BINA SILK MILLS,MUMBAI vs. ACIT CIR 23(2), MUMBAI

Per Sanjay Garg, Judicial Member:

. However, at the outset, the Ld. A.R. of the assessee has stated at bar that as per the instructions the assessee does not press ground No.1 & 2 due to smallness of the amount involved. Ground No.1 & 2 are therefore dismissed as not pressed. Now we are left with ground No.3 which read as under:

3. Without prejudice to Ground No.1 and 2 above, the addition of a sum of Rs.96,10,000/- as Short Term Capital Gains in place of Long Term Capital Loss of Rs. 18,14,000/- returned by the appellant, be deleted as it has been made without appreciating the facts and circumstances of the case and the applicable law.”

3. The brief facts of the case are that the assessee had acquired a plot of land on long term lease situated at Mulund (West), Mumbai vide registered agreement of lease with Mr. Anant P Pandit, dated 22/08/1962 for a period of 99 years at a quarterly rent of Rs.1,350/-. The assessee constructed structures thereon and has been in uninterrupted possession of the said land since 1962 and has also subleased a part of the structures thereon, to a couple of parties. The assessee has executed a supplementary lease deed on 06/09/2004 with the Legal Heirs of Anant P Pandit (Lessor) whereby it was agreed that the Lessee would pay a non-refundable premium of Rs.15 lakhs for the purpose of extension of the lease period, as well as for having granted the additional rights & facilities. The assessee subsequently wide Development Agreement dated 09/09/2004 had entered into an agreement with Manisha Developers to develop the said plot of land. As per para 3 of the Development Agreement, the Developer had agreed to pay a sum of Rs. 80 lacs and to provide a premises admeasuring 700 carpet sq. ft. on the first floor of the newly constructed premises to the assessee. The A.O. held that the assessee had acquired development right of the property, vide supplementary lease deed dated 06/09/2004 and immediately within 3 days on 09/09/2004 had entered into a development agreement and transferred its right of development of the property, in favour of the developer. Since the right was acquired and sold within 3 days, it gave rise to short term capital gains and not long term capital gains as had been claimed by the assessee on the basis of original agreement of lease. He was of the view that on the execution of the subsequent lease agreement, the original agreement had ceased to exist. Even as per original agreement of lease, assessee had acquired lease rights over the property. However, in the subsequent agreement, the assessee had acquired development rights. The assessee had relinquished his rights in the original agreement and the rights acquired in the subsequent agreement were transferred within a period of three days, hence it was a case of short term capital gains.

4. In appeal, the Ld. CIT(A) upheld the findings of the AO observing that the supplementary deed dated 06.09.04 had brought to life an entirely new rights i.e. development rights. He, therefore, upheld the findings of the AO that the capital gains acquired by the assessee by way of transfer of rights in the land in question were to be assessed as short term capital gains.

5. Before us, the Ld. A.R. of the assessee has made a limited contention that the assessee had acquired the rights in the land in question in the year 1962 vide lease dated 22.08.1962. In the supplementary lease deed, the original rights were recognized and the lease deed was further extended up to the period of 99 years from the date of execution of supplementary lease deed. No doubt certain new rights were acquired in the subsequent lease deed, however, the rights already acquiring in the original lease deed of 1962 were never taken away, cancelled or relinquished by the assessee. He has invited our attention to clause (i) of the subsequent lease deed dated 06.09.04, wherein it has been categorically mentioned that the original lease deed dated 22.08.1962 is valid and subsisting and the same shall be deemed to be in continuation from the date of hire for further 99 years. Vide clause No.(ii), it has been again mentioned that the original lease deed shall be deemed to be extended for additional term of 99 years. However, the monthly lease rent has been increased. The Ld. A.R., however, fairly admitted that the certain new rights were acquired by the assessee vide subsequent lease deed dated 06.09.04. He, however, has contended that the entire gains earned by the assessee cannot be treated as short term capital gains. The amount of capital gains received by the assessee should be bifurcated in relation to the rights which were already acquired by the assessee vide lease deed of 1962 and in relation to the newly acquired rights vide lease deed of 06.09.04. He, therefore, has contended that the amount of capital gains should be proportionately allocated towards long term capital gains and short term capital gains. We find force in the contention of the Ld. A.R. It is an admitted fact that the assessee was having lease hold rights since 1962 in the land in question. The said rights were recognized in the subsequent lease deed also. The rights transferred vide agreement dated 06.09.04 to the developer also included the rights acquired by the assessee vide lease deed dated 22.08.1962. The said rights were duly recognized in the subsequent lease deed also. Therefore, the AO is directed to proportionately allocate the capital gains towards the rights transferred by the assessee which were acquired by the assessee vide lease deed of the year 1962 and the such rights acquired vide subsequent lease deed of 2004 and accordingly proportionately assess the capital gains as long term capital gains and short term capital gains. With the above observations, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 08.06.2015.