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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: SHRI MAHAVIR SINGH & SHRI ASHWANI TANEJA (ACCOUNTANT MEMBETR)
O R D E R Per ASHWANI TANEJA, AM
This appeal is filed by the revenue against the order of the Commissioner of Income-tax (Appeals)-8, Mumbai [hereinafter referred to as “the CIT(A)] dated 27-09-2012 for the assessment year 2009-10 against the assessment order passed u/s 143(3) dated 12-12-2011 by the assessing officer on the following grounds:
“1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the Assessing Officer to assess premium of 2 ITA 6983/Mum/2012 Rs.1,15,50,OOO /- received by the appellant company on transfer of tenancy right of the shops from one tenant to another as capital gains and allowed deduction u/s 54EC of the Act.
2. "On the facts and circumstances of the case and in law, the impugned order of the Ld.CIT(A) is contrary to law and consequently merits to be set aside and that of the Assessing Officer be restored."
During the course of hearing arguments were made by Sm. Bharti Singh on behalf of the department and Shri S.S. Bansal, on behalf of the assessee.
The only effective issue raised by the revenue is that premium received by the assessee company on transfer of tenancy rights of the shops from one tenant to another should be treated as income from other sources and not as capital gains as claimed by the assessee and allowed by the ld.CIT(A) and has also agitated the action of the ld.CIT(A) in allowing deduction u/s 54EC of the Act.
During the course of hearing, the ld.DR vehemently relied upon the order of the Assessing Officer and, on the other hand, the Ld. Counsel of the assessee relied upon the detailed findings of the ld.CIT(A).
We have considered the orders of lower authorities and facts brought before us. The basic issue involved herein is about the characterization of the nature of amount of premium received by the assessee on account of transfer of tenancy rights from one tenant to another. The assessee treated the said amount as income from capital gains but as per Assessing Officer the same was to be assessed under the head “Income from other sources”. The Assessing Officer held that for the income to be taxed as capital gain there has to be 3 ITA 6983/Mum/2012 capital asset and there should be transfer of capital asset resulting into change in the ownership of the impugned asset. It was held by the Assessing Officer that assessee was owner of the shops (impugned assets), and that the old tenants had transferred the tenancy rights in favour of the new tenants (along with rights of possession), but the assessee remained the owner of these shops as it was and consequently, there was no transfer of capital asset, being shops. Even after the transfer of tenancy rights, the assessee continued to remain owner of these shops. It was further held by the Assessing Officer that undisputedly, the transfer of tenancy rights resulted into capital gain. But the resultant gain could not be taxed as capital gain in the hands of the assessee. Since as per Assessing Officer, the resultant capital gains would be taxable in the hands of outgoing tenants, but the amount received by the assessee as premium should be taxable in the hands of assessee as “income from other sources” and not as “capital gains”. Resultantly, the Assessing Officer also disallowed the deduction claimed by the assessee u/s 54EC. Being aggrieved, assessee filed appeal before ld.CIT(A) wherein detailed submissions were filed. It was inter-alia submitted by the assessee that in earlier and subsequent years also similar amount was received from other properties which was offered to tax under the head “capital gains” and the same was accepted by the income- tax department. It was further submitted by the assessee that tenancy right was undoubtedly capital asset under the law and, therefore, any gain arising from the transfer of the same has to be assessed under the head “capital gains”. The ld. CIT(A) considered the submissions of the assessee and accepted the same and allowed the claim of the assessee by holding that the impugned income was to be assessed under the head “Income from capital gains”. Relevant observations of ld.CIT(A) are reproduced below:
4 ITA 6983/Mum/2012 “2.13 I have considered the facts of the case. The appellant was owner of shops in cloth market. There were several shops in the cloth market. The shops in the said cloth market were given on rent to different tenants. Every year some tenants were transferring the possession of shops to the new tenants but only with the consent of the appellant being owner of the said shops. In lieu of giving its consent (being owner) to the transfer of possession of said shops from old tenants to the new tenants, the appellant was receiving certain premium from the old tenant. In earlier years, the receipt of said premium by the appellant was shown by appellant under the head "Capital Gains". During the year also certain old tenants transferred their possessory rights of the rented shops to the new tenants with the consent of the appellant. In lieu of giving such consent for such transfer of possessory rights, the appellant received premium of Rs. 1,15,50,000/- from the old tenants.
2.14 The question for consideration is as to whether such premium received at RS.1,15,50,OOO/- was assessable in the hands of the appellant under the head "Capital Gains" as shown by the appellant or under the head "Income from Other Sources" as held by the Assessing Officer. The consequential question is as to whether the receipt of premium of Rs. 1,15,50,000/- was on account of transfer of certain capital asset or receipt without transfer of capital asset. In case the said premium was received on account of transfer of capital asset, the resultant income is required to be assessed as Capital Gains.
2.15 As explained above, the appellant was owner of the shops. Such shops were capital asset in the hands of the company. However, there was no transfer of ownership of the said shops. Thus, even after change of tenants, the appellant remained as owner of the asset i.e. the shops. In the facts and circumstances, the question is as to whether what was the capital asset transferred by the appellant giving rise to earning premium of Rs. 1,15,50,000/- consequently giving rise to capital gains. It has been discussed and explained in the decisions of Courts and Tribunals that a "Right" is a bundle of benefits embedded in some asset or independent thereof. Similarly, the capital assets, as defined in section 2(14) of the Act means property of any kind held by the assessee. Property can be tangible or intangible. Thus a Right whether or not attached to any asset is also a property. In the case under consideration, the appellant has explained that the old tenant could transfer the possessory rights of the rented shops but only with the consent of the 5 ITA 6983/Mum/2012 appellant owner. Thus, the old tenant could not transfer possession of shop to new tenants without appellant's consent. In the facts and circumstances, such right of consent was a property in the hands of the appellant. Since this right or property was connected to the capital asset i.e. shops, therefore, such right of consent was also a capita! asset in the hands of the appellant company. This was more or less similar to "Tenancy Riqht" which is capital asset. Thus, on transfer of such capital asset i.e. giving consent to change in (he possession of rented premises from old tenant to a new tenant, the premium received Assessing Officer is, therefore, directed to assess such premium as Capital Gains and allow deduction u/s 54EC of the Act. These grounds of appeal are, therefore, allowed.”
6. We have gone through the findings of ld.CIT(A). We agree with the observations of the ld.CIT(A) that during the course of time the assessee acquired bundle of rights with respect to the impugned shops. These rights include inter-alia, rights of possession in tenancy. As per section 2(14) “capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession. A 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 bundle of rights acquired by the assessee is undoubtedly valuable in terms of money. In our view, the said tenancy rights shall form part of a capital asset in the hands of the assessee and, therefore, any gains arising there from would be assessable under the head ”Income from capital gains” eligible for deduction u/s 54EC of the Act. Under these circumstances, we find that the findings of the ld.CIT(A) are well reasoned and in accordance with law and facts and do not require any interference. Accordingly, the order of ld.CIT(A) is upheld.
6 ITA 6983/Mum/2012
As a result, appeal of the revenue is dismissed.
Order pronounced in the court on25th May, 2016.