IT: Where assessee was in possession of a property and later on he sold right of possession to another person for a sum, it was necessary to decide first whether assessee's rights in property constituted a 'tenancy rights' within amended section 55(2)
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[2013] 34 taxmann.com 189 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'A'
Kishori Lal Basanti Lal Patodia
v.
Assistant Commissioner of Income-tax*
DINESH KUMAR AGARWAL, JUDICIAL MEMBER
AND D. KARUNAKARA RAO, ACCOUNTANT MEMBER
AND D. KARUNAKARA RAO, ACCOUNTANT MEMBER
IT APPEAL NO. 8968 (MUM.) OF 2010
[ASSESSMENT YEAR 2007-08]
[ASSESSMENT YEAR 2007-08]
FEBRUARY 20, 2013
Section 55, read with section 45, of the Income-tax Act, 1961 - Capital gains - Cost of acquisition [Tenancy rights] - Assessment year 2007-08 -Assessee was in possession of a premise since 1975 and there was a lot of litigation about ownership of premise - NTC initiated legal proceedings for recovery of said premise and Estate officer passed an order directing occupants to pay a sum - Meanwhile NTC conducted a public auction of said property and 'A' was declared as successful bidder - By that time, assessee sold right of possession in property to one 'R' and claimed status of tenancy rights and computed gains in accordance with section 55(2) - Assessing Officer held that since assessee was never a tenant and he was occupying premises illegally, he did not have rights of tenancy - He, accordingly, brought income to tax under head 'income from other sources' - Whether since assessee sold 'right of possession' to 'R', revenue wrongly assumed that agreement was between 'A' and assessee - Held, yes - Whether since, 'tenancy rights' attained legal cognizance vide amended section 55(2), it was necessary to first decide if assessee's rights in property constituted a 'tenancy rights' within meaning of section 55(2) - Held, yes [Paras 8 to 10] [Matter remanded]
CASE REVIEW
Cadell Wvg. Mill Co. (P.) Ltd. v. CIT [2001] 249 ITR 265/116 Taxman 77 (Bom.) (para 10) distinguished.
CASES REFERRED TO
Cadell Weaving Mill Co. (P.) Ltd. v. Asstt. CIT [1995] 55 ITD 135 (Bom.) (SB) (para 5) and Cadell Wvg. Mill Co. (P.) Ltd. v. CIT [2001] 249 ITR 265/116 Taxman 77 (Bom.) (para 6).
Rakesh Joshi for the Appellant. Manoj Kumar for the Respondent.
ORDER
D. Karunakara Rao, Accountant Member - This appeal filed by the assessee on February 22, 2010 is against the order of the Commissioner of Income-tax (Appeals)-23 Mumbai, dated October 25, 2010 for the assessment year 2007-08.
2. In this appeal, the assessee raised the following grounds which read as under :
| "1. | The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in upholding the order passed by the Assessing Officer under section 143(3) of the Income-tax Act, 1961, which is illegal and bad in law. | |
| 2. | The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in concurring with the assessment of Rs. 85,00,000 received from surrender of tenancy/occupancy rights as 'income from other sources' instead of the declared head of income, i.e., 'long-term capital gain'. | |
| 3. | Without prejudice to the above, the learned Commissioner of Income-tax (Appeals) ought to have held that the receipt is not taxable being consideration received for relinquishment of tenancy occupancy rights having no cost of acquisition. | |
| 4. | The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in sustaining the levy of interest under sections 234B, 234C and 234D of the Act." |
3. During the proceedings before us, at the outset, Shri Rakesh Joshi, learned counsel for the assessee mentioned that the above grounds revolve around one issue, i.e., whether the receipt of Rs. 85 lakhs received by the assessee is for surrender of tenancy/occupancy rights, it is taxable as "capital gains".
4. Ground No. 2 which is the core ground relates to the assessability of the sum of Rs. 85 lakhs receipts on account of surrender or transfer of tenancy/occupancy rights under the head "Income from other sources". In this regard, learned counsel mentioned that the assessee was an occupant of a premise i.e., "G-2" situated at 29, Nepean Sea Road, Mumbai. He is in possession of the said premises since 1975 and there was a lot of litigation about the ownership of the premises and initially Apollo Mills Ltd. claimed the ownership and subsequently National Textile Corporation (SM) Ltd. instituted legal proceedings for the recovery of the said premises. The Estate officer was appointed and an order dated October 25, 2004 was passed in this regard ordering the occupants to pay a sum of Rs. 91.56 crores. Meanwhile, National Textile Corporation (NTD) (SM) Ltd., conducted a public auction of the said property and M/s. Amur Real Estate Pvt. Ltd., was declared as successful bidder. By that time, the assessee sold the "right of possession" in the property to one Shri Rajan Kirtanlal Shah, 701, Landmark, Tagore Road, Santacruz (West), Mumbai -400 054 for a sum of Rs. 84 lakhs vide an unregistered agreement dated August 14, 2006 and claimed status of tenancy rights and computed capital gains in accordance with the provisions of amended section 55(2) of the Act. The assessee invested the gains in a residential house and claimed the benefits of section 54 of the Act. Finally, the assessee did not pay any tax on the receipt of Rs.84 lakhs. The Assessing Officer did not accept the said claim of the assessee and mentioned that the assessee was never a tenant, he was merely occupying the premises illegally and therefore, he does not have the rights of tenancy. Therefore, the rights sold by him are not tenancy rights, consequentially provisions of section 55(2) does not have any application to the present case. What is sold by the assessee is the "right of litigation" and the income was brought to tax under the head "Income from other sources". The assessee was not given a benefit of the provisions of section 54 in respect of residential house purchased by him at Vadala High.
5. During the first appellate proceedings, the assessee could not succeed and the Commissioner of Income-tax (Appeals) confirmed the views of the Assessing Officer and relevant discussion is given in para 2.3 of the impugned order. In support of his views, the Commissioner of Income-tax (Appeals) relied on the Special Bench decision of the Tribunal in the case of Cadell Weaving Mill Co. (P.) Ltd. v. Asstt. CIT [1995] 55 ITD 137 (Bom.) (SB) for the proposition that the tenancy right is merely a personal right and it is not a property right over the premises in such a case, there is no capital asset as per decision given to the capital asset in the Act. Relying on the said decision of the Tribunal, the Commissioner of Income-tax (Appeals) came to conclusion that the assessee being unauthorised occupant of the premises and who has merely a right to remain in possession the property, does not have any right of tenancy over the capital asset. The Commissioner of Income-tax (Appeals) confirmed the Assessing Officer's action in not treating the sum of Rs. 84 lakhs as income from the "capital gains" but also confirmed the taxability of the same under the head "Income from other sources" and consequent denial of deductions under section 54F of the Act. Aggrieved with the same, the assessee filed an appeal before the Tribunal with the above referred ground.
6. During the proceedings before us, learned counsel argued stating that the assessee has been in possession of the said property since 1975 and acquired the rights to remain in the property and transferred the said rights which constitutes tenancy rights to Shri Rajan Kirtanlal Shah for a sum of Rs. 84 lakhs vide agreement dated August 14, 2006 and these facts are undisputed. The Commissioner of Income-tax (Appeals) has also confirmed the fact that the assessee only has the right to remain in possession of the said property. Further, learned counsel brought to our notice that all the authorities, i.e., the Assessing Officer/Commissioner of Income-tax (Appeals) have not understood the transaction that yielded the sum of Rs.84 lakhs. They wrongly mentioned that the agreement was entered into between the assessee and M/s. Amur Real Estate Pvt. Ltd., which is not correct. Factually, the agreement was actually entered between the assessee and Shri Rajan Kirthanlal Shah as seen from page 1 of the paper. Further, he argued that the right of remain in possession of the property is also one of the rights relating to the capital assets therefore, such right cannot be considered as a personal right. Referring to the decision of the Special Bench decision in the case of Cadell Weaving Mill Co. (P.) Ltd. (supra), learned counsel mentioned that the said decision was reversed by the hon'ble Bombay High Court in the case of Cadell Wvg. Mill Co. (P.) Ltd. v. CIT [2001] 249 ITR 265/116 Taxman 77 and mentioned that the surrender of tenancy rights could not be taxed as casual and non-recurring deposits under section the section 56 of the Act under the head "Income from other sources". Mentioning that the said judgment was pronounced by the hon'ble jurisdictional High Court in the context of the pre-amended provisions of section 55(2) of the Act, learned counsel submitted that the said provisions were subsequently amended. Consequentially, right to remain in possession being one of the different shades of tenancy right, constitutes a capital right in the asset and the same is liable to be taxed under the head "Capital gains" as per the amended provisions of section 55(2) of the Act. Further, he drew the analogy of the facts with that of the Cadell Weaving Mill Co. (P.) Ltd. (supra) and mentioned that this is also a case where the lease agreements were renewed after 1975 and the assessee continue to occupy the premises legally. That the assessee was also having a right to remain in possession and the hon'ble High Court in the absence of amended provisions of section 55(2) held it as a "personal right". It is a fact that the assessee never paid any rent since 1975.
7. Per contra, the learned Departmental representative heavily relied on the orders of the Assessing Officer as well as the Commissioner of Income-tax (Appeals). He has nothing to say with reference to the mistaken rights that the agreement dated August 14, 2006 was struck with M/s. Amur Real Estate Pvt. Ltd. Further, he argued that the said agreement is not be taken into account since the same is unregistered by the stamp duty authorities.
8. We have heard both parties, perused the orders of the Revenue and the judgments placed before us. The undisputed facts are that the assessee was a resident in the impugned property since 1975 and the ownership of the property was subject matter of litigation till the order was passed in the year 2004 and the assessee was to make specified payment to the owner as per the said order ; but the property in question was taken over by M/s. Amur Real Estate (P.) Ltd. through the process of auction. By this time, the assessee sold the rights to one Shri Rajan Kirthanlal Shah for sum of Rs. 84 lakhs vide the agreement in the year 2006 which is undisputedly named as a tenancy agreement. Unfortunately, the Revenue has not taken this fact into consideration and they erroneously assumed that the agreement is between the assessee and M/s. Amur Real Estate (P.) Ltd. This assumption of the Revenue is factually incorrect. The said sum of Rs. 84 lakhs was not received from M/s. Amur Real Estate (P.) Ltd., Shri Rajan Kirthanlal Shah is the payer of the said payment. In our opinion, the Assessing Officer and the Commissioner of Income-tax (Appeals) missed very important facts emanating from the said agreement dated August 14, 2006. Considering the above lacunae in the order of the Commissioner of Income-tax (Appeals), we find the matter must be set aside for readjudication by him after hearing the assessee and also after taking into consideration the contents of the above described agreement dated August 14, 2006. The Commissioner of Income-tax (Appeals) shall also consider the below mentioned discussion while passing a speaking order on the grounds extracted above.
9. We find from the facts narrated above that the assessee certainly earned some right in the property, legal or otherwise. The Assessing Officer names the same as the "right to remain in possession" or right to litigate, etc. As per the Assessing Officer, it does not constitute "tenancy rights" for the reasons that the assessee would never fit into the definition of a tenant. As per his order, any occupant to qualify the definition of a tenant, should have paid the rent vide a written or oral agreement and ideally, the landlord must receive the rent over the years or in cases of premises in litigation, which is the fact in this case, there must a Court order declaring the occupant as a tenant. The assessee has not furnished copies of the orders which contain the direction to the occupants of the premises to make payment to the landlord and there is no clarity on the nature of such payment. It is a fact that the said amount was not paid by the assessee to the landlord. There is need for perusal of the said orders/awards to determine the exact nature of the assessee if he is a tenant and earned tenancy rights. In the remand proceedings, the Commissioner of Income-tax (Appeals) shall also adjudicate how the "right to remain in possession of the premises or right to litigate" are different from "the right to tenancy" as both the rights allow the assessee to reside in the premises. Further, he shall also consider the fact that the sum of Rs. 84 lakhs was not paid by the landlord to qualify the normal practice in surrender of tenancy right. In this case, the assessee received sum from one Shri Rajan Kirthanlal Shah, who is undisputedly not the landlord. It is unknown if Shri Shah has surrendered the right in favour of the M/s. Amur Real Estate (P.) Ltd. In our opinion, the transaction between the assessee and the landlord is not the same qua the transaction between the assessee and Shri Rajan Kirthanlal Shah or M/s. Amur Real Estate (P.) Ltd. and the consideration received by the assessee shall have different treatments in sofaras the tax treatments are concerned. Considering the fact the lower authorities have not appreciated the facts properly in the adjudication, for want of basic facts, we are unable to provide conclusive adjudication here in this appeal.
10. Regarding the applicability of the judgment in the case of Cadell Weaving Mill Co. (P.) Ltd. (supra), we find that the said judgment belongs to the period prior to the amendment to section 55(2) of the Act and the tenancy rights are held "personal right" under the legal background of that period. It was held that the consideration received in that case is not chargeable to tax under the head "Income from other sources" as there was no law to call tenancy right as a capital right. The whole gamut of legal background is entirely different and in that sense, the said case is distinguishable. Therefore, there is need for interpreting the facts of the present case in the light of the amended law, where the "tenancy rights" attained legal cognizance vide the amended section 55(2) of the Act. As such there is need for first deciding if the assessee's rights in the property constitutes a "tenancy rights" within the meaning of section 55(2) of the Act. Further, the Commissioner of Income-tax (Appeals) shall consider the fact that the assessee transferred some right, whose exact nature is yet to be determined by the Revenue with the help of concrete basic facts to Sri Shah, who made a payment of Rs. 84 lakhs in lieu of such transfer. Thus, the Commissioner of Income-tax (Appeals) is directed to pass a speaking order in the lines narrated above after granting reasonable opportunity of being heard to the assessee. Accordingly, the grounds raised are set aside.
11. In the result, the appeal of the assessee is allowed for statistical purpose
Regards
Prarthana Jalan
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