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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
ORDER PER RAVISH SOOD, J.M: The present appeal filed by the revenue is directed against the order passed by the CIT(A), 58, Mumbai, dated 30.11.2018, which in turn arises from the assessment order passed by the A.O under Sec. 143(3) of the Income Tax Act, 1961 (for short „Act‟), dated 29.12.2016 for A.Y. 2014-15. The revenue has assailed the impugned order on the following grounds of appeal before us: “1 On facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the assessee has not transferred the Tenancy Rights but the ownership rights in property under the disguise of Deed for Transfer of Tenancy Rights.
2. On facts and in the circumstances of the case and in law, the Id. CIT(A) has erred in not considering the order passed u/s 154 on receipt of the DVO's report, which reiterates that there was transfer of ownership rights and not the tenancy rights.
3. On facts and in the circumstances of the case and in law, the Id. CIT(A) erred in not appreciating the fact that the reference to DVO was made for determination of fair market value of the cost of construction and not the tenancy rights.
4. The Appellant prays that the order of the Ld. CIT(A) be set aside on the above ground and that of the Assessing Officer be restored.
5. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary, with the prior approval of CIT.”
2 Income Tax Officer (IT)-4(1)(1) Vs. Cyrus Russi Jal Taraporevala 2. Briefly stated, the assessee who is a non-resident Indian had e-filed his return of income for A.Y. 2014-15 on 15.07.2014, declaring a total income of Rs.2,61,46,550/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the Act. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
During the course of the assessment proceedings it was observed by the A.O that the assessee during the year in question had made substantial remittances to United States of America. On being queried, it was submitted by the assessee that the source of the remittances was out of his share of sale proceeds of a rented house property. On being called upon to furnish the copy of the “agreement” evidencing the transfer transaction in question, the assessee placed on record a copy of the “deed for transfer of tenancy rights”, dated 17th Day of September, 2013. On a perusal of the aforesaid deed, it was observed by the A.O that while for the transfer transaction was executed for a consideration of Rs.5.05 crores, the market value as per the Stamp Valuation Authority was Rs.13,07,25,000/-. It was observed by the A.O that the assessee along with his brother enjoyed equal ½ share in the aforesaid property. Observing that the assessee while computing his income under head Long Term Capital Gain (for short “LTCG”) had taken the sale consideration as per the “agreement” and not the market value that was adopted by the Stamp Valuation Authority for the purpose of registration of the transfer deed, the A.O called upon him to explain as to why the LTCG may not be recalculated as per Sec. 50C of the Act by taking the value adopted by the Stamp Valuation Authority i.e Rs. 13,07,25,000/- as the deemed sale consideration. In reply, it was submitted by the assessee that as it had transferred the “tenancy rights” of the aforesaid property, viz. Flat at Shakuntala, Worli C- Phase, Mumbai and not the “ownership rights” therefore, the value arrived at for the purpose of stamp duty i.e Rs.13.07 crore which was the value of ownership rights of the property could not be adopted as the sale consideration as regards the transaction of transfer of tenancy rights. In fact, it was submitted by the assessee that considering the market value of the property a/w the fact that it was an old property, the value of the tenancy rights worked out at Rs.3,88,20,739/- which was lower than the consideration of Rs.5,05,00,000/- for which the same had been transferred. In the backdrop of the aforesaid facts, the A.O made a reference to the District Valuation Officer-II, Mumbai which as is discernible from the assessment order was for the purpose of valuation of the property in question. However, till the culmination of the assessment order the valuation report was not received by the A.O. Apropos the stamp duty value of Rs. 13,07,25,000/-, we find that the A.O had also called upon the assessee to explain as to why the same may not to be construed as being in respect of the tenancy rights of the property in question and not its ownership rights thereof, as could be deciphered from the “deed for transfer of tenancy rights”. In reply, it was submitted by the assessee that as the ready 3 Income Tax Officer (IT)-4(1)(1) Vs. Cyrus Russi Jal Taraporevala reckoner rates published by the State Government of Maharashtra were only for and in context of the sale of ownership rights and not property rights thus, the stamp duty value of Rs.13,07,25,000/- was the market value of the property i.e ownership rights and not the tenancy rights. Observing, that the assessee was holding the property in question in perpetuity, the A.O was also of the view that the same was akin to having the rights as the owner of the property. Backed by his aforesaid conviction, the A.O called upon the assessee to explain as to why the LTCG on the transfer of the aforesaid property in question may not be recomputed as per the provision of Sec. 50C of the Act. As the reply filed by the assessee did not find favour with the A.O, he therein recomputed the LTCG as regards the transfer transaction of the property in question by adopting the sale consideration of Rs. 13,07,25,000/- that was adopted by the Stamp Valuation Authority and worked out the assessee‟s 50% share of the LTCG at Rs.6,53,62,500/-.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). On a perusal of the records, it was observed by the CIT(A) that though the A.O observed that the asset involved in the case before him was a tenancy right however, holding a conviction that a tenancy right in perpetuity was akin to the ownership right of a property he had referred the case for valuation under Sec. 50C(2) to the valuation officer. It was noticed by the CIT(A) that post completion of the assessment the valuation report was received from the District Valuation Officer-II , Mumbai, dated 01.06.2017, as per which the value of the tenancy rights of the property in question was determined at Rs.5,19,20,500/-, as against the value declared by the assessee at Rs.5,05,00,000/- (i.e as per the “deed for transfer of tenancy rights”). Observing, that the difference between the actual consideration and the value determined by the valuation officer was 2.81% (approx.), the CIT(A) holding a conviction that as the aforesaid variance was well within the tolerable limit of deviation thus, observed that no cognizance of the said marginal difference was liable to be drawn. At this stage, we may herein observe that the CIT(A) while disposing off the appeal had refrained from adverting to and therein dealing with the issue as to whether the tenancy rights in perpetuity would fall within the realm of Sec. 50C of the Act, or not. Backed by his aforesaid deliberations, the CIT(A) taking cognizance of the fact that the valuation of the tenancy rights of the property in question fairly matched with that reflected by the assessee thus, directed the A.O to adopt the figure as disclosed by the assessee after ignoring the marginal difference of 2.81%. Accordingly, the appeal filed by the assessee was allowed by the first appellate authority.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material available on record. As observed by us hereinabove, it is a matter of fact borne from the records that the A.O had proceeded with on the premise that the assessee had 4 Income Tax Officer (IT)-4(1)(1) Vs. Cyrus Russi Jal Taraporevala transferred the “tenancy rights” of the property in question and not the “ownership rights” of the same. Our aforesaid view is fortified from a perusal of a notice dated 09.12.2016 that was issued by the A.O, wherein he had inter alia observed as under : “On carefully study of the agreement registered is found that value arrived t for the purpose of stamp duty amounting to Rs.13,07,25,000/- is the value of the tenancy rights in the property and not ownership rights. What has been transferred is tenancy rights and the owner agreed for the transfer of tenancy right and value arrived at is for transfer of tenancy rights.” (emphasis supplied by us) In the backdrop of the aforesaid admitted factual position as is borne from the records, we are unable to persuade ourselves to subscribe to the claim of the ld. Departmental Representative (for short „D.R‟) that the assessee had transferred the ownership rights of the property in question. Be that as it may, we find that the A.O for the purpose of determination of the fair market value (of the tenancy rights of the property in question) had as on 17.09.2013 made a reference to the District Valuation Officer-II, Mumbai. As observed by us hereinabove, the District Valuation Officer-II, Mumbai, had vide his order passed under Sec. 55A, dated 01.06.2017 determined the fair market value (of the tenancy rights of the property in question) at Rs.5,19,20,500/-, as against that taken by the assessee at an amount of Rs.5,05,00,000/-. In the backdrop of the aforesaid facts, there remains no doubt that the conviction that had weighed in the mind of the A.O while framing the assessment was that the assessee had transferred the “tenancy rights” of the property in question. At the same time, we cannot also remain oblivious of the fact that the A.O was of the view that holding of tenancy rights in perpetuity of a property was akin to ownership rights. But then, the fact as it so remains is that the A.O undoubtedly had proceeded with and framed the assessment in the backdrop of the fact that the assessee had transferred a “tenancy right” in the property in question. Our aforesaid conviction is fortified from the very fact that even while making a reference to the District Valuation Officer-II, Mumbai the A.O had sought his indulgence for valuation of the “tenancy rights” of the property in question. Backed by the aforesaid factual position, we are unable to accept the claim of the ld. D.R, wherein she had tried to build up a new case and therein impress upon us that the A.O had made a reference to the District Valuation Officer-II, Mumbai for valuing of the “ownership rights” of the property in question and not the “tenancy rights”. As observed by us hereinabove, though the A.O had not doubted the substance of the transfer transaction in question i.e transfer of “tenancy rights” by the assessee, but he was of the view that holding of tenancy rights in perpetuity was akin to ownership rights. As such, it is the dichotomy that had resulted pursuant to usage of the term “ownership rights” vis-avis “tenancy rights” by the A.O that had led to a misconception as regards the issue in question in the mind of the ld. D.R. Be that as it may, it is a matter of an undisputed fact borne from the record that the assessee had transferred the “tenancy rights” of the property in question and the A.O had not doubted the said factual position.
5 Income Tax Officer (IT)-4(1)(1) Vs. Cyrus Russi Jal Taraporevala
It is in the backdrop of the aforesaid factual premises, that we shall herein proceed with the adjudication of the appeal filed by the revenue before us. Admittedly, as had been deliberated at length by us hereinabove, the assessee had vide a “deed for transfer of tenancy rights”, dated 17.09.2013 transferred his share of “tenancy rights” of the property in question viz. Flat at Shakuntala, Worli C- Phase, Mumbai for a consideration of Rs.5,05,00,000/-. As is discernible from the orders of the lower authorities, the A.O had brought the aforesaid transfer transaction within the realm of Sec. 50C of the Act. Although, a reference for valuation of the “tenancy rights” of the property in question was made in the course of the assessment proceedings by the A.O to the District Valuation Officer-II, Mumbai however, the report, dated 01.06.2017 was received from him only after the culmination of the assessment proceedings. As observed by us hereinabove, the District Valuation Officer-II, Mumbai, vide his order passed under Sec. 55A of the Act, dated 01.06.2017 had valued the tenancy rights of the property in question at Rs. 5,19,20,500/-, as against the value returned by the assessee at Rs.5,05,00,000/-. In the backdrop of the fact that the variance/difference between the value of the “tenancy rights” of the property in question that was disclosed by the assessee for the purpose of computing the LTCG on the transfer of the same, as against that determined by the District Valuation Officer-II, Mumbai worked out at a marginal figure of 2.81% thus, the CIT(A) was of the view that as the said variance was well within the tolerable limits the same could safely be ignored. Accordingly, the CIT(A) backed by his aforesaid observation had directed the A.O to accept the value disclosed by the assessee for the purpose of computing the LTCG on the transfer of the property in question. We have deliberated at length on the observations of the CIT(A) and are of a strong conviction that no infirmity emerges there from. Observing that the variance in the value of the “tenancy rights” adopted by the assessee as the sale consideration (as per the deed for transfer of tenancy rights”, dated 17.09.2013) AND the fair market value of such tenancy rights determined by the District Valuation Officer-II, Mumbai vide his order passed u/s 55A Of the Act, dated 01.06.2017 worked out at a marginal figure of 2.81%, the CIT(A) had rightly directed the A.O to accept the sale consideration reflected by the assessee, as such. Accordingly, concurring with the well reasoned view taken by the CIT(A), we uphold the same.