TMI Blog2010 (5) TMI 902X X X X Extracts X X X X X X X X Extracts X X X X ..... ght at ₹ 37,90,012/-. It was claimed by the assessee during the assessment proceedings that tenancy right was acquired in 1973 by M/s. Elrex Corporation, a partnership firm in which late Shri Bharat L. Shah was a partner. The partnership was dissolved in 1979 and after that business was taken over and carried on as proprietary concern by late Shri Bharat L.Shah. accordingly, the property was received on dissolution of the firm by the mode of transfer prescribed under section 49(1). Later on this right was surrendered on 21.11.2002 by selling this right to Kanyakumari Builders Pvt. Ltd. for a sum of ₹ 1,30,00,000/-. This claim was rejected during the assessment proceedings because the assessee could not produce any document regarding dissolution etc. and acquisition cost of the tenancy rights was adopted at NIL . During the penalty proceedings also these contentions were raised and the same were rejected by the Assessing Officer. 3. On appeal, similar contention was reiterated and some documents were also filed. The learned CIT(A) sought a remand report for verification of these documents. In the remand report the Assessing Officer reported that M/s. Elrex Corporatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L. Shah in the return of income filed by him on 28/11/2003. He died in a road accident on 09/10/2004 and his legal heir and wife Mrs. Chandrika B. Shah could not collect all the necessary documents and furnish the same during the assessment proceeding in support of the claim of the substituted cost. For the same reason she had withdrawn the appeal in the quantum case. The live and license agreement and the income tax documents of the firm M/s. Elrex Corporation filed by the subsequently show that the firm was holding the tenancy right for the period thereafter. The one crucial document she could not produce at any state is the deed of distribution of assets of the firm on its dissolution. The Assessing officer was justified in opining that the claim of section 49(1)(iii)(b) and the consequent claim of substituted cost can not be allowed for want of such direct evidence. However, it cannot be said as a wrongful claim made for the purpose of misleading the revenue. It was a legal claim which could not be substantiated by the legal heir by the direct evidence that the tenancy right was received by her late husband by way of distribution of assets on dissolution of firm. The inability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tum appeal was withdrawn by the assessee. Later on some documents were located which were filed during appeal proceedings under penalty provisions and which have been duly referred to the Assessing Officer by the CIT(A). In the remand report it was specifically accepted that M/s. Elrex Corporation, a partnership firm had originally taken the tenancy rights of the premises vide leave and license agreement datred 16.07.19973. It was also accepted that the firm was dissolved in the year 1979 and late Shri Bharat L. Shah continued the business in the same name at the same premises as proprietor. It is, therefore, clear that these rights were acquired originally by the partnership firm which was dissolved in 1979 and the assessee in turn received the same on dissolution of the firm in terms of section 49(1)(iii)(b) of the Act. Then he referred to Section 55(1)(b)(2)(ii) wherein it is clearly provided that if the properties acquired by any other mode specified in sub-section (1) of section 49, than such cost of acquisition is to be taken as cost to previous owner. He further referred to section 55(2) clause (b)(ii), which gives option to the assessee to adopt the fair value of the asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of acquisition of the tenancy right has to be taken at Nil because of section 55(2)(a)(ii) of the Act. 8. Now, let us have to look at the relevant provisions of the Act.: 49. [(1)] Where the capital asset became the property of the assessee- (i) on any distribution of assets on the total or partial partition of a Hindu undivided family; (ii) under a gift or will; (iii) (a) by succession, inheritance or devolution, or [(b) on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before the 1st day of April, 1987 . Meaning of adjusted , cost of improvement and cost of acquisition . 55. (1) For the purposes of [section 48 and 49],- (a) [***] [(b) cost of any improvement ,- (1) in relation to a capital asset being goodwill of a business [or a right to manufacture, produce or process any article or thing] [or right to carry on any business] shall be taken to be nil ; and (2) in relation to any other capital asset,-] (i) where the capital asset became the property of the previous owner or the assessee before the [1st day of April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mode of calculating the cost of acquisition which includes tenancy right also. Normally the cost has to be taken at the purchase price or Nil cost but this principle does not apply in the cases falling under clause (ii) of this provision i.e. cases falling under sub-clause (1) to (4) of sub-section (1) of section 49 of the Act. Clause (b) of this section deals with the determination of cost in respect of assets acquired under sub-section (1) of section 49 and it clearly states that acquisition cost in such cases means the cost of capital asset to the previous owner or the fair market value of the asset on the lst day of April 1981 at the option of the assessee. 10. Before analyzing these provisions further it can be easily said that atleast the assessee had a bonafide belief that the assessee had a right to estimate the fair market value of the asset as on 1st day of April 1981. Further, we attach no importance to the fact that copy of the Dissolution Deed could not be filed in this case because tenancy rights were sold by late Shri Bharat L. Shah, who is the husband of the assessee, who unfortunately died in a road accident on 9th October, 2004. The widow of late Shri Bhara ..... X X X X Extracts X X X X X X X X Extracts X X X X
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