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Income Tax Appellate Tribunal, “A”, BENCH MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI G. MANJUNATHA
Date of Hearing 20/06/2019 Date of Pronouncement 31/07/2019 आदेश आदेश / O R D E R आदेश आदेश PER G.MANJUNATHA (A.M):
This appeal filed by the assessee is directed against order of the Ld CIT(A)-42, Mumbai, dated 01/05/2017 and it pertains to Assessment Year-2012-13. 2. The assessee has raised following grounds of appeal:-
1. The Ld. Assessing Officer has erred in bringing to tax a sum of Rs. 50,59,270/- received from M/s Delta ventures as Income From Other Sources instead of holding the same to be long term capital gain representing amount received on transfer of his right of occupancy as an allottee in a particular piece of land as a member/shareholder of the Janta Co-operative Dairy Society Ltd. as well his business and Ld. Commissioner of Income Tax (Appeals) has erred in confirming the same without appreciating the facts and circumstances of the case in totality.
2. The appellant submits that Ld. Commissioner of Income Tax (Appeals) has erred in confirming the action of the assessing officer in treating the amount received against the transfer of capital asset as income from other sources on irrelevant considerations and without
Allauddin Noormohamed Kadiwala considering various case laws relied by assessee’s in the course of hearing of appeal.
3. Without prejudice to the above the appellant submits that assessee may please be allowed deduction under Section 54F of the Income Tax Act, 1961 to the extent of Rs.50,59,270/- out of the amount invested by him in purchase of a house within a stipulated period.
4. The appellant craves leave to add, amend, alter and/or vary any of the ground/grounds at the time or before hearing of this appeal.
The appellant therefore prays that the amount received by the appellant from M/s Delta Ventures on transfer of his capital assets may please be directed to be treated as long term capital gain and claim of Section 54F of the Income Tax Act, 1961 may please be allowed for making investment of the said amount in the purchase of the new house.
The brief facts of the case are that the assessee is an individual, engaged in dairy business. The assessee has filed its return of income for AY 2012-13 on 26/02/2013. The assessee has declared income under the head profit & gains of business and profession, long term capital gain and income from other sources.
The assessee is a member of society called Janta Co-operative Dairy Society Ltd. The society acquired an immovable property at village Mira, Bhayander, Thane district, admeasuring 22,865 meters, vide registered deed of conveyance dated 21/09/1973. The society permitted its member to construct Khillas (Cattle sheds) and several other structures for storing grass & cattle feeds to carry out their dairy business. The society had also developed other common infrastructure like tube wells, common area for storage, sewerage structures, common electrical fitting, to help the members to carry out dairy business. During the year under consideration, the society
Allauddin Noormohamed Kadiwala had entered into a joint development agreement with M/s Delta Reality, a partnership firm vide JD agreement dated 23/12/2011 for development of 20174 Sq. Mtrs of the property. The said agreement is tripartite between the assessee, M/s Delta Realty and also the assessee being one of the confirming party. As per said agreement, for the purpose of joint venture, M/s Delta Venture has valued entire land at Rs.25,21,00,000/- and paid the society a sum of Rs.12,60,00,000/- being 50% of the value of land. The said 50% money received from the developers has been distributed by the society and its members at the ratio of 7.5% for society and 42.5% for its members. Accordingly, the assessee had received a sum of Rs.50,59,270/-. The assessee claimed that amount received from builder on account of surrender of his tenancy rights/possessory rights is capital in nature and accordingly, computed Long Term Capital Gain from transfer of tenancy/possessory rights and also claimed exemption u/s 54F of the Act, for a consideration of Rs.53,76,850/- for purchase of residential house.
The case was selected for scrutiny. During the course of assessment proceedings, the Assessing Officer, on the basis of information furnished by the assessee including agreement between the assessee, the society and the developer came to the conclusion that what was received by the assessee from the developer is on Allauddin Noormohamed Kadiwala account of loss of business but, not for transfer to his tenancy rights/possessor, rights, which is evident from the terms and conditions of agreement between the parties as per which the land was belongs to the society and the members was allowed to construct Khillas for the purpose of carry out their business, therefore, at any stretch of imagination, it cannot be considered that the assessee is having any kind of rights in the said property.
Accordingly, he rejected arguments of the assessee and considered amount received from the builder under the head income from other sources and also rejected exemption claimed u/s 54F of the Act.
5. Aggrieved by the assessment order, the assessee preferred an appeal before the ld. CIT(A). Before the Ld. CIT(A), the assessee has filed elaborate written submissions vide his letter dated 01/09/2017, which has been reproduced at para-4 on pages 3 to 8 of the Ld. CIT(A)’s order. The sum and substance of arguments of the assessee before the Ld. CIT(A) are that by virtue of agreement between the assessee, the society and the builder, he got compensation for transfer/relinquishment of possessory rights in the property, therefore, the same has been rightly considered under the head capital gain and accordingly, computed Long Term Capital Gain after claiming necessary exemption u/s 54F of the Act.
Allauddin Noormohamed Kadiwala
The Ld. CIT(A) after considering relevant submissions of the assessee and also taken note of agreement between the parties held that what was received by the assessee from the builder by virtue of agreement between them is essentially to compensate the member for loss of business and for relinquishment of their rights in said Khillas, structures and other infrastructures put up by them.
Therefore, money received by the members of the society was only to compensate for physical structure put up by them and not for surrender of any tenancy rights, because no tenancy rights has been given to those members. The Ld. CIT(A), further observed that the right of usufruct or easement does not entitle the assessee claim that it is holding a capital asset which can be transferred by him under any law. Therefore, he opined that there is no merit in the claim of the assessee that compensation received from builder is on account of transfer of tenancy rights or possessory rights of the property and accordingly, upheld the findings of the Ld. Assessing Officer in assessment of said compensation under the head ‘Income from other sources’ and also rejection of exemption claimed u/s 54F of the Act.
7. Aggrieved by the Ld. CIT(A)’s order, the assessee is in appeal before us.
Allauddin Noormohamed Kadiwala
8. Ld. Ld. AR for the assessee, submitted that the Ld. Assessing Officer as well as the Ld. CIT(A) were erred in not appreciating the facts in right proper perspective in light of evidences filed by the assessee before coming to the conclusion that what was received by the assessee from the builder is on account of loss of business, but not compensation for transfer of tenancy rights/possessory rights in property. The Ld. AR further submitted that an identical issue has been considered by the Co-ordinate Bench of ITAT, Mumbai Bench in the case of Rahim Kasm Kadiwal vs Pr. CIT in & 3388/Mum/2018 for AY 2012-13 and 2013-14, where under identical set of facts and also on the basis of similar agreement between the assessee and Janta Co-operative Dairy Society Ltd. and M/s Delta Realty, the Tribunal held that compensation received from the builder is on account of transfer of tenancy/possessory rights, consequently the same is assessable under the head income from capital gains. He, further submitted that exactly identical in the nature from that of the issue which had been already considered by the Tribunal, the additions made by the Assessing Officer towards compensation received from the builder under the head income from other sources should be deleted and Long Term Capital Gain computed by the assessee and also resultant exemption claimed u/s 54 of the Act should be accepted.
Allauddin Noormohamed Kadiwala
9. The Ld. DR, on the other hand, strongly supported order of the Ld. CIT(A) and submitted that the Ld. CIT(A) has rightly upheld the findings of the Assessing Officer in light of various facts brought out by the Assessing Officer during the course of assessment proceedings that what was received by the assessee is a compensation for loss of business, but not for transfer of tenancy rights/possessory rights in property. The Ld. DR had taken us to the paper book filed by the assessee, more particularly tripartite agreement between the parties to argue that as per said agreement, the land is owned by the assessee and the member was not having any right in the said property. Further, the members were allowed to construct cattle sheds for storage of grass and other items which is relevant for their dairy business. The Ld. DR further submitted when the society entered into a joint development agreement with the builder, the member started dispute with the society, therefore, after prolonged discussion, they reached to understanding and as per which the builder and the society agreed to compensation for loss of business as well as structures put up by members, therefore, the same cannot be considered as compensate for transfer of tenancy rights/possessory rights. The Ld. DR further submitted that on going through the agreement between the parties, it was very clear that nowhere it is mentioned that the members have any right in property
Allauddin Noormohamed Kadiwala nor they have been given tenancy rights in the said land. Unless, it was proved with necessary evidence that they are having some kind of rights in the said property including any kind of tenancy rights, the amount received from the builder cannot be considered as capital receipt can be assessable under the head capital gains. The Assessing Officer as well as the Ld. CIT(A) have considered relevant facts to come to the conclusion that amount received from the builder is a compensation for loss of business and the same is assessable under the head income from other sources.
We have heard both the parties, perused the material available on record and gone through the orders of the lower authorities. The sole dispute is with regard to compensation received by the assessee by virtue of tripartite agreement between Janta Co- operative Dairy Society Ltd., M/s Delta Reality and the assessee being one of the confirming parties. The assessee claims that said compensation is on account of transfer of his tenancy rights/possessory rights in the property, therefore, the same is rightly assessed under the head income from capital gains, consequently exemption available u/s 54Fof the Act has been rightly claimed. The Assessing Officer assessed compensation received from the builder under the head income from other sources on the ground that the assessee was not having any kind of right or interest in the property,
Allauddin Noormohamed Kadiwala but what was received by the assessee by virtue of tripartite agreement is compensation for loss of business and other structures put up by the assessee to carry out their dairy farming activity. We find that an identical issue has been subject matter of deliberation from the Co-ordinate Bench of ITAT, Mumbai, in the case of Rahim Kasam Kadiwal vs Pr. CIT in & 3388/Mum/2018 for AY 2012-13 and 2013-1 in 263 proceedings. We further noted that the Tribunal had considered identical issue in the light of tripartite agreement between the assessee, Janta Co-operative Dairy Society Ltd. and M/s Delta Reality, developer of the project and after considering relevant facts held that what was received by the assessee by virtue of tripartite agreement is for transfer of tenancy rights/possessory rights and same is assessable under the head income from capital gains. The Tribunal further observed that when the Department has accepted income declared under the head capital gains in other member’s cases, was erred in not accepting in the case of the assessee without bringing on record any changes in facts. The relevant findings of the Tribunal are as under:-
We have heard the submissions of the learned A.R. of the assessee and the learned D.R. for Revenue and perused the material on record. The learned A.R. of the assessee submits that initially the return of income was accepted under section 143(1) of the Act. The assessment was reopened under section 147 of the Act on 03.08.2016. Notice under section 148 of the Act dated 03.08.2016 was issued to the assessee. The learned A.R. further submits that during the re-assessment proceedings the AO examined the issue extensively. The AO, after examining the issue, denied the exemption
Allauddin Noormohamed Kadiwala of long term capital gain, which is now subject matter of appeal before the CIT(A). The learned A.R. invited our attention to para 5 of the assessment order and has shown that the issue was examined by the AO at length. The learned A.R. further submits that Section 27 of the Act defines the ownership and as per clause (iii) of Section 27 of the Act a member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association, as the case may be, shall be deemed to be the owner of that building or part thereof.
The learned A.R. of the assessee further submits that in respect of other members of the Society the Revenue has accepted the claim of long term capital gain. The learned A.R. of the assessee furnished a copy of assessment order in the cases of (i) Shri Tajdin Kasam Prasla by ITO, Ward 31(3)(2), Mumbai under section 143(3) r.w.s. 147 of the Act, (ii) Shri Tajbhai Jivan Karvalia by ITO, Ward 31(3)(2), Mumbai or A.Y. 2012- 13 under section 143(3) r.w.s. 147 of the Act, (iii) Shri Iqbal Rajabai Momin by ITO, Ward 31(2)(1), Mumbai for A.Y. 2012- 13 under section 143(3) r.w.s. 147 of the Act dated 24.12.2016 and (iv) Shri Nizarali N. Prasala by ITO, Ward 31(2)(4), Mumbai for A.Y. 2012-13 under section 143(3) r.w.s. 147 of the Act dated 28.12.2016.
The learned A.R. further submits that no revision order is passed in all the four cases. The learned A.R. therefore submits that the order of the AO is not erroneous as the Assessing Officer has taken a reasonable and possible view and in view of the law laid down by the Hon'ble Apex Court in the case of Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 the twin conditions as enunciated under section 263 of the Act are not fulfilled. Therefore the revision order passed by the learned Pr.CIT is liable to be quashed. The learned A.R. also relied upon the decisions in case of CIT vs. Fine Jewellery (India) Ltd. 372 ITR 303, CIT Vs Max India (295 ITR 282 SC), Grasim Industries Ltd Vs CIT (321 ITR 303 Bom), Idea Cellular Ltd Vs DCIT (301 ITR 407 Bom), Real Traders Vs PCIT (2929/Mum/2016), Simandhar Association Vs PCIT (ITA No789/Mum/2016) and Union of India Vs Cadell Weaving Mills Co. Ltd & other( 273 ITR 3 SC).
10. On the other hand, the learned D.R. for the Revenue supported the order of the learned Pr. CIT. The learned D.R. further submitted that the AO has not examined if the long term capital gain is correct of not. There is no examination of long term capital gain claim by the assessee. The AO has examined only the exemption under section 54F of the Act only. The case law relied and referred by the learned A.R. of the assessee are not applicable on the facts of the present case as the case law relied upon by the learned A.R. are prior to Explanation 2 of Section 263(1) of the Act. Since the AO has not Allauddin Noormohamed Kadiwala examined the nature of compensation, therefore, the order is not only erroneous but prejudicial to the interest of Revenue. The learned D.R. further submits that when two views are possible the view taken by the Pr.CIT prevails. If the AO committed error then the learned Pr.CIT has the right to correct the same. Thus, the view taken by the learned Pr.CIT on the issue will prevail. In support of his submission the learned D.R. relied upon the decision of the Hon'ble Delhi High Court in the case of CIT vs. Goetze (India) Ltd. 361 ITR 505.
In rejoinder the learned A.R. submits that the order of the learned Pr.CIT is contrary in itself. The Pr.CIT at one place concluded that the assessee has no tenancy right. On the other hand the Pr.CIT treated the assessee and other 43 members of the society as tenants.
We have considered the rival submissions of the parties and have gone through the orders of the AO as well as the order passed by the learned Pr. CIT under section 263 of the Act. In our view the sole issue for our consideration is whether the amount of compensation received by the assessee is a “capital gain” or “income from other sources”. Section 2(14) of the Act define “capital asset” means a property of any kind held by an assessee, whether or not connected with the business or profession. The claim of the assessee is that being a member of the society the assessee has received compensation of `1.01 crores as his share from a joint venture agreement. In the return of income the assessee claimed this amount as a receipt on account of surrendering the tenancy right (his share) as capital gain and claimed exemption under section 54F of the Act for `99,52,083/- on investment for purchasing residential house. The claim of exemption under section 54F of the Act is not the issue before us. The only issue as we have referred earlier is whether the compensation received by the assessee is received on account of transfer of “capital gain” or the receipt should be treated as “income from other sources”. The assessee was holding a right being a member of the society and also constructed permanent structure for running his dairy. There is no dispute that the assessee received compensation on surrender of his rights in the society. The right surrendered by the assessee is surely a capital asset as define under section 2(14) of the Act. Though, the assessee has shown in return of income as surrendering of tenancy right, it may be due to wring nomenclature or misconception of facts. But fact remained the same that the assessee was a member of the society.
13. We have noted that in the show cause notice under section 263 the ld. PCIT relied on the decisions of Special bench of Mumbai Tribunal in Cadell Weaving Mills Co (P) Ltd Vs CIT wherein it was held that the amount received by the assessee for surrendering of tenancy right constitute casual and non-recurring income under section 10(3) and was assessable as ‘income from other source’.
The decision of the Special Bench of Mumbai Tribunal has been reversed by Hon’ble Jurisdictional High Court in Cadell Weaving Mills
Allauddin Noormohamed Kadiwala
Co (P) Ltd Vs CIT (249 ITR 265 Bom). The Hon’ble High Court held that whenever there is a receipt, one has to ascertain its source: if it is a business income or salary income or capital gains chargeable under section 45. Further, inquiry has to be made, viz., whether the receipt is casual and non-recurring. Since capital gains are brought within the tax net under section 45, it cannot fall in section 10(3). If any amount of capital gains is non-taxable for any reason as capital gains, that amount cannot be treated, automatically, as a casual and non- recurring receipt under section 10(3). In order to attract section 10(3), two conditions are required to be satisfied, viz., that the receipt should be casual and non-recurring and that it should not arise by way of business income, salary income or capital gains chargeable under section 45. Therefore, the aforestated three types of incomes constitute exceptions to section 10(3). That capital receipts do not fall under section 10(3). If the whole of the value of the capital asset transferred is brought to tax, then what would be charged is the capital value of the asset and not profit or gain as contemplated in section 45 of the Act. Hence, section 56 has no application. It, therefore, followed that the amount receivable on surrender of tenancy rights would not fall within the purview of section 10(3). In view of section 2(24) which defines the word ‘income’, it is clear that only capital gains chargeable under section 45 would fall within the definition of section 2(24)(vi). Therefore, there was no merit in the contention of the department that capital gains which arise in cases of transfer of assets whose cost of acquisition cannot be computed would fall under section 56.
11. In this view of the matter and also by following the decision of the ITAT, Mumbai ‘D’ Bench in the case of Rahim Kasm Kadiwal vs Pr. CIT in & 3388/Mum/2018, we are of the considered view that Assessing Officer as well as the Ld. CIT(A) were erred in considering compensation received by the assessee by virtue of tripartite agreement under the head income from other sources, accordingly, we direct the Assessing Officer to assess compensation received from transfer of tenancy/possessory rights under the head capital gains.
Allauddin Noormohamed Kadiwala
12. Having said so, let us come to the issue of deduction claimed u/s 54F of the Act. The Assessing Officer denied 54F benefit for the simple reason that said compensation has been assessed under the head income from other sources, consequently, benefit of exemption of u/s 54F of the Act cannot be given. We find that we have directed the Assessing Officer to assess said compensation under the head capital gains, consequently, benefit of exemption u/s 54F of the Act shall also needs to be given to the assessee, if prescribed conditions of Section u/s 54F of the Act are fulfilled. In this case, there is no dispute with regard to the fact that the assessee has paid a sum of Rs.51 lakhs for purchase of residential house vide agreement dated 07/03/2012 and also claims that a sum of Rs.25 lakhs has been paid before 31/07/2012 and balance amount of Rs.26 lakhs claim to have been paid by M/s Delta Ventrure directly to the builder. These facts needs to be verify by the Assessing Officer in light of agreement along with payment proof. Therefore, we set-aside the issue to the file of the Assessing Officer and direct him to cause necessary enquiries to ascertain facts with regard to payment of consideration on or before prescribed date as provided u/s 54F of the Act, in order to give benefit of exemption.
In the result, appeal filed by the assessee is allowed for statistical purposes only.
Allauddin Noormohamed Kadiwala Order pronounced in the open court on this 31 /07/2019