TMI Blog1998 (8) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... was a tenant of the house at 2/6, Sarat Bose Road, Calcutta - 20 of M/s. Landsdown Properties Ltd. at a monthly rent of Rs. 1,200 as per the Memorandum of Agreement dated 27-12-1982 with the Landlord M/s. Landsdown Properties Ltd. The assessee vacated the premises in question on 20-9-1983 to facilitate construction of a multi-storeyed building in which he was to get floor space admeasuring 15,000 sq. ft., be the same, a little more or less in one or more upper floors together with Car parking space for six Cars and proportionate undivided right, title and interest in the leasehold land comprised in the said premises viz. in the said upper floor or the proposed multi-storeyed building. In the other words, M/s. Landsdown Properties Ltd., in exchange, agreed to deliver 15,000 sq. ft. area of floor space to the assessee and according to the Agreement the assessee became the absolute owner of the 15,000 sq.ft. area of floor space in the said premises with the right to deal with or dispose it in any manner he deems fit. After the assessee vacated the premises on 20-9-1983 the old building was demolished but the assessee continued to pay the rent till October, 1984. As per Memorandum of A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f B. C. Srinivasa Setty (supra) had duly been followed by the Calcutta High Court in its subsequent judgment in the case of CIT v. Clive Mills Co. Ltd. [1984] 148 ITR 14 and CIT v. Satya Paul [1984] 148 ITR 21 /[1983] 13 Taxman 235 wherein it was held that no capital gain tax could be assessed on sale of loom hours and import entitlements, as there was no cost of acquisition of those assets. The assessee also challenged the view expressed by the Assessing Officer that the amount of Rs.24,000 actually constituted the cost of capital asset. According to the assessee in terms of the Agreement he was required to pay rent during the period he was not in possession of the demised premises and the construction was to be going on to the land simply for the purpose of keeping alive the tenancy. For this the assessee referred to clause 9 of the Memorandum of Agreement dated 27-12-1982 wherein it is stated that the tenant shall be deemed to be continuing tenant in respect of the said premises at a monthly rent of Rs. 1,200. Accordingly, the assessee finally contended that in no circumstances can the monthly payment of rent, even after the temporary surrender of possession of the premises, be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, contended that the Agreement dated 24-6-1985 is the bone of contention. He pleaded, on the basis of that agreement, that the assessee was not in a position to transfer the space as on that date because neither he was the owner of the floor space nor he possessed the same. According to the Id. DR in the year 1985 the assessee transferred the right to possess. He further argued that the assessee was continuing to pay rent @ Rs. 1,200 per month although he did not occupy any premises to nurture his right to possess the floor space which was a capital asset and in that way the Calcutta High Court decision in the case of A. Gasper (supra) is applicable. He, therefore, further pleaded that cost of acquisition of this asset was the cost of maintenance of right to possess @ Rs. 1,200 per month as computed by the Assessing Officer. He also pleaded that the CIT (Appeals) misdirected himself and failed to realise the difference in transfer or tenancy right and transfer of right to possess. The Id. DR also relied on the Assessing Officer's comments, a copy of which is placed on record and wherein the following arguments and contentions have been raised against the CIT(Appeals)'s decision : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further pointed out that what the assessee was assigned for surrendering of tenancy was the right to ownership of 15,000 sq.ft. floor space in the new building and whatever right he was having in that it was again the right to transfer to others. In order to support his contentions and arguments, Shri Bajoria placed reliance on the Calcutta High Court decision in the case of CIT v. Octavious Steel Co. Ltd [1996] 221 ITR 810. 7. He then compared the Agreement dated 27-12-1982 with the Agreement dated 24-6-1985 and contended that the former Agreement with the Landlord was for tenancy and to pay rent while the latter one was with a stranger to transfer 15,000 sq.ft. floor space. Therefore, the cost of 15,000 sq.ft. floor area will be the market value of the space on the date of takeover. According to Shri Bajoria, on the facts and circumstances of the case, the cost of 15,000 sq.ft. space is NIL add the rent paid upto October 1984 cannot be taken as the cost of floor space. However, the Id. counsel for the assessee had no objection if the difference between the market value of the floor space and the sale consideration of Rs. 45,50,000 is brought to tax as capital gains. But, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, the rent should have been paid upto 24-6-1985; (4) Clause 9 of the Agreement dated 27-12-1982 has put certain terms and conditions and also restrictions on the present tenancy which are strange to the real tenancy and, therefore, it cannot be treated as even deemed tenancy; (5) The assessee has contended that in terms of the Agreement with the Landlord he was required to pay the rent during the period when he was also not in possession of the demised premises simply for the purpose of keeping alive the tenancy. In our opinion, this contention is not tenable as how a thing which is not in existence or is dead can be kept alive ? (6) As per Agreement dated 27-12-1982 the assessee vacated the premises on 20-9-1983 and in consideration thereof he got the right to possess the floor space of 15,000 sq.ft. on 20-9-1983. Therefore, what continued on 20-9-1983 and onwards was the right to possess the said floor space which came into existence in place of tenancy right. 10. What emerges from the above discussion and facts and circumstances of the case is that on 20-9-1983 the right of tenancy stands transferred for a consideration of right to possess the said floor space which i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng over the possession of old building on 20-9-1983 by the assessee to the Landlord. In other words, transfer of tenancy right was for right to possess the said floor space on 20-9-1983. It is in accordance with the provisions of law as 'transfer' includes 'exchange' as held by the Andhra Pradesh High Court in the case of Addl. CIT v. Trustees of H.E.H. the Nizam's Second Suplementary Family Trust [1976] 102 ITR 248. In view of this whatever the assessee has got in the shape of right to possess the floor space of 15,000 sq.ft. in exchange of delivery or possession of building or tenancy right is not taxable under the head capital gains as on 20-9-1983 as the assessee has incurred no cost. To that extent the assessee's contention is correct. The second transaction arose after one year and 8 months i.e on 24-6-1985 when the right to possess the said floor space was transferred to different parties. It is at this point of time when the capital gain arose on transfer of right to possess the floor space of 15,000 sq.ft. for Rs. 45,50,000. 13. As per provisions of section 45 of the Act transfer of tenancy for right to possess on 20-9-1983 was effected in the assessment year 1984-85 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovement to the cost of asset. It is fully covered under the provisions of section 45. For the above proposition, we derive support from the Madras High Court decision in the case of CIT v. V. Ramaswamy Mudaliar [1992] 196 ITR 939. Wherein it has been held as under : "Held (i) that, looked at from the point of view of the colt and the filly, the expenditure incurred by the assessee, though apparently on the mare, was really for the purpose of nurturing, protecting and preserving the foetus of the colt and the filly in good shape and health, in order that healthy offspring were brought into existence by the mare. The maintenance or upkeep expenses of the mare was really intended to bring into being the offspring in the shape of colt and filly, and, in that sense, could be legitimately regarded as cost incurred by the assessee in the acquisition of the colt and the filly. The amount of Rs. 21,435 could be properly regarded as the cost of acquisition of the colt and the filly which were also sold along with the mare;" In the instant case, the rent was paid by the assessee for the purpose of nurturing, protecting and preserving the foetus of ownership or possession of floor space of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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