1) Appeal number – ITA number 844/MUM/2014 & CO number 76/MUM/2015
2) Date of judgement/order – 29/02/2016
3) Related Assessment year – 2005-2006
4) Courts – AII ITAT (7139) ITAT Mumbai (2073)
5) before Shri Jason P Boaz accountant member & Shri Sandeep Gosain, Judicial member
Premium for surrender of tenancy right is taxable as capital gain
Meaning of tenancy right
Tenancy refers to the possession or occupancy of lands, buildings or other property by title through a lease or on payment of rent
Property Details
Vasant Niwas, Opp Sadat Railway Station (West), Ranade Road, Dadar, Mumbai 400028
Facts of case
1) The assessee trust filed it’s return of income for AY 2005-06 on 25/04/2012 in response to notice under section 148 declaring income of Rs 3,88,000.00
2) proceedings under section 147 were initiated for in view of AIR information that the assessee had made investment for acquiring NABARD bonds/debentures amounting Rs 25,00,000.00 in the period under consideration
3) the assessment was completed under section 143(3) bide order dated 15/01/2013 determining the income of the assessee at Rs 40,43,750.00 as against the returned income of Rs 3,88,000.00
4) in the period under consideration, the assessee granted tenancy rights of a property owned by it to six different parties/tenant for a premium to Rs 51,00,000.00 along with monthly rents
5) 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 ie Rs 46 lakhs
6) the assessing officer did not accept the explanations of the assessee in this regard and proceeded to treat premium of Rs 51 lakhs received on grant of tenancy rights not as capital gains as returned by the assessee but as income from house property
e) B O Jaiswal & Omprakash Jaiswal – Rs 8 lakh (21/01/2005)
f) Bhagyashri O Jaiswal – Rs 17 lakh (21/01/2005)
Total Rs 51 lakh
8) assessee claims that the premium of Rs 51 lakhs received by him from six tenants, in lieu of tenancy rights given to them
9) assessee also claims that AO had not brought on record any material evidence to establish that the premium received as advance rent
10) assessee also claims that premium received by trust on 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
11) right to possession and enjoyment of properties leased for long term periods on which a premium has been charged amounts to a transfer of capital asset
12) The ld counsel of the revenue supported the orders of AO, eligible for tax under head income from house property and not LTCG as claimed by assessee
13) aggrieved by the order of assessment year 2005-06 dated 15/01/2013, the assessee preferred an appeal before CIT(Appeals) – 29, Mumbai
14) the CIT (Appeals) disposed of the appeal vide the impugned order dated 22/11/2013 allowing the assessee partial relief
15) CIT (Appeals) (1) reversed the order of AO (2) dismissed the legal ground raised by the assessee challenging the validity of the order passed under section 147 rws 143(3) of the act
16) aggrieved by the order of CIT (Appeals), Revenue has preferred an appeal raising the following grounds
17) Tenancy right is self-arising asset in the hands of tenant.
This asset comes in to existence only the tenant resides in the tenanted property for longer period ie atleast more than 12 years and belongs to tenant only
This right is not acquired by the owner of property
18) the landlord cannot be a tenant in his own property as he is the owner of the property and has all the ownership rights pertaining to the said property
19) tenancy rights were vested with the old tenants and the same were transferred to a new tenant
20) landlords being owner of the property entered into agreements directly with the new tenants and surrendered tenancy rights in the property without appreciating the fact that whether the rental agreement is tri-partite or bi-lateral
21) the amount received by the landlords from new tenants for accepting the new party as his tenants in place of old tenants, is not a capital asset
22) it can not be presumed that the old tenants surrender tenancy to the landlord without getting a single rupee
23) landlord had received a huge sum of money as advance rent from the new incoming tenants
24) hence this advance rent received has been correctly taxed buy AO and cannot be taxed as capital gains
25) question is why monthly rent is minimum and the premium is very high
26) consideration for the grant of the monthly tenancy, the tenant paid to the landlords a lump sum premium
27) landlord is the owner of property and his status remains unchanged before and after the property is given on rent
28) assessee submitted that on record of premium of Rs 51 lakhs on grant of tenancy rights to the six tenants are all a one time payment, nob refundable and is a capital receipt acquired by transfer of a capital asset ie grant of tenancy right and accordingly was exigible for tax as capital gains
29) appeal of revenue dismissed on
grant of tenancy rights by the assessee trust and the premium of Rs 51 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
Chartered Engineer 