TaxTMI 
TaxTMI 
2024 (2) TMI 688
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.... from other sources, Short Term Capital Gain (STCG) on sale of shares. According to the AO [from perusal of the ITD details] he came to know that assessee is co-owner of tenancy rights; and in this year, assessee had entered into a tenancy agreement of two flats/building, which had a market value of Rs. 31,60,080/- and Rs. 39,47,400/- (total Rs. 71,07,480/-). Further, according to him, as per AIR information, he noted that the assessee had entered into sale of property which was jointly owned by him with three others on 17.01.2011 for a consideration of Rs. 39,47,400/- and Rs. 31,60,080/- respectively. So, he issued show cause notice to the assessee as to why the same should not be treated as capital gain, since the Registrar has collected 'Registration Fee' and stamp duty on it. Pursuant thereto, the assessee replied that the documents registered were not sale agreement as alleged by AO, but tenancy agreement and pointed out that the AIR information depicting the transaction as "sale of immovable property" at Rs. 30 Lakhs or more is incorrect; and the document in question which has been registered with Joint Sub- Registrar, Bombay City was tenancy agreement; and pointed out that a....
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.... tax planning may be legitimate provided it is within the frame of law colourable devise cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid payment of tax by resorting to dubious methods. Hence, the entire transaction is treated as transfer in the hands of the assessee and Long Term Capital Gain is worked out as per the provisions of section SOC of the Income-tax Act, 1961. Taking Stamp Duty value Rs. 71,07,480/- as sale consideration for both floors and original cost at Nil, Rs. 71,07,480/- is taxed as Long Term Capital Gain and added to the total income." 4. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A)/NFAC which was pleased to confirm the action of the AO by holding as under: - "Al. Summarizing the whole argument it can be held that money paid to the taxpayer for regularizing the Tenancy Agreement with TilokChand D Shah and Dinesh Metal Industries is to be treated as income in the hands of the taxpayer in the nature of tenancy Rights. The cost of acquisition is nil. And the entire amount is to be taxed under Capital gains. The total amount to be taxed as Capital gains is Rs. 71,07,48....
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....ee of Rs. 30,000/- + Rs. 30,000/- and tax value of Rs. 1,97,500/- and Rs. 1,58,500/- was remitted in the Government Account. Taking note of the aforesaid transaction/AIR information, the AO was of the opinion that the assessee had surrendered his rights in the properties to Shri Chunilal Velaji Prajapati and Shri Tejaram Navaji Prajapati respectively and offered stamp duty value of Rs. 71,07,480/- as sale consideration for both floors and calculated the Long Term Capital Gain (LTCG) at Rs. 71,07,480/-. The Ld. CIT(A) confirmed the action of the AO by holding that "money paid to the tax-payers for regularizing the tenancy agreement with Mr. TilokChand D Shah and Dinesh Metal Industries is to be treated as income in the hands of the tax-payers in the nature of the tenancy rights". According to him, the cost of acquisition is nil, the excess amount need to be taxed as capital gain. According to the Ld. CIT(A), the assessee/executors/trustees had to be paid consideration by Shri Chunilal & Shri Tejaram for regularizing the tenancy, since the 2nd and 3rd floor properties were given on rent by assessee to M/s. Dinesh Metal Industries and to Shri Tilok Chand D Shah respectively, and they ....
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....d both the tenancy agreement has incorporated the provision of MRC Act, 1999 which permits the assessee to evict the tenant for failure to pay the rent as per section 15 of MRC Act, 1999. Moreover, according to Ld. AR, there was no consideration passed between land-lord and tenant. Apart from the aforesaid facts and despite assessee pointing out the aforesaid facts, there was no enquiry on the part of AO/Ld. CIT(A) to verify from the tenants (Shri Chunilal or Shri Tejaram) as to whether there was any transaction of the nature of transfer as contemplated u/s 2(47) of the Act. According to Ld. AR without any material to show that tenancy agreement entered into between assessee [who was one of the four owner of the properties (two flats)] and the two persons, were in the nature of transfer, AO/Ld CIT(A) erred in holding that the agreement was sham or colourable device to avoid tax. Therefore, it was urged that the action of AO/Ld. CIT(A) to bring in deeming section 50C of the Act to tax the transaction is erroneous. The Ld. AR cited the following decisions in support of his aforesaid contention, which are as under:- (1) Atul G. Puranik v ITO (ITAT Mumbai) (2011) 11 taxmann.co....
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.... deemed to be the full value of consideration for purposes of computing capital gains; (ii) It is trite law that a legal fiction cannot extend beyond the purpose for which it is enacted. As long as there is no ambiguity in the statutory language, resort to any interpretative process to unfold the legislative intent is impermissible. The statute has to be interpreted on the basis of the language used. No words can be added and only the language used can be considered so to ascertain the proper meaning and intent of the legislation. (Las on interpretation discussed in detail); (iii) Section 50C of the Act does not apply to all capital assets but only to "land or building". A tenancy right is not "land or building" (It is "rights" in building). Consequently, section 50C of the Act has no application and the capital gains have to be computed on the basis of the actual consideration and not the stamp duty value. 8. In the light of the aforesaid discussion, we find that there is no material on record to find that the registered agreement between parties be treated as sale/transfer of properties in question. Assessee is one of four (4) co-owners of two flats and from ....