TaxTMI 
TaxTMI 
2016 (3) TMI 243
X X X X Extracts X X X X
X X X X Extracts X X X X
....ounting to Rs. 25,00,000/- in the period under consideration. Notice under section 148 of the Act was issued on 27/3/2012. The assessee vide letter dated 26/7/2013 addressed to the Assessing Officer sought the reasons recorded for initiating proceedings under section 147 and issue of notice under section 148 of the Act , which were provided vide the Assessing Officer's letter dated 3/9/2013. The assessment was completed under section 143(3) of the Act vide order dated 15/1/2013 determining the income of the assessee at Rs. 40,43,750/- as against the returned income of Rs. 3,88,000/-. In the period under consideration, the assessee GRANTED tenancy rights of a property owned by it i.e. Vasant Niwas, Opp. Dadar Railway Station (W), Ranade Road, Dadar, Mumbai 400028, to six different parties/tenant for a premium aggregating to Rs. 51,00,000/- alongwith monthly rents as under:- 2.2 The assessee had offered the premium of Rs. 51 lakhs received on transfer of tenancy rights to long term capital gains('LTCG') and claimed deduction under section. 54EC of the Act to the extent of investment of the capital gain i.e. 46.00 lakhs. The Assessing Officer did not accept the explanations of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts in the property without appreciating the fact that whether the rental agreement is tri-partite or bi- Iateral is immaterial in so far as receipts in the hands of landlords are concerned. The CIT(A) did not consider the fact that the landlords had entered into separate agreements with old tenants and new tenants respectively effectively making a tripartite arrangement. 4. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition made by the A.O. without appreciating the fact that the ITAT Mumbai, 'F' Bench in the case of Shri Vinod V. Chhapia (HUF) Vs. ITO (ITA No.3178/Mum/2010 dt. 21.11.2012) has upheld the stand of the Revenue by observing that the amount received by the landlords from the new tenant for accepting new party as his tenant in place of old tenants, is not a capital receipt. The facts of the case of Shri Vi nod V. Chhapia (HUF) are similar to the facts of the instant case i.e. Dr. Vasant J. Rath Trust. Thus the CIT(A) has erred by not following the decision of the jurisdictional ITAT, Mumbai. 5. On the facts and circumstances of the case and in law, the Ld.CIT (A) erred in deleting the addition m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct that Clause-3 of the Agreements between the landlords and the new tenants indicate that the tenants agreed to take from the landlords the tenancy in respect of the tenanted premises on monthly tenancy basis at or for a stipulated "premium" and the stipulated monthly "rents". The question why the monthly rent is minimum and the "premium" is very high is further clarified by clause 4(1) which states that in consideration of the "premium" the landlords hereby agree to grant to the tenant and the tenant hereby agrees to accept from the landlords the monthly tenancy in respect of the tenanted premises. Similarly, Clause 4(2) states that as consideration for the grant of the monthly tenancy, the tenant paid to the landlords a lump sum premium. 9. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition made by the A.O. without appreciating the fact that there is no transfer of capital asset in so far as the landlord is concerned as the landlord had given his property on rent. Also, the landlord is the owner of the property and his status remains unchanged before and after the property is given on rent. 10. On the facts and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he tax under the head 'income from house property' as held by the Assessing Officer in the order of assessment It is submitted by the Ld. Representative for the assessee that after considering the provisions of sections 2(47) and 2 (14) of the Act , the CIT(Appeals) observed that it is an accepted principle that tenancy rights per-se is a capital asset by virtue of section 2(14) of the Act and, therefore, the 'transfer 'of any capital asset as per section 2(47) of the Act would result in the charging of Capital Gains thereon. The Ld. Representative for the assessee submitted that the CIT(Appeals) after considering the facts on record also observed that the premium of Rs. 51.00 lakhs on grant of tenancy rights to the six tenants are all a onetime payment, non-refundable and is a capital receipt acquired by transfer of a capital asset i.e. grant of tenancy rights and accordingly was exigible for tax as capital gains. It was also pointed out by the Ld. Representative for the assessee that the CIT(Appeals) had came to the conclusion that the Assessing Officer had not brought on record any material evidence to establish that the premium received is advance rent. The Ld. Representative f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....monthly rents. The assessee offered the premium received on grant of tenancy rights as LTCG and invested the capital gains of Rs. 46.00 lacs thereon in NABARD Bonds and claimed exemption under section 54EC of the Act . The Assessing Officer however held that the grant of tenancy right was not a surrender of tenancy rights and consequently holding the premium to be advance rent held that the premium of Rs. 51.00 lakhs is exigible to tax under the head ' income from house property'. 3.3.2 On appeal we find that the CIT(Appeals) after detailed examination had reversed the finding of the Assessing Officer that the premium of Rs. 51.00 lakhs was exigible to the tax under the head income from house property as he was of the view that the grant of tenancy rights by the assessee trust to the tenants was in fact the transfer of capital asset within the meaning of sections 2(14) and 2 (47) of the Act and also for the reason that the assessee had failed to bring on record any material evidence to establish that the premium of Rs. 51.00 lakhs was in fact advance rent as alleged by the Assessing Officer. On the basis of material on record we agree with these views and findings recorded by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erring or enabling enjoyment of any immovable property whether by way of any agreement or any arrangement or the transfer of tenancy rights or in any other manner whatsoever. All these will fall within the definition of transfer. A leasehold is also transfer of right to enjoy the property for a certain period with the lessee. In cases of lease cum license, the grant of a further lease was considered liable for capital gains tax [A.R. Krishnamurthy vs. CIT (1989) 76 CTR (SC) 18 : (1989) 176 ITR 417 (SC)]. 45. In the instant case, the premiums paid by the six different tenants totaling to Rs. 51,00,000/- on the grant of tenancy rights by the appellant Trust, are all one time payments and are non refundable amount. Even in case of any trouble with the tenancy' agreement not being earned out in the letter and spirit, the premiums paid are not refundable to the tenants, which shows it is a payment which is once for all and therefore capital in nature. Thus the premium paid while giving the tenancy rights, is capital receipt acquired through the transfer of a capital asset i.e. the tenancy rights and accordingly would be liable for capital gains. 46. The AO has not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transferor on such terms.. The transferor is called the lessor, the transferee is called the ( lessee, the price is called the premium and the money, share, - service or other thing to be so rendered is called the rent. The section, therefore, brings out the distinction between a' price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lessor. When the interest of the lessor is parted with for a price, the price paid is premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital income and the latter a revenue receipt. There may be , circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology In some cases, the so-called premium is in fact advance rent and in others rent is deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be decisive or conclusive b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cer held that the said lease premium was in ihe nature of rent and that the assessee ought to have deducted TDS thereon u/s 1941. The AO held the assessee to be in default and demanded tax of Rs. 314 crore as per provisions of section 194-1. The order of the AO was reversed by the CIT(A) on the ground that lease premium could not be equated with rent. The revenue carried the matter in further appeal before the Tribunal who while dismissing the revenue's appeal held as under: "5. After considering the facts and the submissions and the nature of transaction, the Ld. CIT(A) observed that the amount charged by MMRD as lease premium is equal to the rate prevalent as per Stamp Duty recovery for acquisition of the commercial premises. These rates are prescribed' for transfer of property and not for the use as let out tenanted property. The Ld. CIT(A) further observed that even the additional FSI given for additional charges as per Ready Reckoner rates only. It is the finding of the Ld. CIT(A) that the whole transaction towards grant of leasehold transaction rights to the assessee is nothing but a transaction of transfer of property and the lease premium is the considerati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ights to the six tenants, is transfer of the capital asset and accordingly liable to capital gains. It cannot be termed as advance rent as the tenancy right is not for a particular period but in perpetuity. The amount of Rs. 5,OO,OOO/- to the appellant is premium or balance which is a capital receipt. 54. During the course of. appellate proceedings, the AO vide letter dated 27/09/2013 has sent further submissions relying on the decision of the lTAT; Mumbai Bench 'F', Mumbai in the case of VV. Chhapia HUF Vs ITO, ITA no. 3178/Mum/2010 dated 21/11/2012. According to AO, in this case the assessee HUF had received an amount of Rs. 7,26,0001- and considering the same in lieu of the surrender of tenancy rights, claimed it exempt u/s 54EC as this amount was invested in the NABARD Bonds. On enquiry, it was found by the AO that the surrender of tenancy right was from the old tenant to the new tenant and the landlord was a confirming party to that agreement, for which he was paid Rs. 7,26,000/-. This amount was paid, not. for surrender of tenancy right but as a confirming party in the tripartite agreement between the old tenant, new tenant and the land lord. The *AO treated ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....m the new tenant is a capital receipt on account of transfer of capital asset in the hands of the appellant and thus, liable for capital gains. The action of the AO treating the same. as advance rent is not in order and cannot be upheld and addition made, therefore, is deleted. 3.3.4 Taking into account the factual matrix and circumstances of the case on hand and the legal position on this issue espoused in section 2(14) and 2(47) of the Act and the ratio of the judicial pronouncements on the issue of grant of tenancy rights similar to the facts of the case on hand, inter-alia, laid down by the Hon'ble Apex Court in Parbani Tea Company (1965) 57 ITR 422 (SC), and R.K.Palshikar (HUF) (1988) 172 ITR 311(SC); of the Hon'ble Bombay High Court in the case of Ratilal Tarachand Mehta(1977) 110 ITR 71(Bom) of the Special Bench of the ITAT Mumbai in Mukund Ltd. (106 ITD 231), of ITAT Mumbai Bench in Wadhwa Associates & Realtors Pvt. Ltd. (ITA NO.695/Mum/2012), etc., we concur with and uphold the finding of the CIT(Appeals) that the grant of tenancy rights by the assessee trust and the premium of Rs. 51.00 lakhs received in lieu thereof from the tenants is a capital asset in the hands of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., the Ld. Representative for the assessee placed reliance on the decision of the Hon'ble Bombay High Court in the case of Jet Airways (I) Ltd. reported in (2011) 331 ITR 236(Bom). In view of the above factual and judicial matrix of the case, it was prayed that the order of assessment for assessment year 2005-06 passed u/s. 143(3) r.w.s. 147 of the Act on 15/1/2013 is to be quashed as it is ab-initio void. 5.3 Per contra, Ld. Departmental Representative appearing for the Revenue supported the impugned order of the CIT(A) on this issue in upholding the validity of the aforesaid order of assessment for assessment year 2005-06. 5.4 We have heard the rival contention and perused and carefully considered the material on record; including the judicial pronouncement cited. The facts of the matter as emerge from the record and that the reasons recorded by the Assessing Officer for initiation of assessment proceedings u/s. 147 of the Act for assessment year 2005-06, as conveyed to the assessee vide letter dated 3/9/2013 are as under:- "The AIR information in this case related to Investment in NABARD for acquiring bonds/ Debentures amounting to Rs. 25,00,000/- during the F.Y. 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erved that when Parliament used the words " assess or re-assess such income and also any other income chargeable to tax which had escaped assessment", the words " and also" cannot be read as being in the alternative. Rather, the correct interpretation would be to regard those words "and also" as being cumulative and conjunctive . The Hon'ble Court further observed that what the Parliament intended by use of the words "and also" is that the Assessing Officer upon the formation of reason to believe u/s.147 of the Act and issue of notice u/s. 148 of the Act must assess or re-assess (i) such income on which it has recorded reasons to believe that income of the assessee had escaped assessment; and also (ii) any other income chargeable to tax, which has escaped assessment and which comes to his notice subsequently, in the course of assessment/ reassessment proceedings. It was held that Explanation 3 to section 147 does not and cannot override the necessity of fulfilling the conditions set out in the substantive portion of the section. Section 147 of the Act empowers the Assessing Officer to assess or re-assess the income which escaped assessment, which was the basis for formation of beli....