TMI Blog2008 (11) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of Rs. 60,000 and legal fees of Rs. 1 lakh and deduction on account of investment in the new residential house at Rs. 50 lakhs, net long-term capital gain was shown at Rs. 33,90,000. The assessee claimed the set off of long-term capital loss, brought forward from 1996-97 at Rs. 52,500 and worked out net taxable long-term capital gain at Rs. 33,37,500. The assessee was occupying the property in question viz., Flat No. 15, Padam No. 1, Peddar Road. Mumbai for the last so many years as a tenant. The owner of this property was one Mrs. Pratibha Jayant Shah. A dispute arose between the owner and the tenant for the reason that the owner wanted the tenant to vacate the premises, so that, she could sell the flat. This dispute was resolved by Mumbai State Co-operative Appellate Court, Mumbai by its order dt. 27th Aug., 1996 in which it was held that owner could sell the property subject to a consent agreement between the contending parties to the effect that sale proceed would be equally divided between the assessee the tenant and Mrs. Pratibha Jayant Shah the owner. Accordingly, an agreement dt. 15th July, 1997 was entered into between Mrs. Pratibha Jayant Shah and the buyers for the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions mentioned in the agreement. On 15th March, 1972, the license granted to the assessee came to an end by afflux of time. However, the assessee continued to remain in occupation in the said premises and continued to use the furnitures and fixtures of the said flat. Accordingly, the assessee was considered as a trespasser w.e.f. 16th March, 1972 in respect of the said flat. Assessee was served with an eviction notice and a suit was filed against the assessee in a Co-operative Court, Mumbai. The Court after analyzing legal position in detail came to a specific finding that assessee was not a tenant under the provisions of Bombay Rent Act and the owner entitled to possession of the said flat. The assessee filed appeal against the said decision and the land lady also filed the cross-appeals. Pending all these proceedings, dispute was amicably resolved and an MoU was entered into between both the parties on 27th Aug., 1996. As per the MoU, the sale proceeds of the flat was to be equally divided between the assessee who was referred to be occupier and the owner, respectively. The Appellate Court has also passed a decree in terms of the MoU and thereafter, the property was sold for a su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CIT(A) as under: "I have considered the facts of the case and arguments raised by the appellant. It is seen from the discussion made above that Authorised Representative has not contended as to how AO was not right in disallowing the deduction of Rs. 50 lakhs claimed under s. 54 of the IT Act. Authorised Representative has just proceeded and raised an altogether different ground stating that the appellant was not a tenant and a licensee. He was just an occupier of the flat and, therefore, not liable to capital gain tax. Appellant has raised this plea in ground of appeal No. 2. It is seen from the facts discussed in the assessment order that appellant has taken two Flats Nos. 604 and 605 in Adinath Apartments, Tardeo Road, Mumbai as a licensee on monthly lease rent of Rs. 10,000 for a period of 11 months only. He has given refundable security deposit of Rs. 50 lakhs to the licenser and has claimed deduction thereof under s. 54(1) of the IT Act, equating such deposit as an investment in the acquisition of a new residential house. AO however, disallowed the same as according to him, provisions of s. 54(1) are not applicable to the appellant's case. After considering the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was occupying the flat on the basis of leave and license agreement. According to the Authorised Representative the agreement expired on 15th March, 1972 and was not subsisting on the prescribed date. In my opinion, Authorised Representative's contentions are not acceptable. Appellant's right to continue to live in the flat was emanating from the agreement dt. 1st March, 1971. Moreover, appellant, himself has shown long-term capital gain in his return of income. In view of above discussion, Authorised Representative's contention is not acceptable and rejected." 9. Now the assessee has preferred an appeal before us and has reiterated its contentions. He did not raise much arguments with regard to claim of deduction under s. 54 of the IT Act. His main thrust of argument was that after the termination of the tenancy, assessee had become the trespasser and whatever amounts he has received, it was not on account of transfer of tenancy right, but, on account of occupancy right, as such, the cost of acquisition of this capital asset, cannot be worked out as per s. 55(2)(a) of the Act. Since the cost of acquisition of the occupancy right is nil, no capital gain tax liability accrued to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive further placed a heavy reliance upon the order of the CIT(A). 12. Having heard the rival submissions and from careful perusal of the record, we find that undisputedly assessee has taken the property i.e., Flat No. 15, Padam No. 1, Peddar Road, Mumbai in 1971 through a leave and license agreement dt. 1st March, 1971 though for a initial period of 11 months, but, he continued to remain there in the same capacity i.e., the licensee till 1st July, 1997 when the owner of the property had issued a notice for eviction. Till the issuance of notice, assessee had been paying rent/license fee stipulated in the agreement and the owner did not raise any dispute with regard to the occupancy rights in the premises being enjoyed by the assessee. When the assessee failed to vacate the premises, suit was filed in the Co-operative Court at Bombay in which award for eviction was passed, but, the same was challenged before the Maharashtra State Co-operative Appellate Court at Bombay. During the course of pendency of the appeal, an MoU was executed between the assessee and its owner Smt. Pratibha Jayant Shah, according to which it was resolved that sale proceeds of the said flat would be equally s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of right cannot be calculated in terms of s. 55(2) of the IT Act, as it deals with the cost of acquisition of the tenancy right and not the cost of acquisition of the occupancy right. These contentions of the assessee are examined in the light of Revenue's arguments that it is important to note how the assessee has got the possession of the property; Whether he got the possession as a trespasser/an unauthorized occupant or he occupied the property as a lawful licensee or as tenant? Undisputedly, assessee took the premises on the basis of agreement for leave and license. Though it was taken for 11 months as is borne out from the notice of eviction, but, assessee continued to be in the lawful possession till 1st July, 1977 when the notice of eviction was issued. Till 1st July, 1977 assessee had been paying the rent and no dispute was raised by the owner with regard to the right of occupancy of the premises. Meaning thereby, the assessee was a lawful tenant or a licensee till 1st July, 1977. The word "tenant" has not been defined under the IT Act, but, under the Bombay Rent Act, which gives the protection to the tenants, the word "tenant" has been defined and it includes the vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said premises and by virtue of s. 15A, he becomes the tenant in the said premises on 1st Feb., 1973, thereafter, he remained to be the tenant at least till 1st July, 1976, the date of issuance of notice of eviction. Thereafter, assessee remained the tenant by virtue of s. 11 (b) of Bombay Rent Act. 15. Now the question comes whether the assessee has transferred the tenancy right in the property or the occupancy right. The occupancy right is emanated from the tenancy right in the instant case, because, he occupied the property by virtue of an agreement which confers the assessee a right to use of the property as a licensee. It is not the case where the assessee has taken the possession of the property by force or against the wishes of the landlord. The possession was taken by virtue of an agreement with the consent of the landlord as a tenant/licensee of the property and the assessee enjoyed the same right till 1st July, 1976, the date of notice of eviction. After the termination of tenancy right which was conferred upon the assessee by virtue of s. 15A of the Bombay Rent Act through a notice of eviction, the assessee became the statutory tenant and gets the protection of Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on account of transfer of tei1ancy rights which was terminated by his landlord and also the occupation right and in that case, the cost of acquisition of tenancy right is to be taken as nil in view of s. 55(2) of the Act. This fact was also accepted by the assessee in the beginning while filing the return of income as he has computed the long-term capital gain after taking the cost of acquisition of tenancy right as nil. But, later on the assessee has changed his stand and started claiming that the cost of acquisition of occupation light is nil, as such, there is no capital gain tax exigible in the light of judgment of the apex Court in the case of B.C. Srinivasa Setty. Our attention was also invited to Form No. 37-I i.e., statement of agreement for transfer of immovable property to be furnished to the Appropriate Authority under s. 269UC of the IT Act, in which the assessee and his landlord has made a declaration on 26th March, 1997 and in that declaration assessee was stated to be the licensee since 1971. Meaning thereby, the assessee considered himself to be the licensee till 1997 in the impugned property. This Form No. 37-I is available at page Nos. 51 to 54 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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