Case Law Details
Brief of the Case
ITAT Mumbai held in the case of ITO vs. Dr. Vasant J Rath Trust that CIT (A) after detailed examination had reversed the finding of the Assessing Officer that the premium of Rs.51.00 lakhs was exigible to the tax under the head income from house property as he was of the view that the grant of tenancy rights by the assessee trust to the tenants was in fact the transfer of capital asset within the meaning of sections 2(14) and 2 (47) and it will be taxable as capital gain. We concur with and uphold the finding of the CIT (A) that the grant of tenancy rights by the assessee trust and the premium of Rs.51.00 lakhs received in lieu thereof from the tenants is a capital asset in the hands of the assessee and is therefore liable for capital gains and is not advance rent exigible to tax under the head income from house property.
Facts of the Case
The assessee trust filed its return of income for AY 2005-06 on 25/04/2012 in response to notice under section 148 declaring income of Rs.3,88,000/-. Proceedings under section 147 were initiated for in view of AIR information that the assessee had made investment for acquiring NABARD bonds/debentures amounting to Rs.25,00,000/- in the period under consideration. The assessment was completed under section 143(3) vide order dated 15/1/2013 determining the income of the assessee at Rs.40,43,750/- as against the returned income of Rs.3,88,000/-.
In the period under consideration, the assessee granted tenancy rights of a property owned by it to six different parties/tenant for a premium aggregating to Rs.51,00,000/- along with monthly rents. The assessee had offered the premium of Rs.51 lakhs received on transfer of tenancy rights to long term capital gains and claimed deduction under section. 54EC to the extent of investment of the capital gain i.e. 46.00 lakhs. The Assessing Officer did not accept the explanations of the assessee in this regard and proceeded to treat the premium of Rs.51.00 lakhs received on grant of tenancy rights not as capital gains as returned by the assessee but as income from house property.
Contention of the Assessee
The ld counsel of the assessee support the order of CIT (A). He submitted that the facts of the matter are that the premium of Rs. 51 lakhs received by the assessee from six tenants, in lieu of tenancy rights given to them is a capital receipt on account of transfer of a capital asset on which it has offered LTCG of Rs. 46,00,000/- and that the said capital gain were invested in NABARD Capital Gain Bonds on which exemption under section 54EC was claimed. He further submitted that after considering the provisions of sections 2(47) and 2 (14), the CIT (A) observed that it is an accepted principle that tenancy rights per-se is a capital asset by virtue of section 2(14) and, therefore, the ‘transfer ‘of any capital asset as per section 2(47) of the Act would result in the charging of Capital Gains thereon. He further submitted that CIT (A) had came to the conclusion that the Assessing Officer had not brought on record any material evidence to establish that the premium received is advance rent.
He further submitted that the CIT (A) following the ratio of the decisions of the Hon’ble Apex Court in the case of Parbari Tea Co. Ltd. (1965) 57 ITR 422(SC) of the Hon’ble Bombay High Court in the case of Ratilal Tarachand Mehta(1977) 110 ITR 71(Bom); of the Co-ordinate Bench of the ITAT Mumbai in the case of Wadhwa Associates & Realtors Pvt. Ltd.(ITA No.695/Mum/2012) held that the premium of Rs.51.00 lakhs received by the assessee trust for grant of tenancy rights to the six tenants is transfer of capital asset and is exigible to capital gains and not as advance rent to be taxed under the head income from house property as held by the Assessing Officer. He further relied on the decision in the case of R.K.Palshikar (HUF) (1988) 172 ITR 0311 (SC) wherein it was held that the right to possession and enjoyment of properties leased for long periods on which a premium has been charged amounts to a transfer of capital asset.
Alternatively, the Ld. Representative for the assessee submitted that if at all the premium of Rs.51.00 lakhs was to be treated as ‘income from house property’ as alleged by the Assessing Officer, then the assessee ought to have been taxed only in respect of that portion of the premium/advance rent that pertains to the year under consideration.
Contention of the Revenue
The ld counsel of the revenue supported the orders of the Assessing Officer in concluding that the premium received from the tenants by the assessee amounting to Rs.51lakhs in the relevant period pertaining to assessment year 2005-06 is not for grant of tenancy rights and is nothing but lumsum rent received in advance and, therefore, exigible to tax under the head ‘income from house property’ and not LTCG as claimed by the assessee.
Held by CIT (A)
CIT A) disposed of the appeal vide the impugned order dated 22/11/2013 allowing the assessee partial relief. In so doing, the CIT (A) (1) reversed the order of the Assessing Officer in holding the premium of Rs.51.00 lakhs received on transfer of tenancy rights as exigible to tax under the head ‘income from house property’ and held it to be assessable as capital gains as declared by the assessee, (2) the CIT (Appeals), however, dismissed the legal ground raised by the assessee challenging the validity of the order passed under section.147 r.w.s. 143(3).
Held by ITAT
ITAT held that CIT(A) after detailed examination had reversed the finding of the Assessing Officer that the premium of Rs.51.00 lakhs was exigible to the tax under the head income from house property as he was of the view that the grant of tenancy rights by the assessee trust to the tenants was in fact the transfer of capital asset within the meaning of sections 2(14) and 2 (47) and also for the reason that the assessee had failed to bring on record any material evidence to establish that the premium of Rs.51.00 lakhs was in fact advance rent as alleged by the Assessing Officer. On the basis of material on record we agree with these views and findings recorded by the CIT (A).
Taking into account the factual matrix and circumstances of the case on hand and the legal position on this issue espoused in section2(14) and 2(47) of the Act and the ratio of the judicial pronouncements on the issue of grant of tenancy rights similar to the facts of the case on hand, inter-alia, laid down by the Hon’ble Apex Court in Parbani Tea Company (1965) 57 ITR 422 (SC), and R.K.Palshikar (HUF) (1988) 172 ITR 311(SC); of the Hon’ble Bombay High Court in the case of Ratilal Tarachand Mehta(1977) 110 ITR 71(Bom) of the Special Bench of the ITAT Mumbai in Mukund Ltd. (106 ITD 231), of ITAT Mumbai Bench in Wadhwa Associates & Realtors Pvt. Ltd. (ITA NO.695/Mum/2012), etc., we concur with and uphold the finding of the CIT(A) that the grant of tenancy rights by the assessee trust and the premium of Rs.51.00 lakhs received in lieu thereof from the tenants is a capital asset in the hands of the assessee and is therefore liable for capital gains and is not advance rent exigible to tax under the head income from house property.
Accordingly appeal of the revenue dismissed.
