PINAKIN GUNVANTLALA DALAL,MUMBAI vs. ITO (IT) 1(1), MUMBAI

During hearing, the ld. counsel for the assessee, Shri Neelkanth Khandelwal, advanced arguments, which is identical to the ground raised, by submitting that the case of the assessee is covered by section 55(2)(a) of the Act, which covers intangible assets including tenancy rights. On the other hand, the ld. DR, Shri Jitendra Kumar, defended the conclusion arrived at in the impugned order.

2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee filed original return on 31/07/2008. During the year, the assessee claimed to have received compensation for surrender of tenancy right and offered the same as taxable income as long term capital gain. Later on, the assessee realized that there was a mistake on his part under the belief that it was non-taxable income of the assessee, therefore, the assessee revised its income on 22/01/2009. The belief of the assessee was that the tenancy right has come to the assessee by operation of law and there is no cost of acquisition. We have perused the agreement of transfer of tenancy (pages 1 to 18) of the paper book. As per the agreement, the tenancy of Flat no.4 stand in the names of Shri Motilal Karsandas Dalal (brother of father of assessee), who surrendered all his rights, title and interest in the said flat in favour of his brother Shri Gunvatlal Karsandas Dalal. Shri Motilal Karsandas Dalal died in 1981. The heir of Shri Motilal Dalal confirmed that they have no right, title, claim or interest in Flat no.4 even though the rent receipts were issued by the landlord in the name of their father Motilal Dalal and the heir had no objection to the outgoing tenants transferring the tenancy right in respect of the flat in the manner they desire. As per Bombay Rent Control Act, tenancy right cannot be transferred by way of will and succession. As per section 48 of the Act, capital gains are to be computed after deducting from full value of consideration, cost of acquisition, cost of improvement and expenditure, wholly and exclusively for the transfer. Under the amended section 55(2)(a)(ii) of the Act, the cost of acquisition in case, there is no purchase price or if it is not ascertainable, it is to be taken at nil in respect of class of assets including tenancy right. However, in the given case of tenancy rights under the Bombay Control Act, this provision will not apply, because the case of the assessee falls within section 49(1)(iv) of the Act. The ld. Assessing Officer completed the assessment on the basis of original return filed by the assessee. It is also noted that the assessee himself offered the compensation as taxable income being long term capital gain. As per section 48, capital gains is to be computed after deducting from full value of consideration, the cost of acquisition, cost of improvement an expenditure incurred wholly and exclusively for the transfer. The assessee claimed to have acquired property through inheritance. Section 49 of the Act provides the cost of acquisition, where the property is acquired through certain modes. Under sub-section(2) of section 55 of the Act, the cost of acquisition in relation to capital asset, being tenancy rights, has been deemed to be nil in a case other than that falling under sub-clause(i) to sub-clause (iv) of section 49. In this case, the cost has to be first determined in the hands of the original holder of the tenancy rights. As the grandfather of the assessee has not acquired it through inheritance or any other mode mentioned in section 49(1), the exception clause contained in clause(ii) of section 55(2)(a) will not be applicable in the present case, therefore, we find no infirmity in the conclusion of the Ld. Commissioner of Income Tax (Appeal). His stand is affirmed resulting into dismissal of appeal of the assessee.