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Sujaysingh P. Bobade (HUF) and Udaysingh P. Bobade (HUF). Versus I.T.O. 19 (1) (2) , Mumbai

2016 (4) TMI 901 - ITAT MUMBAI

Revision u/s 263 - CIT was of the view that nature of income arising from the transaction is not from Long term capital gain but Income from House Property and the AO has erroneously allowed the exemption u/s 54EC - Held that:- The property constitute a bundle of rights and transfer by way of allotment of perpetual tenancy with right of occupancy and enjoyment of property perpetually in favour of tenant is also transfer of one of the right out of the bundle of rights which property carries with .....

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anting exemption under section 54 EC of the Act with respect to the grant of the tenancy right which was replied by the assessee-HUF vide letter dated 07-12-2011 filed with AO on 08-12-2011 and has also enclosed copies of agreements and details along with the said letter,

In the instant case , proper and adequate enquiry has been duly made by the AO and after due application of mind has arrived at the instant decision of bringing to tax one time lumpsum payment received by the assesse .....

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d u/s. 263 of the Act by the CIT is not sustainable under law as in our considered view the AO has made proper and adequate inquiries and has applied his mind and has taken decision after due application of mind and the view of the AO is one of the plausible and possible view and infact a correct view which is duly supported by provisions of the Act being Section 55(2)(a) and Section 45 of the Act and several judicial pronouncements and cannot by any stretch of imagination be categorized as erro .....

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AMIT KOCHAR, ACCOUNTANT MEMBER : These two appeals, filed by the two different assessee HUF s, being ITA No. 7490/Mum/2012 and ITA no. 7491/Mum/2012, are directed against the two separate order s both dated 08.10.2012 passed by the learned Commissioner of Income Tax - 19, Mumbai (Hereinafter called the CIT ), for the assessment year 2009-10. We will first take up appeal no ITA No. 7490/Mum/2012 as lead appeal and our decision is ITA No. 7490/Mum/2012 shall apply mutatis mutandis to appeal no ITA .....

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ng full and proper opportunity of being heard in the matter. 3. On the facts and in the circumstances of the case and in law, the learned CIT erred in passing an order u/s 263 of the I.T. Act, 1961 and that too without appreciating fully and properly the facts of the case. 4. On the facts and in the circumstances of the case and in law, the learned CIT erred in holding that the order passed by the ITO-19(1)(2) is erroneous and prejudicial to the interest of revenue although the same was neither .....

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the learned CIT erred in setting aside the order passed u/s 143(3) of the I.T. Act on 26.12.2011 for A.Y. 2009-10 on the issue of assessing the receipts i.e. total receipts of ₹ 65,00,000/- where the assessee s share is 1/3rd, and directing the A.O. to pass a fresh order after treating the said income as income other than Capital gain and disallowing the exemption u/s 54EC of the I.T. Act. 3. The Brief facts of the case are that the assessee-HUF filed its return of income on 26th July, 20 .....

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as one time premium from the tenants in respect of immovable property in respect of Block No. D-1 & D-2 on the ground floor of D-Building of Jestharam Baug located on Dr. Ambedkar Road at Dadar,Mumbai of which the assessee-HUF is a co-owner having 1/3rd share in ownership of the property , in consideration of granting tenancy right to the tenants. The said premium is in addition to the rent of ₹ 269/- per month agreed to be paid by the tenants as per the said agreement. Out of amount o .....

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. The CIT was of the view that the aforementioned claim of the assessee-HUF is inadmissible under the Act. The ownership of the property remains with the assessee-HUF as there was no transfer of tenancy right as the property was let out to the tenants as a monthly tenancy as per the agreement dated 6.5.2008 , retaining the Right of termination of tenancy with the landlord. Hence, CIT was of the view that nature of income arising from the transaction is not from Long term capital gain but Income .....

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ns in response to notice u/s 263 of the Act and submitted that assessment order passed by the AO is not erroneous and hence, not prejudicial to the interest of the revenue. The assesee-HUF submitted that the assesee-HUF has 1/3rd share jointly alongwith his brother s HUF in the building known as Jeshtaram Building at Dadar,Mumbai. The building is fully let out and is occupied for commercial as well as residential purpose by the tenants who have occupied its tenancy since last 25 years. The asses .....

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that during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act conducted by Revenue, the question of taxing these receipts as income from other sources was raised by the AO and the same was replied in detail vide letter dated 07.12.2011, which was acknowledged by the ITO on 08.12.2011 and the same is on record with the Revenue. Thus, the Assessee- HUF in nutshell submitted that the order passed u/s 143(3) of the Act on 26th December, 2011 is neither erroneous no .....

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simply because it is non-refundable and same cannot be treated as Revenue Income once it is covered u/s. 55(2)(a) of the Act and therefore liable to tax for capital gains tax.The assessee-HUF relied upon decision of Hon ble Bombay High Court in the case of Cadell Weaving Mill Co. P. Limited (2001) 249 ITR 0265(Bom.) The assessee-HUF submitted that these agreements being registered agreement on which stamp duty has been paid. The assessee-HUF relied on Mumbai Rent Act, 2000 which provides for ter .....

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there has to be transfer of capital asset and there is need to examine whether the assessee-HUF had affected transfer of Capital asset in lieu of the impugned receipts. The CIT referred to the tenancy agreement para 3 at page 2 which stipulated that, the landlords have agreed to let out to the tenants the said block as monthly tenants w.e.f. today on following terms and conditions under Maharashtra Rent Act, 2000. However, it was observed by the CIT that right of termination of tenancy has been .....

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is erroneous in so far as the order is prejudicial to the interest of the revenue and the said receipt must be assessed as income from house property and not capital gain arising from transfer of property. The AO was required to make inquiries during the course of proceedings which was not made. So this is valid ground for CIT to interfere under section 263 of the Act. The CIT held that the view adopted by the AO is not one of the possible view but was erroneous view. Under such circumstances, .....

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AO was directed by CIT vide orders dated 08.10.2012 passed u/s 263 of the Act to pass fresh orders u/s 143(3) of the Act read with Section 263 of the Act after treating the said income as Income other than Capital Gain and disallowing the exemption u/s 54EC of the Act, after affording sufficient opportunity to the assessee- HUF. 7. Aggrieved by the orders of the CIT dated 08-10-2012 passed u/s 263 of the Act, the assessee-HUF filed appeal before the Tribunal. 8. the assessee-HUF submitted that .....

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of Jestharam Baug located at Dr. Ambedkar Road at Dadar, Mumbai , of which the assessee-HUF is 1/3 co-owner along with HUF of Brother s. The assessee- HUF submitted that the property D1 & D2 was vacant property and tenancy right was transferred vide two agreement s both dated 6.5.2008 for aggregate amount of ₹ 53,00,000/- . The assessee-HUF submitted there was transfer of tenancy rights for which PAGDI or SALAMI was received from the tenant s and regular rent is also received apart fr .....

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54EC claimed thereof in the return of income filed with the Revenue. The assessee-HUF submitted that during course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act , the AO has made specific query on the claim of exemption u/s 54EC of the Act which was duly replied by the assessee-HUF vide letter dated 07-12-2011 which was filed before the AO on 08-12-2011 and the relevant extract of the said letter reads as under : With reference to the deductions claimed u/s.54EC of th .....

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was received as regards to the capital expenditure carried out in the two flats. Xerox copy is attached. Please refer to clause 4 on page 3 of the Tenancy agreement wherein it is specifically mentioned that the consideration is one time premium for grant of tenancy of the two blocks. This necessarily a capital receipts as this is a one time premium received for grant of Tenancy. Please refer to clause 5 of the Tenancy agreement which provide for monthly rent for the use of the premises and the .....

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d under section 45 of the Income Tax Act,1961. 2. As regards ₹ 1200000/- , I am enclosing a copy of the letter executed wherein the details capital expenditure and amenities provided are listed. The CIT has held that property has remained with the owners and no asset is transferred and amount should be charged to tax under the head Income from the House Property The Ld. Counsel refer to Section 55(2)(a) of the Act which recognizes Tenancy right as capital asset and actual cost of acquisiti .....

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ns which was offered for taxation under the head Income from Capital Gains . The assessee-HUF submitted that ₹ 12 lakhs have been received for providing amenities and repairing etc. of the flats for which expenses have been incurred. The assessee-HUF submitted that it has 1/3 share in the said property. The assessee-HUF referred to tenancy agreements dated 06-05-2008 entered into by the assessee-HUF with respect to D-1 an D-2 block in ground floor of Jeshtaram Building , Dr Ambedkar Road, .....

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to the same transaction being 1/3 coowner, the CIT(A) has held the transfer of tenancy right as transfer of long term capital asset and brought the same to tax as Income from Capital gains vide orders dated 21.10.2013 which has attained finality and are placed in paper book at page 89-97. The assessee-HUF relied upon the decision of Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd v. CIT in (2000) 243 ITR 83(SC) , CIT v. Max India Limited (2008) 295 ITR 282(SC) and decision of Hon .....

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ol Act. The assessee-HUF relied upon decision of Hon ble Delhi High Court in the case of CIT v. Vikas Polymers in (2010) 341 ITR 537(Del. HC) , Hon ble Bombay High Court in the case of Jewel of India v. ACIT (2010) 325 ITR 92(Bom. HC) and Hon ble Bombay High Court in the case of CIT v. Ratilal Tarachand Mehta in (1977) 110 ITR 71(Bom. HC ) and submitted the lumpsum payment as received which is the system of PAGDI of SALAMI is capital receipt . The assessee-HUF also releied upon decision of Hon b .....

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ment received by the assessee-HUF on transfer of tenancy rights. It is merely the income from renting out of the house property and ld CIT DR relied upon 249 ITR 265(supra) & the decision in Aarvee International in (2006) 101 ITD 495 (Mum. Trib.) & Horizon Investment Company Limited decision in ITA 1593/Mum/13 and also upon decision of Malabar Industrial Co. Ltd(supra) and submitted that there is no application of mind / in- adequate inquiry by the AO . The Ld. CIT DR relied upon decisio .....

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le Bombay High Court in the case of CIT V Tip Top Typography (2014) 48 taxmann.com 191(Bom.HC) . 10. We have considered the rival contentions and perused the material on record including the case laws relied upon by both the parties. We have observed that assessee-HUF has entered into tenancy agreement dated 06.05.2008 whereby the assessee-HUF has granted monthly tenancy of the property Block D1 and D2 on the ground floor of D building known as Jestharam Baug situated at Dr. Ambedkar Road at Dad .....

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tual and there is no period of expiry of tenancy , whereby landlord does not have power to evict the tenant till the rent s are paid and tenants are not in default in payment of rent. Landlord i.e assessee-HUF cannot terminate tenancy unilaterally if the rents are paid in time by the tenants and the tenants abide by the terms and conditions of the agreement. The landlord i.e. assessee-HUF by giving notice of six months can ask for eviction only in case of default by tenant in payment of rent. Ho .....

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quated to be receipt of advance rent as the tenancy granted by the assessee-HUF in favour of tenants is perpetual with protection to tenants under Maharashtra Rent Control Act, 2000 under a registered agreement whereby due stamp duty and registration fee are paid to State Government and no right is retained by the landlord i.e. assessee-HUF for eviction of tenant in perpetually except in the extreme situation of tenants being in default for payment of rent and that too will entail giving notice .....

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rpetually in favour of tenant is also transfer of one of the right out of the bundle of rights which property carries with it and shall be chargeable to tax u/s 55(2)(a) read with Section 45 of the Act as Income from Capital Gains. No doubt the assessee-HUF has right to evict the tenant but that is only in the situation of tenant in default of monthly rent and that too with a notice of six months to tenant whereby the tenant can always rectify the default and continue enjoying the tenancy perpet .....

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ancy agreements dated 06-05-2008 and letter for repairs etc at pages 9-27 of paper book . The AO has duly applied his mind while granting the exemption under 54EC of the Act. The AO has taken one of the possible views which in our considered view is in-fact plausible and correct view by treating one time premium on allotment of tenancy rights by assessee-HUF in favour of tenants as capital receipts chargeable to tax as Income from capital gains u/s 45 of the Act arising from transfer of long ter .....

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e Supreme Court in the case of Malabar Industrial Co. Ltd v. CIT in (2000) 243 ITR 83(SC) , CIT v. Max India Limited (2008) 295 ITR 282(SC) and decision of Hon ble Bombay High Court in the case of CIT v. Gabriel India Limited (1993)203 ITR 108(Bom. HC) ) . The CIT cannot substitute its own view on the view of the AO even if the view of the CIT is a better view provided the AO has taken the view which is one of the possible and plausible view and that view was adopted by the AO after due applicat .....

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