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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
2. The only common issue in these four appeal of Revenue is as regards to the order of CIT(A) directing the AO to assess the premium received on account of the tenancy rights to assess the same as capital gain as against assessment by AO as income from other sources. For all these four years, the Revenue has raised identical worded grounds except the quantum. The learned Counsel for the assessee as well as the learned Sr. DR agreed that the facts and circumstances are exactly identical in all the appeals. Hence, for the sake of brevity, we take up the facts from the assessment year 2007-08 and will decide the issue. For this Revenue has raised following two grounds: -
“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AC to assess premium of Rs.54,70,000I- as Capital Gain instead of assessing it as the income from other sources when the ownership of the property does not change from the hands of the assessee."
On the facts and in the circumstances of the case and in law, the impugned order of the Ld. ClT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored.”
Briefly stated facts are that the assessee company is the owner of Sheth Muiji Jetha Cloth Market. The assessee company is giving various shop premises on rent to various persons carrying on the business in cloth and textiles. The rent income Page 2 of 7
ITA No. 5234, 5235,5622,5623 & 5624 /Mum/2013 received from various tenants is being offered and taxed since inception of the company under the head "Income from house property". Form 1st April, 2000 the assessee company is receiving premium if a tenant wants to transfer his tenancy rights to another person who wants to carry on the business of dealing in cloths and textiles. The said income in the form of premium on transfer of tenancy rights is offered as "Capital gain" by the assessee company and it is taxed accordingly. For assessment year 2007-08, the assessee company had filed its return of income on 19th November, 2007 declaring total income of Rs.14,48,419/- which included capital gains on transfer of tenancy rights amounting to Rs.54,70,000/-. The said return of income was processed u/s 143(1) of the Act. Thereafter, the assessment was re-opened on 26th March, 2012 u/s. 147 of the Act on the ground that in the case of the assessee company for assessment year 2009-10 the Assessing Officer held that the said premium received on transfer of tenancy rights is taxable under the head "income from other sources". The Assessing Officer passed the order under section 143(3) read with section 147 of the Act for assessment year 2007-08 and held that the aggregate premium received by the assessee company on transfer of tenancy rights amounting to Rs.54,70,000/- is chargeable to tax under the head "Income from other sources" and not as 'Capital gain' and accordingly, the Assessing Officer disallowed the deduction claimed by the assessee u/s. 54EC of the Act of Rs.50.00,000/-. Aggrieved, against action of AO, preferred the appeal before CIT(A), who rely on the CIT(A)’s order for the assessment year 2009-10 directed the AO to assess this premium on tenancy rights under the head capital gains by observing in Para 3.2 and 3.3 as under. Similar are the findings in other assessment years by the CIT(A). Aggrieved, Revenue is in appeal before Tribunal.
Before us, Revenue filed copy of Tribunal’s order in the case of Vinod V. Chhapia v. ITO (2013) [56 SOT 465 (Mumbai)], wherein, Tribunal considered the receipt in case of surrender of tenancy rights as windfall received by assessee and the same was rightly taxed as income from other sources. The Tribunal observed that it is the original tenant who received consideration from the land lord in response to the surrender of tenancy rights, but in the present case the assessee being land lord did not pay any consideration to the original tenant, whereas it was the new tenant who paid consideration to the assessee and to the original tenant. Thereafter, according to Page 3 of 7
ITA No. 5234, 5235,5622,5623 & 5624 /Mum/2013 the coordinate Bench it is a case of windfall gain received by assessee which rightly been taxed as income from other sources. The learned Sr. DR relied on this order of the Tribunal.
On the other hand, the learned Counsel for the assessee argued that the Revenue i.e. the AO while passing the assessment order for assessment year 2005-06 under section 143(3) of the Act taxed the premium on transfer of tenancy rights as capital gains and also allowed deduction under section 54EC of the Act. The learned Counsel also argued that even for the assessment year 2006-07, the AO assessed under section 143(3) of the Act and taxed this premium on transfer of tenancy rights as capital gain and also allowed deduction under section 54EC of the Act. The assessee submitted the details of assessment as under: -
Assessment Premium received on transfer Capital gains Assessment status Year of tenancy rights offered for taxation 2001-02 13,13,938 48,152/- 143(1) 2002-03 26,18,814/- 6,28,837/- 143(1) 2003-04 34,13,018/- 13,018/- 143(1) 2004-05 36,22,006/- 52,006/- 143(1) 2005-06 34,04,142/- NIL 143(1) 2006-07 56,79,500/- NIL 143(1) 2007-08 54,70,000/- 4,70,000/- 143(1) Reassessment is under appeal 2008-09 75,25,000/- 25,25,000/- 143(1) Reassessment is under appeal 6. The learned Counsel for the assessee also relied on coordinate Bench decision in assessee’s own case for the assessment year 2009-10 in wherein, the Tribunal has confirmed the findings of CIT(A) vide Para 6 as under: -
“6. we have gone through the findings of ld. CIT(A). We agree with the observation of the ld. ClT(A) that during the course of time the assessee acquired bundle of rights with respect to the impugned shops. These rights include interalia, rights of possession in tenancy. As per section 2(14) "capital asset" means property of any kind held by an assessee, whether or not coiii1dtd with his business or profession. A Page 4 of 7
ITA No. 5234, 5235,5622,5623 & 5624 /Mum/2013 perusal of this definition shows that the legislature has intended to define the term "capital asset" in the widest possible manner. This definition has been curtailed to the extent of exclusions given in section 2(14) itself which include stock in trade and personal effects. The impugned asset does not clearly fall in the aforesaid exclusions given in section 2(14). The bundles of right acquired by the assessee are undoubtedly valuable in terms o money. In our view, the said tenancy rights shall form part of a capital asset in the hands of the assesse and, therefore, any gains arising therefrom would be assessable under the head "Income from capital gains eligible for deduction u/s S4EC of the Act. Under these circumstances we find that the findings of the Id. CIT(A) are well reasoned and in accordance with taw and facts and do not require any interference. Accordingly, the order of Id. CIT(A) is upheld.”
In our view, of this the learned Counsel for the assessee argued that the concept of consistency should be followed by the Revenue as Revenue itself has assessed this premium of tenancy rights as capital gains for assessment year 2005-06 & 2006-07. He also relied on the decision of the Hon'ble Supreme Court for its proposition in the case of Radha Soami Satsang Vs. CIT (1992) 193 ITR 321 (SC) and Hon'ble Bombay High Court decision in the case of CIT v. Gopal Purohit 336 ITR 228 (2011).
Respectfully, following coordinate Bench decision in assessee’s own case and considering the facts of the case, we are of the view that the CIT(A) has rightly directed the AO to assess this receipt of premium as capital gain taxable in the hands of the assessee. Even otherwise, this issue is covered in favour of assessee by tehe principle of consistency in view of the decision of the Hon’ble Sumpre Court in the case of Radha Soami Satsang (supra) and of Hon’ble Bombay High Court in the case of Gopal Purohit (supra). We find no infirmity in the order of CIT(A) and hence the same is confirmed. These four appeals of Revenues are dismissed.
Coming to the assessee’s appeal & 5235/Mum/2013 for the assessment year 2007-08 and 2008-09, the only common issue in these two appeals is against the order of CIT(A) in confirming the action of the AO on jurisdictional issue Page 5 of 7
ITA No. 5234, 5235,5622,5623 & 5624 /Mum/2013 of reopening under section 147 read with section 148 of the Act. The facts have already been narrated above while dealing with Revenue’s appeal. The learned Counsel for the assessee as well as learned DR has not disputed the same. The reasons for reopening as recorded by the AO for assessment year 2007-08 reads as under: -
“The assessee company is the owner of Seth Muiji Jetha Cloth Market. During the assessment proceedings for A.Y. 2009-10, it was seen that the assessee had shown the premium received on the transfer of the tenancy as Long Term Capital Gains. Further it had also claimed exemption under section 54EC against such long term capital gains. The assessee is the owner of the Seth Mulji Jetha Cloth Market, which have been let out to different tenant. On transfer of the tenancy from outgoing tenant to the incoming tenant, the assessee receives an amount which is termed as premium on their transfer of tenancy rights cannot be taxed as capital gains in the hands of the assessee because there is no transfer of asset in the hands of the assessee. Even after the transfer of the tenancy right from the outgoing tenant to the incoming tenant the assessee continued to remain the owner of the shops. Therefore, the premium received on transfer of tenancy rights was treated as income from other sources and taxed accordingly. Further, the exemption under section 54EC was disallowed. During the course of assessment proceedings, the assessee has stated that it has been treating the premium on transfer of tenancy right as capital gains in the past years and also was claiming exemption u/s. 54EC. The case of the assessee for assessment year 2007- 08 has not been scrutinize u/s. 143(3). It is seen that for the assessment year 2007-08 the assessee had shown the premium on change of tenancy of Rs.54,70,000 and treated the same as capital gains {taxed @ 20%} Instead of income from other sources {taxed @ 30%1. It has further claimed that the income to the extent of Rs.54,70,000/- has escaped assessment. The case of the assessee is being reopened by issuing notice under section 148.”
The learned Counsel for the assessee stated that the return was processed under section 143(1) of the Act for these two assessment years and thereafter, reopening Page 6 of 7
ITA No. 5234, 5235,5622,5623 & 5624 /Mum/2013 was made by issuing notice under section 148 of the Act. Admittedly, the reopening was beyond four years and no assessment was framed under section 143(3) of the Act. The only processing was done under section 143(1) of the Act for these assessment years. Accordingly, we are of the view that no opinion was formed and assessee case does not fall under the proviso of section 147 of the Act. Accordingly, we confirm the finding of CIT(A) and this issue both the appeals of assessee is dismissed. The appeals of assessee are dismissed.
In the result, the appeals of assessee and that of the appeals of Revenue are dismissed.
Order pronounced in the open court on 17-02-2017.