Girdharlal Brothers Vs ACIT/JCIT/DCIT/ACIT/ITO (ITAT Mumbai)
Summary: The Mumbai Bench of the Income Tax Appellate Tribunal allowed the appeal of M/s. Girdharlal Brothers for assessment year 2018-19 and directed deletion of a Rs.38.48 lakh addition arising from the surrender of tenancy rights. The addition had been sustained by the NFAC in its order dated 11 January 2024.
The assessee occupied a shop in Rani Building, Girgaum, Mumbai, as a tenant. Because the building was being redeveloped, the assessee agreed to surrender tenancy rights in exchange for permanent alternate accommodation. A subsequent deed dated 21 July 2017 recorded entitlement to 351.86 sq. ft. of carpet area.
The Assessing Officer adopted the stamp duty valuation of Rs.38.48 lakh as long-term capital gains under Section 45(1), invoking Section 50C, although the assessee had not received the alternate premises. The CIT(A) affirmed the addition.
The assessee contended that Section 50C applies to transfers of land or buildings, not tenancy rights, and relied on the Bombay High Court judgment in Abdul Aziz Abdul Kadar. The Revenue supported the assessment and appellate orders.
The Tribunal followed the Bombay High Court ruling in Abdul Aziz Abdul Kadar, which had relied on Atul G. Puranik, and considered Mrs. Shirinbai P. Pundole concerning surrender of tenancy rights against alternate accommodation. It held that Section 50C could not be applied to the transaction.
The Tribunal directed deletion of the addition and allowed the appeal. It clarified that the Assessing Officer could take appropriate action under the law in the year of completion and allotment of alternate accommodation.
Cases Discussed:
- CIT Vs Abdul Aziz Abdul Kadar (Bombay High Court), ITA No.1821 of 2013 — Section 50C does not apply to transfer of tenancy rights.
- Atul G. Puranik Vs ITO (ITAT Mumbai), ITA No.3051/Mum/2010 — Section 50C does not apply to transfer of leasehold rights.
- Mrs. Shirinbai P. Pundole (Bombay High Court), 129 ITR 448 — Considered the capital-gains implications of surrendering tenancy rights for alternate accommodation.
- CIT Vs Jehmi Jal Cooper (Bombay High Court), Income-tax Application No.59 of 1977 — Referred to in the quoted decision in Shirinbai P. Pundole.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee is preferred against the order dated 11/01/2024 by NFAC, Delhi pertaining to Assessment Year 2018-19.
2. The sum and substance of the grievance of the assessee is that the CIT(A) erred in confirming the action of the AO in making addition of Rs.38.48 lakhs u/s.50C of the Act on cancellation of tenancy rights.
3. Briefly stated the facts of the case are that the assessee electronically filed his return of income on 24/09/2018 declaring income of Rs.36,400/-. The return was selected for scrutiny assessment and accordingly, statutory notices were issued and served upon the assessee.
4. While scrutinizing the return of income, the AO noticed that the assessee has received consideration for transfer of immovable property. The assessee was asked to furnish the details and the assessee submitted that the relevant and supporting documents including deed of transfer. It was explained that the assessee is in receipt of consideration in respect of the property which was a tenancy property which was in a dilapidated and dangerous condition for its tenants / occupants. As the building was undertaken for re-development, the assessee in lieu of the tenancy property would be given a permanent alternate accommodation. It was further explained that the said property is still under construction.
5. The reply of the assessee was considered by the AO alongwith supporting documents but did not accept the contention of the assessee. As per the deed of transfer, the assessee has transferred a property for Rs.38.48 lakhs but no capital gain is reflected / declared by the assessee and since the deed of transfer is executed by the assessee, the assessee is considered as transferor of the capital asset and as the stamp valuation authority determined Rs.38.48 lakhs as the value of the capital asset therefore, the consideration amounting to Rs.38.48 lakhs is considered as long term capital gain in the hands of the assessee within the meaning of Section 45(1) of the Act and accordingly, Rs.38.48 lakhs was added to the income of the assessee.
6. Assessee reiterated the matter before the CIT(A), but without any success.
7. Before us the Counsel for the assessee drew our attention to the respective transfer deed dated 06/01/2017 and 21/07/2017. The Counsel pointed out that as per the agreement dated 06/01/2017 which falls in F.Y.2016-17 not relevant to the assessment year under consideration; the assessee being a tenant / occupant gave his consent to the owner / developer to carryout the entire work of development of the said property on allotment of a permanent alternate accommodation. Since the assessee defaulted on certain conditions as per the deed of conveyance dated 21/07/2017 which falls in the year under consideration, the assessee could get alternate accommodation only to the extent of 351.86 sq.ft carpet area. On this, this deed was registered and the stamp duty valuation authority assessed the stamp value at Rs.38.48 lakhs. It is the say of the Counsel that since the alternate accommodation has not been provided to the assessee, there is no question of any capital gains for the year under consideration. The Counsel vehemently stated that even if there is a transfer of tenancy right, provisions of Section 50C of the Act do not apply as held by the Hon’ble High Court of Bombay in the case of Abdul Aziz Abdul Kadar in ITA No.1821 of 2013.
8. Per contra, the DR strongly supported the findings of the AO and read the operative part of the assessment order and the order of the First Appellate Authority.
9. We have given a thoughtful consideration to the orders of the authorities below. The undisputed fact is that the assessee is a tenant / occupant of Shop No.3, 1st Floor, Rani Building, at Junction of V.P. Road, Raja Rammohan Roy Road, Girgaum, Mumbai. It is also not in dispute that as per the Articles of agreement of October 2016, assessee agreed to surrender his tenancy rights in lieu of the allotment of a permanent alternate accommodation. As per the agreement the assessee was assured 351.87 sq.ft on the second floor of the proposed building and 105.81 sq.ft on the first floor immediately over and above. Since, no alternate accommodation was provided in the impugned year, no transaction was reported by the registering authority.
10. Subsequently, vide deed of transfer dated 21/07/2017, the assessee was allotted only 351.86 sq.ft carpet area and on such deed of transfer, stamp duty was paid at Rs.38.48 lakhs which is the bone of contention.
11. We have given a careful consideration to the decision of the Hon’ble Jurisdictional High Court of Bombay in the case of Abdul Aziz Abdul Kadar and in ITA No.1821 of 2013 wherein the Hon’ble High Court was ceased with the following questions of law and held as under:-
“The Revenue urges the following questions of law for our consideration:-
(i) Whether, on the facts and in the circumstances of the case and in law, the Tribunal has rightly decided that Assessing Officer has wrongly substituted the value adopted or assessable stamp valuation authority only in respect of land or building or both cannot be extended or extrapolated to the transaction of transfer of the tenancy rights under the provisions of Section 50C of the Income Tax Act ?
(ii) Whether, on the facts and in the circumstances of the case and in law, the Tribunal has rightly interpreted the Section 50C of the Income Tax while dismissing the appeal of the Revenue ?
3. We find that the impugned order of the Tribunal dismissed the Revenue’s appeal inter alia holding that the provisions of Section 50C of the Act would not be attracted in case of transfer of tenancy rights. The impugned order placed reliance upon its own decision in “Shri. Atul G.Puranik Vs. ITO 12(1)(1) vide ITA No.3051/M/2010 decided on 13 May 2011. The Tribunal in case of “Shri. Atul G.Puranik” (supra) had held that transfer of tenancy rights is neither ‘a land or building or both’ and thus would not be covered under Section 50C of the Act. Mr. Malhotra, learned Counsel for the Revenue very fairly states that the Revenue has accepted the decision in the case of “Shri. Atul G. Puranik” (supra) inasmuch as no appeal has been preferred against the said order.
In the above view of the matter, the questions as raised do not raise any substantial question of law. Accordingly, the appeal is dismissed.”
12. Assuming that there was a transfer of tenancy right during the year under consideration even then as per the decision of the Hon’ble High Court (supra), provisions of Section 50C of the Act do not apply.
Similarly, in the case of Mrs. Shirinbai P Pundole 129 ITR 448, the Hon’ble High Court of Bombay was ceased with the following substantial questions of law and held accordingly.
1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the assessee’s tenancy of the flat in Rutty Engineer House taken on lease in 1964 did not constitute a “capital asset” within the meaning of section 2(14) of the I.T. Act?
2.If the answer to question No. 1 is in the negative, whether the Tribunal was justified in law in holding that the surrender of the tenancy right to Ms. Jolly and Maker Pvt. Lad, in exchange for an ownership flat in the ruling „IL PALAZZO did not constitute ‘transfer‟ under section 2(47) of the Income- tax Act?
3. Whether the Tribunal was justified in law in holding that the transfer referred to in question No. 2 did not attract capital gain under section 45 of the Income-tax Act?”
The assessee was a tenant occupying a flat in a building known as Rutty Engineer House under a lease taken some time in 1964. Reading the order of the AAC and the judgment of the Tribunal it appears clear that this tenancy was terminated by a notice to quit given some time in 1965 and the assessee thereafter occupied the said flat as a statutory tenant. The building in which the said flat was situated was sold to Jolly and Maker (P) Ltd. who served on the assessee a notice to quit purporting to be under s. 13(1)(hh) of the Bombay Rents, Hotel and Lodging House Rates (Control) Act, 1947. The validity of this notice was disputed by the assessee but that would not make any difference to the fact that the assessee was a statutory tenant of the said flat. Ultimately, pursuant to an arrangement arrived at between the said Jolly and Maker (P) Ltd. and the assessee, the assessee handed over vacant possession of the said flat and was given alternate accommodation in the shape of an ownership flat of a lesser area in the building “IL PALAZZO” situated at Ridge Road, Bombay-400006. The question is whether this transaction attracts any liability to tax as a capital gain under the provisions of section 45 of the said Act.
We find that the facts in this case are in all material regards similar to the facts in. the case of CIT v. Jehmi Jal Cooper (Income-tax Application No. 59 of 1977). In that case, the Commissioner had made a similar application under s. 256(2) of the said Act to this court for directing the Tribunal to state a case and to refer the question set out in that application to this Court for determination. The said application was summarily rejected by a Division Beach of this court on 20th June, 1977. The Commissioner applied for special leave to appeal against this decision to the Supreme Court of India and even that application was rejected by the Supreme Court on 20th November, 1978. In these circumstances, we see no reason to direct the Tribunal to state a case and refer the aforestated questions as applied for by the Commissioner.
In the result, the application is dismissed and the rule is discharged with costs.
13. Considering the facts of the case in the light of the decision of the Hon’ble Jurisdictional High Court (supra), we are of the considered view that provisions of Section 50C of the Act do not apply on the facts of the case in hand. The AO is accordingly, directed to delete the impugned additions.
14. Moreover, since the transaction has not completed during the year under consideration and as per the Counsel it may conclude in subsequent years, the AO is free to take action as per the provisions of the law in the year of completion and allotment of the alternate accommodation.
15. Appeal is allowed.
Order pronounced in the Court on 30th September, 2024 at Mumbai.
