TaxTMI 
TaxTMI 
2024 (11) TMI 421
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.... A. Mehtain in Shop No. 11, Building No. 30,Sk. Sukhand Chal, Khatargali, C.P. Tank, Mumbai. The assessee had purchased tenancy rights by way of agreement dt. 21-08-2017 for a sum of Rs. 30 lakhs from the previous tenant named Dr. Satyajit Chowdhary. Subsequently, the above said building was taken up for re-development by a builder named M/s. Shreepati Jewels. As per the agreement entered with the above builder, the assessee surrendered the tenancy right to the builder and in lieu thereof, the assessee was given an alternative non-residential premises, bearing address No. 503, 5th Floor, Wing E, Shreepati Jewels Pearl, C P Tank, Mumbai with payment of additional cost of Rs. 20 lakhs. The assessee was given76.63 sq. Mtrs., of constructed area in lieu of the old shop admeasuring 14.95 Sq. Mtrs. The AO noticed that the Stamp Authorities have determined the value of the new property at Rs. 2,47,93,300/-. The AO noticed that the assessee has paid a sum of Rs. 50 lakhs only [Rs. 30 lakhs to the previous tenant and Rs. 20 lakhs to the builder]. Hence, he took the view that section 56(2)(x) of the Act, will be applicable to this transaction. Accordingly, he assessed the difference amount o....
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.... the Act. While the provisions of Section 50C are applicable to the seller of immovable property, the provisions of Section 56(2)(x) are applicable to a buyer. The question as to whether the provisions of Section 50C of the Act would be applicable to transfer of lease hold right came to be examined by the co-ordinate bench in the case of Atul G Puranik vs. ITO (2011) (132 ITD 499) (Mumbai). It was held that the provisions of Section 50C of the Act will not be applicable to lease hold rights. The relevant discussions made by the co-ordinate bench are extracted below:- "11.1 In order to appreciate the rival contentions on this issue, it would be apt to consider the prescription of sec. 50C(1), which is as under : "50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereinafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purpos....
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....tion. 11.3 It is a settled legal proposition that a deeming provision cannot be extended beyond the purpose for which it is enacted. The Hon'ble Apex Court in CIT v. Amarchand N. Shroff [1963] 48 ITR 59 has considered the scope of a deeming provision and came to hold that it cannot be extended beyond the object for which it is enacted. Similar view has been reiterated by the Hon'ble Supreme Court in CIT v. Mother India Refrigeration Industries (P.) Ltd. [1985] 155 ITR 711/ 23 Taxman 8 by laying down that "legal fictions are created only for some definite purpose and these must be limited to that purpose and should not be extended beyond their legitimate field". In CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210 /[2005] 144 Taxman 855 (Bom), the Hon'ble jurisdictional High Court considered the facts of a case in which the assessee was a partner in a firm which was dissolved in the year 1984 and the assessee was allotted a flat towards the credit in the capital asset with the firm. The assessee showed the flat as capital asset in its books of account and depreciation was claimed and allowed from year to year. In the previous year relevant to asst. year 1992-93, ....
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....ed under the I.T. Act. sec. 54D deals with certain cases in which capital gain on compulsory acquisition of land and building is charged. Sub-sec.(1) of sec. 54D opens with : "Subject to the provisions of sub-section (2), where the capital gain arises from the transfer by way of compulsory acquisition under any law of a capital asset, being land or building or any right in land or building, forming part of an industrial undertaking.....". It is palpable from sec. 54D that 'land or building' is distinct from 'any right in land or building'. Similar position prevails under the W.T. Act, 1957 also. Section 5(1) at the material time provided for exemption in respect of certain assets. Clause (xxxii) of sec. 5(1) provided that "the value, as determined in the prescribed manner, of the interest of the assessee in the assets (not being any land or building or any rights in land or building or any asset referred to in any other clauses of this sub-section) forming part of an industrial undertaking" shall be exempt from tax. Here also it is worth noting that a distinction has been drawn between 'land or building' on one hand and 'or any rights in land or building....
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....R information, the market value of the property registered by Registrar was at Rs. 31,60,080/- and Rs. 39,47,400/- on which stamp duty paid was to the tune of Rs. 360 + 360/-, registration fee 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 Teja....
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....f the two floors/property in question has not been transferred to Shri Chunilal or Shri Tejaram. According to the Ld. AR, it can be seen that they were only tenants and didn't enjoy the power to sell or mortgage or sub-lease the property (without permission of land-lords). And 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....
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....by the Ld. CIT(A). On appeal by the Ld. Assessee, held allowing the appeal; (i) Section 50C of the Act is a deeming provision and incorporates a legal fiction that if the consideration received on transfer of land or building is less than the stamp duty value, the said stamp duty value shall be 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 c....
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.... c. The aforesaid position of law has also been upheld by the Bombay High Court in the case of CIT V/s. Greenfield Hotel and Estates Pyt. Ltd. 389 ITR 68 (Born). Similarly in many cases where assessee has transferred booking of a fat with the builder, issue has arisen whether the same is a separate right/property than the flat when actually received. d. It has to operate within the realm of realities otherwise, there will be absurdities/ prevensities (Sri Palaniappan Lakshumanan Chettiar V/s. CIT (ITA No.2129/Chny/2019). Thus the deoming proyisions under the Income Tax Act cannot be interpret undefined terms given therein-.#1*,,, T,c4N*4 xiv. Considering the above facts and discussion at point no.-(i) to (xiii) and the relevant case laws cited by the appellant assessee, this Appellate authority has gone through this issue w.r.t the contentions of both the Assessing officer and the Appellant assessee. It is found that, the contention of the appellant assessee in its case is correct w.r.t the non-applicability of section 56(2)(x) of the Act as this section is not found applicable in case of Tenancy rights. Thus, this Appellate authority finds force in the submission....