Income Tax Appellate Tribunal Mumbai – Tauqeer Fatema Rizvi, Assessee on 08/10/2011
Judicial members – Sanjay Arora, Amit Shukla
In nut shell
Cost of tenancy rights if determinable should be considered while computing capital gains
Market value of the property received against tenancy rights, as on the date of possession, would be the cost of its acquisition, and such cost is deductible while computing capital gains
Facts of case
1) The assesses sold flat at price consideration of Rs 38,78,375.00
2) The flat which was sold during the year was allotted to assesses
on 06/05/1982
3) It was an alternate Accommodation for surrendering her tenancy rights in the old structure by the builder, as assesses was an old tenant in the old building ad-measuring 1200 sft are
4) An agreement was entered with the builder M/s Avis Construction on 06/05/1982, who has taken the old structure for redevelopment
5) In lieu of the surrender of tenancy rights, the builder has offered two flats ad-measuring 728 sft and 500 sft on ownership basis as permanent alternate Accommodation
6) The assesses was also required to deposit Rs 2000 with the builder towards society deposit
7) In the same month and in same building builder sale another 728 sft flat to other person at Rs 3,64,000.00 (ie Rs 500/sft)
8) Hence it was submitted that the cost of acquisition of the flat which was acquired by way of surrendering of tenancy right should be Rs 3,64,000000 for 728 sft flat
9) Assessing officer took the cost of acquisition of Rs 2000 only
10) Assessing officer relied upon the decision of the Supreme Court in K P Varghese Vs ITO, (1981) 131 ITR 597 (SC) and held that notional value cannot be adopted
11) Working of long term capital gain as per ITO officer was
a) Sale consideration as per market value under section 50C
Rs 38,78,375.00
b) Brokerage Rs 35,000.00
c) indexed cost of acquisition as per original return Rs 8,862.00
d) Exemption u/s 54 Rs 10,90,340.00
e) Long term capital gain Rs 27,44,173.00
12) The learned commissioner (appeals) also confirmed the action of assessing officer in adopting the cost of acquisition at Rs 2000 instead of Rs 3,64,000 and upheld the calculation of long-term gain at Rs 27,44,173, worked out by the assessing officer
13) Main fact is that the assesses has got the ownership right of the property in exchange of tenancy rights, as the assessee was an old tenant in the same building
14) Because of surrender of tenancy rights, the builder offered alternate accommodation on ownership basis to the assessee
15) thus the tenancy right have to be valued as on the date of agreement with the builder ie 06/05/1982
16) The said newly acquired flat was sold on 29/10/2004
17) Hence for calculation of long term gain tax, the cost of acquisition on account of surrender of tenancy rights has to be given
18) Following case laws was given to support of assesses contention
a) CIT V/s George Henderson & Co Ltd (1967) 66 ITR 622 (SC)
b) CIT V/s Abrar Alvi (2001) 247 ITR 312 (BOM)
c) Balmukund P Acharya V/s ITO (2010) 45 DTR (Mum) (Trip) 281
d) Atul G Puranik V/s ITO (2011) 132 ITD 499 (Mum)
19) As regards the value of flat of Rs 3,64,000, assesses has taken the said value on the basis of similar transactions undertaken by builder in the month of May 1982, therefore such basis cannot be rejected
20) The builder undertook to develop the said property and in order to rehabilitate the tenants
21) Flat was allotted to assesses on ownership basis in lieu of surrendering tenancy rights
22) Once the cost of acquisition is determinable, the benefit of such acquisition has to be given while computing long term capital gain tax
23) In the result, assesses appeal is partly allowed for statistical purposes
24) Order pronounced in the open Court on 02/05/2014
Summary
The consideration for surrender of tenancy right was the market value of the asset at the point of time when it was given to taxpayer without consideration
The cost of acquisition may be nil on the fact of case, but yet the cost of acquisition may have been incurred (such as by surrender of tenancy rights) and it may be capable of being determined ie market value of premises at the point of time when tenancy rights were surrendered.
Compiled by:-
Vr. Avinash Kulkarni
Chartered Engineer
Govt Regd Valuer
IBBI Regd Valuer
