ASHWIN VARDHICHAND SHAH,MUMBAI vs. INCOME TAX OFFICER 15(1)(4), MUMBAI

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ITA 2434/MUM/2023Status: DisposedITAT Mumbai12 December 2023AY 2011-1212 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the registered agreements were indeed tenancy agreements, not sale agreements. The assessee was one of four co-owners of the flats, and the terms of the registered tenancy agreements, which incorporated provisions of the MRC Act, 1999, indicated a rental arrangement. The Tribunal found no evidence of any consideration passing between the assessee and the tenants for the transfer of title. The AO and CIT(A) erred in treating the tenancy/rental agreement as a transfer of property without sufficient material. Furthermore, the Tribunal held that Section 50C of the Act, being a deeming provision applicable only to 'land or building', does not extend to 'rights' in land or building, such as tenancy rights. Therefore, the addition made by the AO applying Section 50C was deleted. The appeal of the assessee was allowed.

What were the facts?

The assessee, Ashwin Vardhichand Shah, filed his return for AY 2011-12. The Assessing Officer (AO) noted from AIR information that the assessee, a co-owner of two flats, entered into registered agreements on 17.01.2011 for consideration of Rs. 31,60,080/- and Rs. 39,47,400/-. The AO believed these were sale transactions and, deeming the stamp duty value as sale consideration under Section 50C, treated the total Rs. 71,07,480/- as Long Term Capital Gain (LTCG), holding the tenancy agreement was a colourable device to avoid tax. The CIT(A)/NFAC upheld the AO's action. The assessee appealed to the ITAT Mumbai.

What were the issues?

1. Whether the registered agreements, described as tenancy agreements, for two flats, which resulted in a total consideration of Rs. 71,07,480/- based on stamp duty value, constitute a 'transfer' of property in the hands of the assessee for the purpose of computing capital gains, and whether Section 50C of the Income Tax Act, 1961, is applicable. Assessee's contentions: The registered documents were indeed tenancy agreements, not sale agreements. The AIR information was incorrect. No sale took place, hence no capital gain arises. The AO and CIT(A) erred in treating the tenancy/rental agreement as a transfer of property and wrongly applied Section 50C. The assessee relied on decisions in Atul G. Puranik v ITO, ACIT v M/s. Munsons Textiles, DCIT v Tejinder Singh, and Kishori Sharad Gaitonde v ITO, arguing that Section 50C does not apply to tenancy rights. Revenue's contentions: The AO considered the transaction a colourable device to avoid taxation, citing the Supreme Court judgment in Mc. Dowell & Co. vs. CIT. The CIT(A) held that the money paid for regularizing the tenancy agreement was in the nature of tenancy rights, with nil cost of acquisition, and taxable as capital gains, upholding the AO's decision. The Ld. DR could not show that title had passed to the tenants.

Which sections of the Income-tax Act were involved?

Section 50C,Section 143(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “A” BENCH, MUMBAI

Before: SHRI ABY T. VARKEY, JM & SHRI PRASHANT MAHARISHI, AM.

For Appellant: Shri Vimal Punmiya
Hearing: 19/10/2023Pronounced: 12/12/2023

O R D E R

PER ABY T. VARKEY, JM:

1.

This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)/(NFAC), Delhi dated 26.06.2023 for the assessment year 2011-12.

2.

The main grievance of the assessee is against the action of the Ld. CIT(A) confirming the capital gain of Rs.71,07,480/- u/s 50C of the Income Tax Act, 1961 (hereinafter “the Act”).

3.

Brief facts are that the assessee filed his return of income declaring total income of Rs.1,95,308/- on 04.07.2011 which was processed u/s 143(1) of the Act. Later, the case of the assessee was selected for scrutiny under CASS. According to the AO, the assessee is an individual having business income from proprietorship concern namely M/s. Hi Tech Business Centre, income from other sources, 2 A.Y. 2011-12 Ashwin Vardhichand Shah Short Term Capital Gain (STCG) on sale of shares. According to the AO [from perusal of the ITD details] he came to know that assessee is co-owner of tenancy rights; and in this year, assessee had entered into a tenancy agreement of two flats/building, which had a market value of Rs.31,60,080/- and Rs.39,47,400/- (total Rs.71,07,480/-). Further, according to him, as per AIR information, he noted that the assessee had entered into sale of property which was jointly owned by him with three others on 17.01.2011 for a consideration of Rs.39,47,400/- and Rs.31,60,080/- respectively. So, he issued show cause notice to the assessee as to why the same should not be treated as capital gain, since the

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