TaxTMI 
TaxTMI 
TaxTMI 
2015 (4) TMI 52
X X X X Extracts X X X X
X X X X Extracts X X X X
....appellant that the provision of section 55(3) to be read with the section 49(1)(ii) were clearly attracted in the case and not the provision of section 55(2) of the Income-tax Act, 1961. 3. On the facts and in the circumstances of the case and in law, the Assessing Officer having himself accepted that the tenancy rights had been acquired by the ancestors of the appellant prior to April 1, 1981 the Commissioner of Income-tax (Appeals) was wrong in not holding that the cost of acquisition was to be adopted as on April 1, 1981 and the benefit of indexation also be given to the appellant. That the Commissioner of Income-tax (Appeals) was wrong to ignore section 55(3) which is applicable in this case. 4. On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (Appeals) has erred in overlooking the provision of section 27(iiib), 49(1)(iii)(e) and section 55(2)(3) of the Income-tax Act, 1961 on the basis of which the appellant is entitled to the benefit of cost of acquisition as on April 1, 1981, benefit of index ation and the benefit o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1st floor of the property was used for residence of the family but later on the grandfather of the assessee Nusserwanji Wookerji Cassinath took the ground floor of the property on rent from the landlord/purchaser in or around 1944-45. The landlord used to issue rent receipts in the name of Nusserwanji Wookerjee Cassinath, the grandfather of the assessee. There after the property changed hands several times from 1945 to 2002 but the families of the heirs of Wookerjee Cassinath having beneficial interest under the trust and sale document continued to reside in the said property. The brief details of the transfer of the property from one hand to another hand are as under : * 1942 Sir Ezra Knight * 1943 J David Sasoon and Company * 1945 Ramnath Mahdavdas * 1947 S.C. Banerjee * 1947 Gaurajadevi Balmukund * 2002 Kapi Builders Pvt. Ltd. and Kupati Builders Pvt. Ltd. (ii) Nusserwanji Wookerji Cassinath, the assessee's grandfather died in 1970 living behind his wife Mary, daughters Amy and Tehmin. The assessee is the only daughter of Amy and was living in the same property since birth, i.e., 1972 till the property in question was sold by surrendering the tenancy/occupancy r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e ownership of these rights are not disputed. The capital gains earned by the assessee is from sale of rights in the residential house and therefore, the provisions of section 54 are applicable. He has further submitted that the Assessing Officer though accepted the transfer of capital asset being tenancy rights, however it was treated as not sale of building or land appurtenant thereto and accordingly, denied the exemption under section 54. The Assessing Officer was of the view that the assessee is not owner of the property being residential house and therefore, for the purpose of section 54 of the Act, the transfer of tenancy rights does not tantamount to transfer of residential house. 7. The learned authorised representative has further contended that the children/heirs of the testators were given the life benefit in the property and further the grandfather of the assessee took the ground floor on rent in the year 1944-45, which continued till the assessee sold the same in the year under consideration. Therefore, the assessee inherited the rights in the property along with the tenancy right. He has referred the provisions of section 27(iiib) read with section 269UA of the Incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....red to the transfer document and submitted that the assessee has transferred only the tenancy rights being surrender of tenancy rights and not sale of the residential property. He has relied upon the order of the authorities below and submitted that the Assessing Officer is justified in granting deduction under section 54F instead of section 54 because the assessee is not owner or deemed owner or beneficial owner of residential property but the assessee is only occupant/tenant and consideration received by the assessee is for surrender of tenancy right. 10. We have considered the rival submissions as well as relevant material on record. As noted above the property in question was purchased by one Shri. B. E. Cassinath, the great-great-grandfather of the assessee around the year 1898. Mr. B. E. Cassinath died in the year 1912 and left behind him a will. By the said will and codicil, he created a settlement regarding the residential property in question and appointed his wife and sons as executrix and trusties of will. The testator gave a life interest to his children/ grand children in the property in question. The trusties of the will sold the property in question and thereafter t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceptable as the property is transferred to the builder by the landlords as admitted by the appellant in her own undertaking cum indemnity. Considering all these facts, I have no hesitation in coming to the conclusion that appellant in the instant case is not the owner of the property and holds mere tenancy right with respect to the impugned property. In view of this and in view of the specific provisions of section 54, I hold that the appellant is not entitled to claim deduction under section 54 of the Act. The Assessing Officer is, therefore, justified in rejecting the claim of the appellant and in denying the deduction under section 54 of the Act. As the tenancy right is a capital asset other than residential house, the Assessing Officer has rightly granted the deduction under section 54F of the Act." 14. We do agree with the finding of the fact given by the Commissioner of Income-tax (Appeals) that the assessee is not the owner of the property but holds mere tenancy rights in respect of the ground floor of the property. The argument of deemed ownership is relevant only in connection with computation of income from house property and not in relation to exemption under section 54....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Revenue takes a stand that there is no cost of acquisition for tenancy right, then the consideration received because of surrender of such tenancy right could not be subjected to capital gains in view of the decision of the hon'ble Supreme Court in the case of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC). 17. He has relied upon the decision of the hon'ble Supreme Court in the case of CIT v. D. P. Sandu Bros. Chembur P. Ltd. [2005] 273 ITR 1 (SC) and A. R. Krishanamurthy v. CIT [1989] 176 ITR 412 (SC) and submitted that the hon'ble Supreme Court has held that it cannot be said conceptually that there is no cost of acquisition of leasehold rights. The cost of acquisition of leasehold rights can be determined. The authorised representative has referred the decision of the hon'ble jurisdictional High Court in the case of CIT v. Ms. Janhavi S. Desai reported in [2012] 74 DTR 2 (Bom) wherein it was held that when the property was acquired by the previous owner became the property of the assessee as per section 49(1), then the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired. The authorised....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ancy rights as claimed by the assessee. He has relied upon the orders of the authorities below and submitted that in the absence of any evidence the cost of acquisition of tenancy rights has been rightly taken as nil as per the provisions of section 55(2). The learned Departmental representative has further contended that when the cost of acquisition is taken as nil, then no benefit of index of cost can be given. 20. We have considered the rival submissions, as well as the relevant material on record. There is no dispute that the tenancy was acquired by the grandfather of the assessee in the year 1945 and capital asset in the shape of tenancy right became a property of the assessee by inheritance which clearly falls within the modes provided under section 49(1) as under : "49.(1) Where the capital asset became the property of the assessee- (i) on any distribution of assets on the total or partial partition of a Hindu undivided family ; (ii) under a gift or will ; (iii)(a) by succession, inheritance or devolution, or (b) on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er sub-clauses (i) to (iv) of sub-section (1) of section 49, shall be taken to be nil; . . . (b) in relation to any other capital asset,- (i) where the capital asset became the property of the assessee before the 1st day of April, 1981, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee ; (ii) where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of April, 1981, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee ; . . ." 22. As, it is clear from sub-clause (ii) of clause (b) of sub-section (2) of section 55 that in case the assessee opts the cost of acquisition of capital asset being fair market value on April 1981, then the actual cost of capital asset to the previous owner is not relevant. Even otherwise as per sub- section (3) of section 55 in a case where the cost of acquisition of the property to the previous owne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er take note that the Bombay Stamp Act recognises the value of surrender of tenancy rights exceeding 29 years as almost equivalent to the market value of the property therefore, it supports the claim of fair market value as on April 1, 1981. 26. Ground No. 6 regarding the expenditure incurred on improvement/ renovation of the new residential house for the purpose of deduction under section 54. The Assessing Officer noted that the assessee claimed cost of renovation amounting to Rs. 58,26,773 as part of the cost of acquisition of new residential house for the purpose of deduction under section 54. The Assessing Officer disallowed the claim of the assessee on the ground that the renovation was not in connection with any structural damage to the house and it was only in respect of plastering and renovating of wires which cannot be treated as making the house habitable. Accordingly, the Assessing Officer held that the claim of the assessee is untenable and disallowed cost of renovation. On appeal, the learned Commissioner of Income-tax (Appeals) has confirmed the disallowance made by the Assessing Officer. 27. Before us learned counsel for the assessee has submitted that the expendit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thereafter, incurred the expenditure for making it habitable. Thus it is prerogative of the assessee to decide as to how a residential house can be acquired on a reasonable cost. If the assessee decides that, instead of going to purchase a ready to shift residential house, purchase an old house and get the same renovated for making it habitable as it is economical then, the tax authorities cannot question such a decision taken by the assessee in the absence of any allegation of bogus claim. In the case of Saleem Fazelbhoy v. Dy. CIT [2007] 106 ITD 167 (Mum) the co-ordinate Bench of this Tribunal has considered and decided a similar issue in para 7 as under : "7. In view of the above discussion, we are of the view that investment in residential house would not only include the cost of purchase of the house but also the cost incurred in making the house habitable. An inhabitable premises, in our opinion, cannot be equated with a residential house. If one person cannot live in a premises, then such premises cannot be considered a residential house. In the modern age, the builder may provide semi-finished h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....occupying. We find that the Tribunal has not really considered the essence of the dispute in the background of the factual aspects which were on record. It is to be noted that the assessee himself had stated that the property was not worth occupying. There is no dispute about the statement having been made by the assessee. Additionally, we find that the construction was of the garage and servant quarters. The Appellate Assistant Commissioner referred to some personal visits and found that there was actually no occupation by any servant or tenant and even there was no cooking. In view of the accepted state ment of the assessee that the building was not worth occupying and was not inhabitable, the conclusion that the assessee was not entitled to the exemption is in order." 32. It is clear from the decision of the hon'ble High Court that in the said case the assessee himself admitted that only a servant quarter was in existence as total built up area without any provision of cooking and it was found that the said construction was not at all fit for habitation, therefore, it was held that the assessee was not entitle to the exemption under section 54. The decision of the hon'....