on some sentences of the decision of the Hon‟ble Apex Court without understanding the true import of the decision. Courts have time and again reiterated that reliance cannot be placed on some sentences of a decision and has to be read in the context. 20. As per the ld. A.R. the ld. CIT(A) takes a without prejudice contention to state that if the receipt on surrender of leasehold rights is held to be not taxable by the higher appellate forum then the receipt should be brought to tax under s .....

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cannot be sustained. 21. On the other hand, the contention of the ld. D.R. was that the assessee has wrongly claimed that transfer of leasehold rights is not taxable insofar as leasehold rights are different from tenancy rights. The ld. D.R. further argued that as to why the assessee paid advance tax on gains arising on surrender of leashold rights and claimed a refund of such tax paid by claiming the same to be not chargeable to tax. He further relied on the order of the ld. CIT(A) on para 4.6 .....

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ctive order as well as cited by ld. A.R. and ld. D.R. during the course of hearing before us. We have also carefully gone through the justifications filed by the ld. A.R. during the quantum proceeding so as to distinguish the leasehold rights from the tenancy rights. For the year under consideration, the assessee has filed his return of income on 20th September, 2010. On the very same date, the assessee has filed a letter with the A.O. giving the relevant information to the effect that capital g .....

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nce tax on the transactions of sale of leasehold rights and on the advice of Chartered Accountant the same to be not chargeable to tax, accordingly advance tax was claimed as refund. Even during the course of assessment proceedings, the assessee has furnished following details:- Lease Agreement dated 8th February, 1952 - Sale Agreement dated 18th December, 2009 - Conveyance Deed dated 13th March, 2010 - Letter dated August 8, 2011 giving detailed reasons why receipt on sale of leasehold rights i .....

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he Revenue to impose the penalty u/s 271(1)(c) of the Act. Vide letter dated 20th September, 2010 filed along with the return of income, the details of sale of leasehold rights was brought to the notice of the A.O. and it was not something which has been unearthed by the A.O. It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. Hence the assessee could not be held guilty of furnishing inaccurate particulars of income. By .....

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are not accurate, not exact or correct, not according to truth or erroneous. The word inaccurate‟ is preceded by the word particulars‟ and hence, read in conjunction they would mean not accurate, not exact or correct, not according to truth or erroneous. Even during the assessment proceedings, the asessee has filed all his particulars to the effect that leasehold rights are different than the tenancy right. Even though the A.O. was not agreeing with the justification given by the as .....

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turn where the claim made is not accepted by the A.O. for any reason, the assessee would be slapped with penalty u/s 271(1)(c) of the Act. That would clearly not be the intendment of the legislature. Furthermore, nowhere the A.O. has stated what is false in the claim of the assessee. However, the taxability of receipt on surrender of leasehold rights is not an open-and-shut case , it is an arguable caseand debatable matter and it cannot be termed as false claim‟. Even during the quantum pr .....

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ith A.O. and the payment made of the advance tax including on the likely addition to be made in assessment. The assessee submitted that the ld. CIT(A) is absolutely right in observing thus. 25. From the documents placed on record, we find that the assessee acted in a bona fide manner and held a belief that the claim is not frivolous. It is trite law that when an assessee makes a claim under a bona fide belief, penalty u/s 271(1)(c) of the Act is not leviable, for which reliance has been placed o .....

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n of income, an opinion was taken by his Chartered Accountant that the impugned receipt may not be chargeable to tax and hence, the claim was made that the same is not chargeable to tax. The assessee, being a layman surely cannot interpret the complex Indian Income-tax Laws and has followed the advice of his Chartered Accountant. Reliance is placed on the following decisions where penalty levied on the assessee was deleted on the fact that he followed the advice of a professional tax expert:- T. .....

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stions of law by Courts are sometimes wrong. An amount of latitude is expected in such cases for, to err is human and laymen, as litigants are, may legitimately lean on expert counsel in legal as well as in other departments, without probing the professional competence of the advice. The Court must, of course, see whether, in such cases there is any taint of mala fides or element of recklessness or ruse. If neither is present, legal advice honestly sought and actually given, must be treated as s .....

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