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2018 (10) TMI 719

Nature of rental income - income from House Property or Business Income - taxability of receipt on transfer of tenancy as income from other sources - taxability of transfer of revisionary rights as long term capital gain - Application of section 50 on transfer of revisionary rights - Held that:- the ‘nature’ of the income which had been rental earning from the house property will not change just because it has been received by the company formed with the object of carrying out business as builder and developer. From the records, we also noticed that the nature of the receipts was rental income even to the previous owners and was taxable accordingly under the head ‘Income from the house property’. - Decided against the assessee. - Transfer of tenancy rights - Held that:- since the assessee is in the business of builder and developer, therefore, the amount received on transfer of tenancy rights cannot be taxed as ‘Business income’. The AO had already allowed the related expenses on account of legal & professional fees and the balance amount of ₹ 2,53,888/- was taxed under the head "Income from other sources" - Decided against the assessee. - Transfer of revisionary righ .....

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to each other and craves leave to add, to alter, to amend or to furnish fresh and / or detailed grounds of appeal. 2. The brief facts of the case are that assessee is a developer cum builder. The company was incorporated on 14.09.1990. The return of income for the year under appeal was filed on 25.11.10 declaring total income of Rs. at NIL after setting off of carried forward losses of ₹ 1,60,444/- Thereafter assessment u/s 143(3) was completed by the Ld. AO on 09.11.12 determining the total income at ₹ 43,53,301/- by making additions under different heads. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee. Now before us, the assessee has preferred the present appeal by raising the above grounds. Ground No. 1. 3. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the rental income ₹ 60,281/- as income from house property as against the same being offered to tax as Business Income . 4. We have heard counsels for both the parties at length and we have also perused the material placed on record, j .....

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that reason the nature of income cannot get changed that of as Business income. The AO has also relied onto the decision of Honble Supreme Court in the case of Sultan Bros Pvt Ltd (1964) 51 hR 53 (SC) wherein its earlier decision in the case of East India Housing Et Land Development Trust Ltd (1961) 42 ITR 49 (SC) was followed. The AO has, rightly assessed the rental receipts under the head Income from house property. The grounds taken by the assessee in this regard is rejected. After having gone through the facts of the present case as well as considering the orders passed by revenue authorities, judgment cited by the parties and submissions made by both the parties, we find that Ld. CIT(A) while deciding the said ground has rightly appreciated that in the year 1998, the assessee had acquired 5/6 lease right of an old building named Kapoor Mahal alongwith the tenants for the remaining lease period. The assessee company although is a builder cum developer, but it could not get the remaining 1/6th portion, even after 15 years till date. The tenants continue to occupy the premises. The revenue authorities by invoking the provisions of section 27(iiib) of the I.T. Act has rightly trea .....

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his issue finds place in para 3 of this order. The issue is considered. It is noted that the assessee received ₹ 7.50 lakh on account of transfer of tenancy rights of some of the flats in the building "Kapoor Mahal whose 516th portion was acquired by it on lease [reference para 4.1 above]. The assessee's business is of builder and developer. Therefore, the fee obtained on transfer of tenancy rights cannot be taxed as its business income. The AO has rightly taxed it under the head Income from other sources. It is noted that the related expenses on account of legal & proféssional fees has been allowed by the AO and only the balance amount of ₹ 2,53,888/- has been taxed under the head "Income from other sources". The decision of the AO is correct and does not call for any interference. The assessee's ground, therefore is dismissed. After having gone through the facts of the present case as well as considering the orders passed by revenue authorities and submissions made by both the parties, we find that Ld. CIT(A) while deciding the said ground has rightly appreciated that the assessee received ₹ 7.50 lakh on account of transfer of t .....

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pplying Section 50C and adopting the sale proceeds of ₹ 43,79,500/- as per stamp valuation authority to work out the capital gain thereon. The relevant part of the assessee's submission on the issue finds place in Para 3 of this order. The issue is considered. Briefly the facts are that during the course of assessment proceedings, the AO noted the comments of the auditor's report and Notes to the accounts which says, "the assessee has received ₹ 5 lacs from two tenants for conversion of tenancy rights into ownership right for their flats. On the basis of the legal opinion received, the same has been shown as Capital receipt and transferred to capital reserve." In the context, it was explained [by the assessee] that it had transferred the reversionary rights to the two of the tenants and received a compensation of ₹ 2.50 lacs each and because the tenant acquired reversionary right from the assessee in respect of the area they already occupied, the same was not covered u/s 55(2)(a) of the Act and thus going by the decision of the Supreme Court in the case of B C Srinivas Shetty [1981] 128 ITR 294(SC) the said receipt was a capital receipt and the p .....

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ade thereof to a memorandum of intention dated 27.12.1993. This means decision to transfer that right was taken much earlier [i.e., in the year 1993] for the lumpsum amount of ₹ 2.50 Lacs and the same is executed in the year 2009 i.e., the year under consideration. It is quite obvious that the rates by that time have gone much higher which is also evident from the facts that stamp valuation authorities itself had valued the transaction [transfer of the assessee's interest in those flats by whatever name i.e., the reversionary right / title and interest in the said property] at ₹ 23,78,500/- and ₹ 20,01,000/- [totaling to ₹ 43,79,500/-]. It is interesting to note that the assessee had acquired 516th interest in that building in the year 1998 but then how could it have the memorandum of intention prior to that, i.e., on 27.12.1993. This all shows that the language used in such deed is nothing but to camouflage the real nature of transaction. At this juncture, once again I would like to refer that the issue had arisen during the assessment proceedings on the basis of the remarks of the auditor which clearly talks of conversion of tenancy rights into the own .....

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ts over the said two flats to those persons, so much so, that at one place it was mentioned that, 'This purchaser would be entitled to sale I transfer and assign the said premises subject to a right of first refusal available to the purchaser as separately recorded'. Even as per Clause 3 of that deed, the assessee had agreed to sale the rights, title and interest in the said premises for the lumpsum consideration of ₹ 2.50 lacs for each flat to those two persons. In this respect, the reference was made to memorandum of intention dated 27.12.1993, which reflects that the decision to transfer that right was taken much earlier [i.e., in the year 1993] for the lumpsum amount of ₹ 2.50 Lacs and the same is executed in the year 2009 i.e., the year under consideration. Therefore, in view of these facts, it was correctly concluded that the rates by that time have gone much higher which is also evident from the facts that stamp valuation authorities itself had valued the transaction at ₹ 23,78,500/- and ₹ 20,01,000/- [totaling to ₹ 43,79,500/-]. The revenue authorities after considering the memorandum of intention dated 27.12.1993 had reached to the con .....

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