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TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 378
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....e claimed capital gain exemption under section 54F amounting to Rs. 11,68,89,000/-. The assessee's case was selected for scrutiny under cash or verifying the capital gain deduction claim in the return of income. The Ld. AO found that the assessee had received amount to Rs. 11,68,99,000/- on surrender of tenancy rights. The said property was jointly owned by his family. The assessee with his brother Shri Vivek Jaisingh Asher were the tenant of the said property. After a long-standing RAE suit, on the first floor was vacated in 2013. The old tenant vacated on 31 March 2013 for a consideration of Rs. 2.75 crore. To meet the families bonafide residential needs, the assessee and his brother started occupying the vacated portion by paying rent of Rs. 5000/- per month. Though no formal agreement was executed initially, the rent receipt and electricity bills evidenced for tenancy. Since the property would remain within the family the family did not find it necessary to make any formal agreement in 2013. Both the sons were paying rent of Rs. 5000 per month and assessee has submitted rent receipts and electricity bills to evidence the tenancy. Later on the property was proposed to be redevel....
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.... Agreement dt. 05.08.2014 1 to 87 2 Development Agreement dt. 11.08.2014 88 to 183 3 Supplement Agreement dt. 21.10.2016 184 to 211 4 Agreement for Permanent Alternate Accommodation dt. 07.03.2017 212 to 308 5 Full Occupancy and Building Completion Certificate to Arkade Developers dt. 25.11.2019 309 6 Possession Letter dt. 19.12.2020 310 to 313 7 Rent Receipts 314 8 Electricity Bills 315 to 317 9 Possession Letter from Mr. Narendra P. Ghuwalewala dt. 31.3.2013 318 to 319 10 Proceedings in R.A.E. Suit No. 576/1000 of 2002 in the Court of Small cases of Bombay 320 to 339 11 Decree to the above Suit No. 546/1000 of 2002 340 to 353 5. The Learned Authorised Representative (Ld. AR) also filed a written note explaining the sequence of events, along with the relevant facts and documents, which are reproduced as under: Date Event Paper Book Page No. 2002 Filing of RAE Suit No. 576/2002 by owners against the previous tenant (Narendra P. Ghuwalewala). 320 to 353 31.03.2013 Vacation of the first floor by the old tenant upon payment of Rs. 2.75 Crores. 318 to 319 01.04.....
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....ior years cannot be disputed and disregarded in the year 2020. There cannot be tax avoidance or tax evasion on transfer from father (or close relative) to son. Reliance on the decision of the Hon'ble Supreme Court in case of Mahendra Gala vs. ITO (tendered in the Court). There are four co-owners. They received 3 flats. If they had received this one more flat, still they would have been able to claim benefit of section 54F of the Act. Therefore, there is no tax savings as such. If AO disregards the tenancy, then he should also disregard the receipt of new property in the hands of the assessee. Even Maharashtra Housing and Area Development Authority (MHADA) had verified the tenancy. The assessee was listed as a tenant in the redevelopment scheme approved by MHADA. This independent government verification negated the AO's claim that the tenancy was a sham. Since, in lieu of tenancy the assessee has received new flat on ownership basis, therefore, in the year of possession of new flat, the tenancy is extinguished. There will be transfer and the assessee would be entitled to take benefit of section 54F of the Act as allowed by Ld. CIT....
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.... The AO relied on decision given in the case of Sumati Dayal v. CIT [1995] 214 ITR 801 (SC) to justify rejection of documentary evidence based on surrounding circumstances and decision given in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148 (SC) to argue that tax planning through colourable devices should be struck down. Facts of these case laws are different from the facts of the appellant. Case Laws relied on by the AO pertain to unexplained cash credits and tax avoidance but the appellant's case is of documented tenancy and transactions are supported by registered agreements and third-party verification. Since, tenancy rights are capital assets under section 2(14) and surrender constitutes transfer u/s 2(47), flat received in exchange for tenancy right is a valid consideration. There is nothing on record to show that any other residential property held by the appellant on date of transfer. As, flat qualifies as investment in residential house, conditions to claim exemption u/s section 54F stands satisfied. As flat received in exchange for surrender of tenancy rights which is a valid consideration and transaction is not gratuitous, invoking provisions of s....
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....r clause (a) or clause (b) of Section 56(2)(x) of the Act. This is because both are separate provisions and under either of these two clauses the stamp duty value could be treated as deemed income. By not specifying whether Section 56(2)(x)(a) or Section 56(2)(x)(b) of the Act was applicable, the A.O. first of all has not given reasonable opportunity of showing cause to the assessee. Assessee would be totally unaware of the grounds which had prompted the A.O. to arrive at a prima facie conclusion and issue show cause notice. The power that the A.O. had was required to be executed properly. Moreover in the assessment order dated 29 th September 2022 that is impugned in the petition, the A.O. has chosen to give Section 56(2)(x), a go by and treat the stamp duty value of the flat at Rs. 11,68,99,000/- as from unexplained source under Section 69 of the Act. There is no reference to Section 56(2)(x) of the Act in the operative part of the order dated 29th September 2022. 10. In the circumstances, the impugned order dated 29 th September 2022 cannot be sustained. The allegations in the affidavit in reply that assessee has claimed tenancy rights as colourable device in order to g....
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....ho transferred the same to the builder against which the new flat was allotted. in present set of facts, it could be either the assessee or his daughter Ms. AshwiniBarabde. In either case, deduction u/s, 54F is available against the capital gain so computed since, there is an investment by way of PAA residential flat allotted by the builder of equivalent stamp duty value of Rs. 2,88,85,600/-. Thus, in either hands, the capital gain so computed will be eligible for deduction u/s. 54F in toto. 8.2. We are in agreement with the contention raised by the Ld. Counsel that once an income from a source falls within a specific head, the fact that it may indirectly be covered by another head will not make the income taxable under the later head. In our considered view, applicability of Section 56 is ruled out in the present fact of the case. Respectfully following the principle laid down by the Hon'ble Supreme Court in the case of D.P. Sandu Bros. Chembur (P.) Ltd. (supra) and in the given set of facts as narrated above, the addition made by the Ld. AO in the hands of the assessee u/s. 56(2)(x)(b)(B) of the Act is deleted. Further, claim of the assessee for deduction u/s. 54F ag....