ACIT 11(3), MUMBAI vs. MODERN HOSPITAL FOR WOMEN, MUMBAI

This appeal has been preferred by the revenue against order dated 03/07/2012 passed by the CIT(Appeals)-2, Mumbai, for the Asst. year 1996- 97, whereby the Ld. CIT(A) allowed the appeal filed by the assessee against rectification order passed by the ACIT 11(3) u/s 154 of the Income Tax Act, 1961 (in short ‘the Act’).

Brief facts of the case are that the assessee firm engaged in running nursing home, filed its return of income declaring the total income of Rs. 2,23,012/-. Assessment order u/s 143(3) was framed by the A.O determining the total income of Rs. 74,07,590/- after making addition of Rs. 71,57,500/- as long term capital gain on transfer of tenancy right.

Aggrieved by the order of A.O, the assessee preferred first appeal before the Ld. CIT(A), who after hearing the assessee confirmed the assessment order. Against the said order the assessee preferred second appeal before the ITAT. The ITAT vide its order dated 27/07/2005 confirmed the order of the CIT(A). Thereafter the assessee filed miscellaneous application before the ITAT. The ITAT after hearing both the parties remitted the issue regarding cost of acquisition of tenancy rights and benefit of indexation to the A.O. Giving effect to the order of the ITAT, the A.O passed order dated 26/03/2008 rejecting the assessee’s claim for considering Rs. 3,80,000/- as cost of acquisition of tenancy rights,. In appeal against the said order, the Ld. CIT(A) confirmed the assessment order. The assessee filed rectification application u/s 154 with Ld. CIT(A), who after considering the provisions of section 55 of the Act, vide order dated 07/04/2010 advised the assessee to file rectification application before the A.O. on the issue of calculating cost of acquisition of tenancy rights.

Accordingly, rectification application was submitted before the AO. The A.O after taking into consideration the submission made by the assessee passed order u/s 154 without changing the income determined u/s 143(3) of the Act. Aggrieved, the assessee filed the appeal before the Ld. CIT(A) against rectification order passed by the Assessing Officer raising the sole ground that while computing capital gains deduction may be given for cost of acquisition the tenancy rights by adopting fair market value of tenancy right as on 01/04/1981. The Ld. CIT(A) after hearing the assessee allowed the appeal of the assessee holding that the assessee is entitled to deduct index cost of acquisition of tenancy rights. The department in appeal before the Tribunal against the said order passed by the Ld. CIT(A) on the following effective grounds:-

Before us the Ld. DR relying on the order passed by the AO submitted that the Ld. CIT(A) has wrongly held that the AO should not have taken the acquisition right as NIL and wrongly directed the A.O. to work out capital gain on surrender of tenancy rights after taking into account the cost of acquisition of tenancy right as worked out by the registered approved valuer and allow the benefit of indexation of this cost of acquisition as per provisions of section 48 of the Act.

Per contra the Ld. Counsel for the assessee submitted that the order passed by the Ld. CIT(A) is in accordance with the direction issued by the ITAT Mumbai in MA No. 931/M/2006 in vide which the Tribunal modified its earlier order dated 27.7.2005 by remitting the limited issue of ascertainment of the cost of acquisition of tenancy rights if any and granting benefit of indexation in respect of the same. Placing reliance on the decision of the ITAT Mumbai, rendered in DCIT vs. Shri. Bhupindra Singh Anand (ITA No. 7743/M/2012 for the A.Y. 2007-08), the Ld. Counsel submitted that the assessee’s case is covered by the said case.

We have heard the rival submissions and also perused the material placed before us including the cases relied upon by the parties. We find that in MA No. 231/M/2006 (supra), the co-ordinate Bench modified its earlier order and remitted the issue of ascertainment of cost of acquisition of tenancy rights and granting benefit of indexation by observing as under:-

In the light of the above observations, the Ld. CIT(A) has rightly pointed out that the A.O has not given correct appeal effect to the order of the ITAT. The Ld. CIT(A) has further pointed out that the A.O has been committing legal mistake again and again by applying the provisions of section 55(2)(a)(ii) instead of the provisions of section 55(2)(a)(i) of the Act because appellant firm had purchased the cloth business along with the tenancy rights vide deed of assignment dated 21/11/1950 for Rs. 9,500/- This amount of Rs. 9,500/- paid for acquiring ongoing concern also included amount paid by the appellate firm for acquiring the tenancy rights. In the light of the aforesaid facts, we also agree with the Ld. CIT(A) that the A.O has not given correct effect to the order of the Tribunal. It is apparent form the deed of assignment that a sum of Rs. 9,500/- was paid by the appellant firm in 1950 towards the acquisition of business including tenancy rights.

We further noticed that copies of Agreement dated 19/09/1950, Letter dated 21/11/1950 indicting therein transfer of business along with benefit of tenancy right, Power of Attorney dated 21/11/1950 given by Assignor, Mr. Dhansing Netram referring to Deed of Assignment dated 21/11/1950 to carry on correspondence with Landlord, etc., Letter dated 17/10/1950 addressed to Bombay Samachar and Government Gazzette for Public Notice, Public notice dated 19/09/1950, Suit filed by landlord for eviction of the premises and Consent terms and order of the small causes court in regard to surrender of premises by the appellant firm etc. were made available by the assessee to the AO during assessment proceedings. On the basis of the said documents the AO could have safely concluded that the assessee firm had paid Rs. 9,500/- in 1950 towards acquisition of business including tenancy rights. Hence, in our considered view the AO has wrongly treated the cost of acquisition of tenancy as NIL.

In DCIT vs. Shri. Bhupindra Singh Anand in for the A.Y. 2007-08, the co-ordinate Bench vide order dated 12.9.2014 has decided the similar issue in favour of the assessee and against the revenue. In the said case, the issue before the Tribunal was whether the Ld. CIT(A) erred in allowing the indexation on cost of acquisition of the tenancy rights as on 01/04/1981, without taking into consideration the fact that the cost of acquisition of tenancy rights acquired by the previous owner i.e., father of the assessee without any cost in the year 1973 is stood itself at NIL to the assessee as on 01/04/1981. The co-ordinate Bench after taking into consideration the submissions of the parties in the light of the ratio laid down by the Hon’ble jurisdictional High Court in CIT vs Manjula J Shah[2011] 355 ITR 474 (Bom), dismissed the ground raised in appeal by the revenue and confirmed the order of the Ld. CIT(A).

In view of the facts of the case and the decision rendered by the coordinate Bench of the Tribunal in the case of DCIT vs. Shri. Bhupindra Singh Anand (supra), we are of the considered opinion that the order passed by the Ld. CIT(A) is in accordance with the directions issued by the ITAT Mumbai in MA No. 931/M/2006 in aforesaid. The Ld. CIT(A) has rightly directed the A.O. to work out capital gain on surrender of tenancy rights after taking into account the cost of acquisition of tenancy right as worked out by the registered approved valuer and allow the benefit of indexation of the cost of acquisition as per the provisions of section 48 of the Act. There is no legal or factual infirmity in the order of the Ld. CIT(A) to interfere with the same. We therefore, uphold the findings of the Ld. CIT(A) and dismiss the sole issue raised in appeal by the department.

In the result the appeal filed by the revenue for Asst. Year 1996-97 is Dismissed. Order pronounced in the open court 14th December, 2016.