MANISH TRADERS,GHAZIABAD vs. ITO, GHAZIABAD

PER KULDIP SINGH, JUDICIAL MEMBER :

Appellant, Manish Traders (hereinafter referred to as the ‘assessee’) by filing the present appeal sought to set aside the impugned order dated 02.06.2016 passed by the Commissioner of Income-tax (Appeals), Ghaziabad qua the assessment year 2011-12 on the grounds inter alia that :- “1. That the judgment is against the facts & law of the case. 2. That the learned CIT has erred in confirming the addition of the assessing officer in the Income on account of the Long Term Capital Gain of Rs.52,22,895/- .

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controversy at hand are : from the return of income filed by the assessee

for AY 2011-12 claiming total income of Rs.4,85,000/- after setting of

its brought forward losses of Rs.1,15,480/- from AY 2005-06,

Assessing Officer (AO) noticed that the assessee has sold his assets of

Rs.60,05,000/- and computed the Long Term Capital Gain (LTCG) of

Rs.6,00,480/- in respect of this transfer. Assessee taken cost of

acquisition after indexation at Rs.52,04,520/- which the AO found

incorrect. AO proceeded to hold that as per computation of assessee, the

book value of the assets transferred during the year was Rs.25,139/-

only and after indexation, the indexed value of the said assets could not

exceed Rs.1,81,625/- having a difference of RS./50,22,895/- in the

indexed cost of the acquisition. Consequently, assessment was reopened

u/s 147 of the Income-tax Act, 1961 (for short ‘the Act’). Declining the

contentions raised by the assessee and in the absence of any supporting

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evidence for working out the cost of acquisition, AO made addition of

Rs.52,22,895/-. AO also denied the deduction claimed by the assessee

on account of brokerage of Rs.2,00,000/- to the agent and thereby

assessed the total income of the assessee at Rs.57,13,020/-

CIT (A) who has dismissed the appeal. Feeling aggrieved, the assessee

has come up before the Tribunal by way of filing the present appeal.

to the appeal, gone through the documents relied upon and orders passed

by the revenue authorities below in the light of the facts and

circumstances of the case.

GROUND NO.1 5. Ground No.1 is general in nature and does not require any

specific adjudication.

GROUNDS NO.2, 3 & 4 6. Ld. AR for the assessee challenging the impugned order

contented inter alia that since the assessee has acquired the land in

question prior to 01.04.1981, he is entitled to opt for Fair Market Value

(FMV) as on 01.04.1981 as per valuation of approved valuer; that as per

valuation report, the value of the plot is Rs.7,32,000/- as on 01.04.1981

as per provisions contained u/s 55 (2)(b) but the AO has overlooked all

these facts and denied the benefit of provisions contained u/s 55(2) of

the Act; that the ld. CIT (A) has erred in denying the benefit of FMV to

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the assessee on the ground that the assessee was having only tenancy right in the land in question. 7. However, on the other hand, ld. DR for the Revenue relied upon the order passed by the AO as well as ld. CIT (A) and contended that the assessee has been rightly denied the benefit of FMV. 8. Undisputedly, assessee is holding the land in question by virtue of the registered lease deed dated 02.07.1977, available at pages 48 to 62 of the appeal file, for a period of 90 years in the industrial area

Ghaziabad. It is also not in dispute that the assessee has opted for the valuation of the approved valuer in order to assess the FMV of the property in question as on 01.04.1981, which is valued at Rs.7,32,000/-. 9. In the backdrop of the aforesaid facts and circumstances of the case, arguments addressed by the ld. Authorized Representations of the parties to the appeal and case laws relied upon, the first question arises for determination in this case is :- “as to whether leasehold rights of the assessee for 90 years in the property in question are capital in nature or mere tenancy rights and that assessee is entitled for benefit of Fair Market Value (FMV) so as to compute the capital gains?”

pages 48 to 62 of the appeal file, it is proved on record inter alia :-

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(i) that assessee being a lessee has paid the provisional

premium of Rs.22,575/- which can be enhanced by the

lessor; (ii) that assessee has been made to bear the additional cost

of electrification or development;

(iii) that in case, the lessor is required to contribute

towards any development or the provision of facilities

benefiting the said industrial area as a whole, lessee

shall pay such proportionate premium to the lessor as

may be determined in this behalf by the lessor;

(iv) that the lessor shall pay a sum of Rs.100/- per acre per

annum as lease rent in order to maintain the area;

(v) that the assessee shall discharge all the rates and taxes leviable on the property in question;

(vi) that the provisional premium includes the average

land cost component based on the cost of acquisition

also under the Land Acquisition Act of the whole of

the land;

(vii) that the lessee is entitled to erect industrial unit on the

land in question in accordance with the lay out plan

etc.;

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(viii) that the assessee is entitled to mortgage, sublet,

relinquish or assign his interest in the property in

question or the building standing thereon with the previous consent in writing of the lessor;

(ix) that the lessee can also mortgage to the financial

institutions and scheduled banks who are entitled to

sell the mortgaged property;

(x) that the property in question can be inherited by the

legal heirs and all the taxes are required to be paid by

the lessee/ assessee;

(xi) that the lessee shall be liable to reimburse all expenses

which corporation/lessor may have incurred on the

maintenance of roads, drains, power lines, lights, culverts, water supply lines and sewerage lines etc.;

and

(xii) that the registration charges of the lease deed have

also been borne by the assessee.

prove that the assessee is not having tenancy right rather he is

having ownership of the land which can be mortgaged/sold by him

and the property in question can be inherited by his legal heirs also.

Moreover, substantial interest of the assessee has been created in

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the property in question. So, when the tenure of the lease is for 90 years it certainly creates ownership rights in favour of the assessee

who is entitled to erect industrial unit on the same though with the prior permission of the lessor, namely, UP State Development Corporation Ltd.

premium paid by the assessee could not be considered as advance payment of rent. 13. In the totality of the facts and circumstances of the case,

property in question is to be treated as land and not tenancy rights. Since the word land has not been included in section 55(2)(a), fair market value is liable to compute the capital gain. Coordinate Bench of the Tribunal in case cited as ITO vs. 14.

Shri Hari Om Gupta in ITA No.222/LKW/2013 order dated 11.04.2014 while deciding the identical issue wherein ld. CIT (A)

has held leasehold right as not a capital asset so as to apply provisions contained u/s 55C of the Act and the said findings returned by the ld. CIT (A) has been set aside by the coordinate

Bench of the Tribunal by holding lease right for the period of 99

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years is also capital assets to which provisions of section 50C Are applicable. So, in view of what has been discussed above in the

light of the decision discussed in preceding paras, we are of the considered view that the assessee’s leasehold rights for 90 years in the property in question are capital in nature and not tenancy rights

and he is entitled for benefit of FMV. Accordingly, question framed is answered in affirmative. 15. Now, the next question arises for determination in this case is :-

“as to whether value of the leasehold rights in the land in question of the assessee has to be determined by valuing fair market value of land as on 01.04.1981 and indexed cost of acquisition in order to extend long term capital gains in the hands of the assessee?”

Natraj vs. DCIT, Ahmedabad in ITA No.3063/Ahd/2010 order dated 04.01.2013 while deciding the identical issue, “as to how the

value of leasehold right in the land in question of the assessee has to be determined in order to assess the long term capital gain” by returning the following findings:-

“7. ……..We find that the provision of section 55(2)(a) shall apply in relation to the capital assets mentioned in Section 55(2)(a) of the Act only. The capital assets as mentioned in Section 55(2)(a) are exhaustive and all inclusive of capital assets, such as goodwill, trade mark brand name, right to manufacture, produce or process any article or thing or right to carry

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on any business, tenancy rights, stage carriage permits or loom hours, and being an exhaustive list of capital assets, any other capital asset such as land etc. could not be included for the purpose of valuation of “cost of acquisition” for sections 48 and 49 of the Act. It is well settled that when certain provision of law has clear language and leaves no room for ambiguity, there should be no violence to the provision as enacted by the Legislature and no words should be added or omitted while reading a specific provision of law. We find that the Legislature has intentionally not added word “land” in the provision of Section 55(2(a) of the Act, and therefore, the provision of section 55(2)(a)(ii) of the Act would not be applicable while valuing the “cost of acquisition” of the land for the purpose of computation of “long term capital gain” of the assessee. Accordingly, we hold that the value of the lease-hold rights in the land in question of the assessee, has to be determined in accordance with the provision of section 48 of the Act by valuing “fair market value” of the land as on 1.4.1981 and the index cost of acquisition has to be determined in order to assess long term capital gains in the hands of the assessee.”

entitled for benefit of valuing the property in question on the basis of fair market value as on 01.04.1981 and the cost of acquisition is not to be taken into account for computing the capital gain

particularly when the assessee has opted for use the fair market value. So, the second question framed is also answered in affirmative in favour of the assessee.

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considered view that in view of the findings returned in the

preceding paras, assessee’s leasehold right for a period of 90 years in question is a capital asset and not tenancy rights to which

provisions contained u/s 50C are applicable and assessee is entitled

for benefit of fair market value as on 01.04.1981 in order to

compute the capital gain. So, the findings returned by the ld. CIT

(A) are hereby reversed and the AO is directed to compute the

capital gain accordingly. Grounds No.2, 3 & 4 are determined in

favour of the assessee.

GROUND NO.5 19. AO has not granted benefit of deduction claimed by the

assessee on account of brokerage paid to the agents to the tune of Rs.2,00,000/- on the ground that no evidence has been produced

regarding the alleged expenses made on transfer/brokerage etc.

finding contended that he has made payment of brokerage through

banking channel after duly deducting the TDS. Ld. AR for the

assessee also contended that payment on account of brokerage has

been made to the agents after getting permission from UPSIDC for

transfer and has also brought on record PAN and ITR of the payee

for the relevant period along with bank statement. In these

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circumstances, AO is directed to decide the issue afresh after taking into account the evidence brought on record after providing adequate opportunity of being heard to the assessee. Ground No.5 is determined in favour of the assessee for statistical purposes. 21. Resultantly, the appeal filed by the assessee is allowed for statistical purposes. Order pronounced in open court on this 22nd day of July, 2019.

Sd/- sd/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated the 22nd day of July, 2019 TS