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2016 (3) TMI 243 - ITAT MUMBAI

2016 (3) TMI 243 - ITAT MUMBAI - TMI - Transfer of tenancy rights to long term capital gains - deduction under section. 54EC to the extent of investment of the capital gain - Held that:- Taking into account the factual matrix and circumstances of the case on hand and the legal position on this issue espoused in section 2(14) and 2(47) of the Act and the ratio of the judicial pronouncements on the issue of grant of tenancy rights similar to the facts of the case on hand, inter-alia, laid down by .....

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t advance rent exigible to tax under the head income from house property.

Reopening of assessment - investment in NABARD for acquiring Bonds/Debentures - Held that:- Assessing Officer did not make any addition to the assessee’s income in respect of the investment of ₹ 25.00 lakhs made by it in NABARD Bonds/Debentures; which formed the sole basis of the Assessing Officer’s recorded reason to believe income had escaped assessment for initiation of proceedings u/s.147 of the Act (s .....

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ims regarding the investment of ₹ 25.00 lakhs in investment in NABARD Bonds/Debentures and no addition has been made in this regard, the Assessing Officer ought to have dropped the re-assessment/ assessment proceedings initiated u/s. 147/148 of the Act for assessment year 2005-06. - Decided in favour of assessee - ITA No. 844/MUM/2014, C.O. NO.76/MUM/2015 - Dated:- 29-2-2016 - SHRI JASON P. BOAZ ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER For The Revenue by : Shri Vikash Kum .....

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ction 148 of the Income Tax Act, 1961( in short the Act ) declaring income of ₹ 3,88,000/-. Proceedings under section 147 of the Act were initiated for assessment year 2005-06 in view of AIR information that the assessee had made investment for acquiring NABARD bonds/debentures amounting to ₹ 25,00,000/- in the period under consideration. Notice under section 148 of the Act was issued on 27/3/2012. The assessee vide letter dated 26/7/2013 addressed to the Assessing Officer sought the .....

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iwas, Opp. Dadar Railway Station (W), Ranade Road, Dadar, Mumbai 400028, to six different parties/tenant for a premium aggregating to ₹ 51,00,000/- alongwith monthly rents as under:- 2.2 The assessee had offered the premium of ₹ 51 lakhs received on transfer of tenancy rights to long term capital gains( LTCG ) and claimed deduction under section. 54EC of the Act to the extent of investment of the capital gain i.e. 46.00 lakhs. The Assessing Officer did not accept the explanations of .....

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CIT(Appeals) (1) reversed the order of the Assessing Officer in holding the premium of ₹ 51.00 lakhs received on transfer of tenancy rights as exigible to tax under the head income from house property and held it to be assessable as capital gains as declared by the assessee, (2) the CIT(Appeals), however, dismissed the legal ground raised by the assessee challenging the validity of the order passed under section.147 r.w.s. 143(3) of the Act. 3.1 Aggrieved by the order of the CIT(Appeals) - .....

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nant only. This right is not acquired by the owner of property. 2. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition made by the A.O. without appreciating the fact that the landlord cannot be a tenant in his own property as he is the owner of the property and has all the ownership rights pertaining to the said property. 3. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition made by the A.O. by h .....

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aterial in so far as receipts in the hands of landlords are concerned. The CIT(A) did not consider the fact that the landlords had entered into separate agreements with old tenants and new tenants respectively effectively making a tripartite arrangement. 4. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition made by the A.O. without appreciating the fact that the ITAT Mumbai, 'F' Bench in the case of Shri Vinod V. Chhapia (HUF) Vs. ITO (I .....

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ase and in law, the Ld.CIT (A) erred in deleting the addition made by the A.O. by drawing conclusion at para 55 of his appellate order that the facts of Shri Vinod V. Chhapia (HUF) are not identical to the facts of the instant case since in the case of Shri Vinod V. Chhapia (HUF), the landlords received the- amount as a confirming party to the agreement between the old tenant and the new tenant whereas in the instant case, the landlords being the owner of the property entered into agreements dir .....

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e fact that the landlords had entered into separate agreements with the old tenants as well with new tenants respectively. As per the agreements between the landlords and tenants, the landlords had received back the vacant possession of the premises from the old tenants who had surrendered the tenancy rights in favour of the landlords without getting any consideration for the same whatsoever. By no stretch of imagination it can be presumed that the old tenant surrendered tenancy to the landlord .....

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m House Property". Also, the landlord had entered into separate agreements with new tenants and received a huge sum of money from them and had charged a nominal monthly rent from them which clearly falls under the head of Income from House Property and cannot be taxed as Capital Gains . 8. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition made, by the A.O. without appreciating the fact that Clause-3 of the Agreements between the landlords .....

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rees to accept from the landlords the monthly tenancy in respect of the tenanted premises. Similarly, Clause 4(2) states that as consideration for the grant of the monthly tenancy, the tenant paid to the landlords a lump sum premium. 9. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition made by the A.O. without appreciating the fact that there is no transfer of capital asset in so far as the landlord is concerned as the landlord had given his pr .....

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d that in consideration of the "premium" the landlords hereby agree to grant to the tenant and the tenant hereby agrees to accept from the landlords the monthly tenancy in respect of the tenanted premises. Similarly, Clause 4(2) states that as consideration for the grant of the monthly tenancy, the tenant paid to the landlords a lump sum premium. The Ld. Departmental Representative for the Revenue was heard in support of the grounds raised. He vehemently supported the orders of the Ass .....

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r in holding that the premium of ₹ 51 lakhs received by the assessee from the six tenants is to be treated and assessed to tax as LTCG as declared by the assessee, and not under the head income from house property as held by the Assessing Officer. The Ld. Representative for the assessee submitted that the facts of the matter are that the premium of ₹ 51 lakhs received by the assessee from six tenants, in lieu of tenancy rights given to them is a capital receipt on account of transfer .....

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declared by the assesee or is in the nature of advance rent and exigible to the tax under the head income from house property as held by the Assessing Officer in the order of assessment It is submitted by the Ld. Representative for the assessee that after considering the provisions of sections 2(47) and 2 (14) of the Act , the CIT(Appeals) observed that it is an accepted principle that tenancy rights per-se is a capital asset by virtue of section 2(14) of the Act and, therefore, the transfer of .....

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ains. It was also pointed out by the Ld. Representative for the assessee that the CIT(Appeals) had came to the conclusion that the Assessing Officer had not brought on record any material evidence to establish that the premium received is advance rent. The Ld. Representative for the assessee contends that in view of the above finding of fact, the CIT(Appeals) following the ratio of the decisions of the Hon ble Apex Court in the case of Parbari Tea Co. Ltd. (1965) 57 ITR 422(SC) of the Hon ble Bo .....

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this regard, the Ld. Representative for the assessee also placed reliance on the decision in the case of R.K.Palshikar (HUF) (1988) 172 ITR 0311 (SC) wherein it was held that the right to possession and enjoyment of properties leased for long periods on which a premium has been charged amounts to a transfer of capital asset. 3.2.3 Alternatively, the Ld. Representative for the assessee submitted that if at all the premium of ₹ 51.00 lakhs was to be treated as income from house property as .....

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therefore the amount of ₹ 7.26 lakhs paid to the landlord as consideration for consent was held by the Co-ordinate Bench to be a windfall gain to the assessee and not transfer of any capital rights attached to the property. 3.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. On an appreciation of the facts on record it is seen that in the year under consideration, the assessee trust granted ten .....

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ancy rights and consequently holding the premium to be advance rent held that the premium of ₹ 51.00 lakhs is exigible to tax under the head income from house property . 3.3.2 On appeal we find that the CIT(Appeals) after detailed examination had reversed the finding of the Assessing Officer that the premium of ₹ 51.00 lakhs was exigible to the tax under the head income from house property as he was of the view that the grant of tenancy rights by the assessee trust to the tenants was .....

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grounds raised i.e. Vinod V. Chappia(Kartha HUF) (supra) has been correctly distinguished on facts and concur with the view of the CIT(Appeals) in this matter. 3.3.3 In this context the CIT(Appeals) s elaborate examination and decision in the matter at paras 40 to 56 of the impugned order is extracted hereunder:- 40. The above arguments of the AR of the appellant have been considered and! intend to agree with the above arguments. The main issue under consideration here is to whether the premium .....

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payment and non recurring in nature and therefore a capital receipt. 42. It is an accepted principle as of now that the tenancy right is a capital asset by virtue section 2(14) of the I.T. Act, where the capital asset is defined to mean, property of any kind held by an assessee whether or not connected with his business or profession. And it is further accepted principle that the 'transfer' of any capital asset would lead to charging of capital gains. In the context of section 45 of the .....

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de in scope and coverage. 44. In order to attract capital gains tax, therefore, there must be profit or gain arising from the transfer of a capital asset. Section 2(47) of the Act defines transfer as any transaction which has the effect of transferring or enabling enjoyment of any immovable property whether by way of any agreement or any arrangement or the transfer of tenancy rights or in any other manner whatsoever. All these will fall within the definition of transfer. A leasehold is also tran .....

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with the tenancy' agreement not being earned out in the letter and spirit, the premiums paid are not refundable to the tenants, which shows it is a payment which is once for all and therefore capital in nature. Thus the premium paid while giving the tenancy rights, is capital receipt acquired through the transfer of a capital asset i.e. the tenancy rights and accordingly would be liable for capital gains. 46. The AO has not brought any evidence on record to prove that the premium received is .....

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nt wherein it provided as under:- "11. The Landlords hereby covenant with the Tenant that the Tenant" paying the rent hereby reserved the Tenant shall and may peaceable hold and enjoy the Tenanted Premises without any lawful interruption or disturbance from or by the Landlords or any person lawfully or equitably claiming by from through under or in trust for it. It is hereby expressly agreed and understood that the Landlords shall not be entitled to , terminate the tenancy of the Tenan .....

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on of the agreement, again the premium paid will not be refundable. Looking into all these facts and circumstance, to call this premium received by the appellant Trust as advance rent would be totally incorrect appreciation of the facts of the issue under consideration. 48. The decision of the Apex Court in case of Commissioner of Income-tax v. Panbari Tea Co. Ltd. ([1965] 57 ITR 422 (SC) is on similar lines, wherein the Apex court has considered the provisions of Transfer of Property Act to dis .....

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ch terms.. The transferor is called the lessor, the transferee is called the ( lessee, the price is called the premium and the money, share, - service or other thing to be so rendered is called the rent. The section, therefore, brings out the distinction between a' price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lessor. When the interest of the lessor is parted with for a price, the price paid is premium or salami. But the periodical pay .....

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or conclusive but it helps the court, having regard to the other circumstances, to ascertain the intention of the parties." 49. Similar view was taken by the Hon'ble Bombay High Court in the case of Commissioner of Income-tax Vs. Ratilal Tarachand Mehta ([1977J 110 ITR 71 (BOM.)), wherein it was held that "By its nature the salami being a non-recurring payment -made by a tenant to the landlord at the inception of the grant of the lease has a/ways been regarded as a receipt of a cap .....

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t by way of a salami or a premium need not necessarily be held to be of a capital nature or on capital account, but since prima facie that is the nature of such payment it is for the department to establish facts which would go to show that such payment was in the - nature of income and not on capital account. In the instant case no facts have been established or brought on record by the department to show that this payment which was by way of a premium or salami for obtaining monthly tenancies .....

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e decision has been rendered in the context of TDS provisions U/s. 1941, but issue decided is relevant to the facts of the instant case also. 52. In this case, the assessee executed a lease deed with MMRDA pursuant to which it obtained a plot of land at Bandra Kurla Complex on a long-term lease. The assessee paid MMRDA ₹ 950 crore as lease premium. The Assessing Officer held that the said lease premium was in ihe nature of rent and that the assessee ought to have deducted TDS thereon u/s 1 .....

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y MMRD as lease premium is equal to the rate prevalent as per Stamp Duty recovery for acquisition of the commercial premises. These rates are prescribed' for transfer of property and not for the use as let out tenanted property. The Ld. CIT(A) further observed that even the additional FSI given for additional charges as per Ready Reckoner rates only. It is the finding of the Ld. CIT(A) that the whole transaction towards grant of leasehold transaction rights to the assessee is nothing but a t .....

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ner of Income-tax 11 ITR 513 PC wherein it has been held that the payment which' under ·the lease is exigible by the lesser may be classed under 3 categories (1) Premium or salary (2) the minimum royalty and (3) the royalty per ton. The salary have been rightly treated as capital receipt. It is a single payment made for the acquisition of the right of the lessees to enjoy the benefits granted both by the lease. The Ld. CIT(A) has also considered the decision of the Hon'ble Supreme .....

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T. Act It has ell the characteristics of a capital payment and it is not revenue. The Ld. CIT(A) further discussed certain other judicial decisions and in particular the decision of the Hon'ble Jurisdictional High Court in the case of CIT Vs :K:himline Pumps Lid., 2581TR 459 wherein the Hon'ble Jurisdictional High Court has held that an amount of ₹ 45 lakhs paid by the assessee to ·M/s. APVE Ltd., for acquisition of leasehold land was a capital expenditure and hence the sam .....

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nancy rights to the six tenants, is transfer of the capital asset and accordingly liable to capital gains. It cannot be termed as advance rent as the tenancy right is not for a particular period but in perpetuity. The amount of ₹ 5,OO,OOO/- to the appellant is premium or balance which is a capital receipt. 54. During the course of. appellate proceedings, the AO vide letter dated 27/09/2013 has sent further submissions relying on the decision of the lTAT; Mumbai Bench 'F', Mumbai in .....

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as paid ₹ 7,26,000/-. This amount was paid, not. for surrender of tenancy right but as a confirming party in the tripartite agreement between the old tenant, new tenant and the land lord. The ·AO treated the amount received by the land lord as the income from the other sources and not the capital gains as claimed by the assessee HUF. The CIT(A) confirmed the order of the AO. On appeal before the ITAT, Mumbai, it was held that normally in the case of surrender of tenancy rights, it i .....

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ightly taxed as "income from other sources". 55. The above contentions of the AO have been considered. But the facts of the above case of VV. Chhapia HUF Vs ITO (supra) are not identical to the facts of the instant case. In the above case, the tenancy rights were not with landlords of the property and the such rights were vested with the old tenant and the same were transferred to a new tenant by him vide agreement entered into between the two. The amount of ₹ 7,26,000/- which th .....

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ered into agreement directly with the new tenants and surrendered the tenancy rights in the property in question. The tenancy agreement is direct agreement between the land lord and the tenant. Thus the facts of the instant case are not identical to' the facts-of the case of VV. Chhapia HUF Vs ITO (supra) and cannot be relied upon. The reliance on this case by the AO is misplaced. 56. In view of the facts and circumstances and the judicial pronouncements cited above, in my considered opinion .....

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this issue espoused in section 2(14) and 2(47) of the Act and the ratio of the judicial pronouncements on the issue of grant of tenancy rights similar to the facts of the case on hand, inter-alia, laid down by the Hon ble Apex Court in Parbani Tea Company (1965) 57 ITR 422 (SC), and R.K.Palshikar (HUF) (1988) 172 ITR 311(SC); of the Hon ble Bombay High Court in the case of Ratilal Tarachand Mehta(1977) 110 ITR 71(Bom) of the Special Bench of the ITAT Mumbai in Mukund Ltd. (106 ITD 231), of ITAT .....

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o 10, having been duly considered, are dismissed. 4. In the result, Revenue s appeal for assessment year 2005-06 is dismissed. Assessee s Cross-Objection - C.O.No.76/Mum/2015: 5.1 In its cross objection the assessee has raised the following grounds:- 1.The order passed u/s. 143(3) r.w.s. 147 of the Act is void ab-initio and bad in law. 2. The Appellant craves to add to and /or alter and/or modify and /or delete and/or amend the aforesaid ground of cross objection. 5.2 The grounds raised in the c .....

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tended that a perusal of the letter and the order of assessment would evidence that while the reasons recorded for initiation of proceedings u/s. 147 of the Act were in respect of AIR information related to investment in NABARD for acquiring Bonds/Debentures amounting to ₹ 25 lakhs in the year under consideration, no addition on this count was made in the order of assessment passed u/s. 143(3) r.w.s. 147 of the Act dated 15/1/2013, but rather the premium of ₹ 51.00 lakhs received on .....

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has power to assess such other income, only if the income referred to in the reasons recorded for initiating proceedings u/s. 147 of the Act has been assessed. In support of this proposition, the Ld. Representative for the assessee placed reliance on the decision of the Hon ble Bombay High Court in the case of Jet Airways (I) Ltd. reported in (2011) 331 ITR 236(Bom). In view of the above factual and judicial matrix of the case, it was prayed that the order of assessment for assessment year 2005- .....

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from the record and that the reasons recorded by the Assessing Officer for initiation of assessment proceedings u/s. 147 of the Act for assessment year 2005-06, as conveyed to the assessee vide letter dated 3/9/2013 are as under:- The AIR information in this case related to Investment in NABARD for acquiring bonds/ Debentures amounting to ₹ 25,00,000/- during the F.Y. 2004-05. The period of four years but not more than 6 years have escaped from the end of the relevant assessment year. As t .....

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T. Act, 1961. 5.4.2 A perusal of the impugned order of assessment passed u/s. 143(3) r.w.s. 147 of the Act vide order dated 15/1/2013 for assessment year 2005-06 clearly shows, as contended by the Ld. Representative for the assessee, that no addition has been made therein based on the reasons recorded in respect of the investment of ₹ 25.00 lakhs by the assessee in NABARD for acquiring of Bonds/Debentures during the year under consideration. However, the Assessing Officer in the impugned o .....

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if the income referred to in the reasons recorded for initiation of proceedings u/s. 147 of the Act have been assessed. While interpreting the scope of power of the Assessing Officer in view of the effect of the amendment to Section 147 of the Act w.e.f. 1/4/1989, the Hon ble Court noticed that effect of Explanation -3 to Section 147 of the Act was that even though the notice issued u/s. 148 containing the reasons for re-opening the assessment does not refer to a particular issue with reference .....

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retation would be to regard those words and also as being cumulative and conjunctive . The Hon ble Court further observed that what the Parliament intended by use of the words and also is that the Assessing Officer upon the formation of reason to believe u/s.147 of the Act and issue of notice u/s. 148 of the Act must assess or re-assess (i) such income on which it has recorded reasons to believe that income of the assessee had escaped assessment; and also (ii) any other income chargeable to tax, .....

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an he also assess or reassess any other income which has escaped assessment and has come to his notice during the course of assessment proceedings. 5.4.4 The Hon ble Court in the aforesaid decision held that if after initiation of proceedings u/s. 147/issue of notice u/s. 148 of the Act, the Assessing Officer accepts the contention of the assessee and does not make any addition of such income on the basis of which he initially formed the reason to believe that income had escaped assessment, and .....

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