IN THE INCOME TAX APPELLATE TRIBUNAL "J" BENCH, MUMBAI
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND
SHRI RAJENDRA, ACCOUNTANT MEMBER
Bhogilal M. Mehta (HUF) The Income Tax Officer-14
C/o Mehta Trading Corporation, Vs. (3)(1).
146/B, Chikhal House, Mumbai.
1st Floor, Princess Street.
Mumbai 400 002.
PAN:-AABHM5931P
Appellant Respondent
Assessee By/fu/kkZfjrh dh vksj ls Shri Vimal Punmiya
Revenue By/jktLo dh vksj ls Shri Maurya Pratap
Date of hearing
28.05.2014
Date of pronouncement
04.06.2014
ORDER
Per Vijay Pal Rao, JM
This appeal by the assessee is directed against the order dated 7.10.2013 of
CIT for A.Y. 2001-02. The assessee has raised following grounds in this appeal:-
"1 The Ld. CIT(A) erred in confirming the addition of Rs. 32,50,000/- on
account of surrender of tenancy right as income from other sources
against long term capital gain claimed by assessee and not allowed
exemption u/s 54EA.
2. The Ld. CIT(A) has failed to appreciate that the transaction is genuine
and cannot be termed as a colorable devise.
3. The Ld. CIT(A) erred in confirming the chargeability of interest u/s
234C & 234C of he Income Tax Act, 1961.
Bhogilal M. Mehta (HUF)
4. The Ld. CIT(A) erred in confirming invocation of provisions of penalty
u/s 271(1)(c) of the Income Tax Act, 1961.
2. Ground no.1 and 2 is regarding denial of exemption u/s 54EA.
3. The assessee has filed its return of income on 30.10.2001 claiming deduction
u/s 54 in respect of the receipt against surrender of tenancy rights. The return was
processed u/s 143(1) and later on vide notice u/s 148 dated 15.04.2004, the
assessment was reopended as in the opinion of the Assessing Officer the assessee
has wrongly claimed deduction u/s 54 in respect of the receipt for surrender of
tenancy rights. In the assessment order the Assessing Officer denied deduction u/s
54 and brought to tax the amount of Rs. 36,00,000/- under the head "income from
other sources". In first round of litigation CIT(A) deleted the addition and allowed the
appeal of the assesse vide order dated 14.01.2009. On further appeal by the
revenue before this Tribunal the matter was restored to the record of the Assessing
Officer for passing a fresh order after examination of the additional evidences and
other material as the assessee may produce during the course of proceedings.
While passing the fresh order the Assessing Officer again taxed the said amount of
Rs. 36,00,000/- under the head "income from other sources".
3. On appeal, the CIT(A) confirmed the disallowance/addition made by
Assessing Officer by impugned order.
4. Before us, the Ld. Authorized Representative of the assessee has submitted
that the assessee and his brother Indulal Mehta had tenancy rights in the premises
at Room No. 11 and Room No. 10 on ground floor, bldg. no. 5, Survey No. 2070 of
Malabar & Cumballa Hill Divisions Mumbai. Subsequently, the assessee and his
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Bhogilal M. Mehta (HUF)
brother entered into an MOU with M/s Shripati Group of Companies for surrender of
tenanted premises and for an alternative accommodation to be constructed by the
builder against the construction cost of Rs. 6,15,000/-. Assessee's share of
construction cost is Rs. 3,50,000/-. The Ld. Authorized Representative has further
submitted that as per the terms of MOU dated 5.12.1995 if the builder failed to
provide alternative accommodation by 31.12.2000 or the accommodation not
approved by the assessee then the builder shall give Rs. 60,00,000/- inclusive of
cost of construction of Rs. 6,15,000/-. This amount of Rs. 60,00,000/- was to be
paid to the assessee and his brother (HUF). On 25th March 2000, the assessee and
his brother (HUF) received 60,00,000 from the builder in which the assessee's
share was 36,00,000/-. The said amount has been invested by the assessee in the
HDFC mutual fund to the extent of Rs. 12,00,000/- and remaining amount of Rs.
24,00,000/- at UTI MIP 2000. The assessee claimed exemption u/s 54EA in this
regard. The Ld. Authorized Representative has submitted that the Assessing Officer
denied the exemptin u/s 54EA on the ground that the tenancy was not genuine and
treated the said amount as income from other sources. The Ld. Authorized
Representative has contended that the assumption of the Assessing Officer is
baseless when the assessee has been shown as tenant in respect of the premises
in question in the record of MHADA. He has further contended that MHADA has
independently provided information of old and present tenants of the premises and
assessee's name is clearly mentioned in the list of present tenants. MHADA is a
Government Body and reliability of its record cannot be questioned. The
redevelopment process has been undertaken by MBRRB a unit of MHADA which is
a statutory board and, therefore, the list provided by the statutory body cannot be
brushed aside in the absence of any contrary record. The Assessing Officer has
failed to comply with the direction of this Tribunal in the earlier round of litigation,
where specific direction was given to the Assessing Officer to consider the
information furnished by the MHADA but the authorities below have completely
ignored the relevant evidence. He has further submitted that the assessee has also
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Bhogilal M. Mehta (HUF)
produced rent receipts to establish the tenancy of the assessee and his brother
(HUF) in respect of these tenanted premises. The Ld. Authorized Representative
has referred the rent receipts placed at page 6 of the paper book. Thus the Ld.
Authorized Representative has submitted that the assessee has produced all the
relevant records to prove that the assessee was having the tenancy right in the
premises in question. The documents include rent receipts, agreement dated 10th
April 1995, agreement dated 25th March 2010, list of tenants provided by MHADA
and list of BEST showing the assessee as tenant in respect of the premises in
question. The Ld. Authorized Representative has referred and relied upon the
decision of Hon'ble Jurisdictional High Court dated 22.02.2012 in the of CIT Vs.
R.R. Chaturvedi & Others in Income Tax appeal No. 1196 of 2011 as well as the
decision in the case of CIT Vs. Rejendra R. Chaturvedi in Income Tax Appeal No.
1448 of 2011 and submitted that the Hon'ble High Court has held that the amount
received as transfer of tenancy rights is assessable as capital gain and not income
from other sources. Thus the Ld. Authorized Representative of the assessee has
submitted that the assesses has received the amount in question as per the MOU
dated 5.12.1995 after the expiry of more than three years and in lieu of the
alternative accommodation, therefore,t he amount is capital receipt and should be
assessed as capital gain in the hands of the assessee. When the assessee has
invested the said capital gain as per the provisions of section 54EA, therefore the
exemption cannot be denied. Alternatively the assessee has submitted that if the
tenancy right is not considered as genuine then the gain is long term capital gain as
the construction cost of Rs. 3,50,000/- was paid in the year 1995 for acquiring the
alternative accommodation and the amount is received in the year 2000. Therefore,
the said amount received is capital in nature and has to be assessed as long term
capital gain. He has relied upon the following decisions:-
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Bhogilal M. Mehta (HUF)
(i) SSPDL Ltd. Vs. Deputy Commissioner of Income Tax. IT Appeal No. 976
of 2012 (HYD.)
(ii) CIT Vs. Mrs. Grace Collies [2001] 248 ITR 323
(iii) B. Ramakrishnaiah Vs. ITO (39 SOT 379)
(iv) Ajay C Mehta Vs. DCIT (114 ITD 6280(Ahd.)
5. By placing reliance on the above decisions, the Ld Authorized Representative
of the assessee has submitted that the assessee has received the amount in
question in lieu of relinquishment of his right in the property developed by the
builder then this consideration received by the assessee is against the transfer of
capital asset.
6. On the other hand, the Ld. DR has submitted that the Assessing Officer has
pointed out various flaws and lacunae in the records filed by the assessee, further
there is no written agreement between the assessee and landlord in respect of the
alleged tenancy. The list of MHADA cannot be relied upon as evidence for tenancy
of the assessee as the same is provided by the builder to the authority, therefore,
the so called tenancy is not genuine and the assessee has arranged the entire
transactions to get the benefit u/s 54EA.
7. We have considered the rival submissions as well as relevant material on
record. The assessee has received Rs. 36,00,000/- from the builder M/s. Shripati
Group of Companies. This fact of receipt of Rs. 36, 00,000/- out of total of Rs.
60,00,000/- shared between the assessee and his brother (HUF) has not been
disputed by the authorities below. The dispute is only on the point whether this
amount received by the assessee is against the surrender of tenancy and the
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Bhogilal M. Mehta (HUF)
surrender of right in the property to be developed by the developer and to be
considered as capital gain or not. Authorities below held that this amount cannot be
treated as capital gain as the entire transaction was just a colourable device to
evade payment of tax. The Assessing Officer has refused to accept the rent receipt,
the list of tenants provided by MHADA as well as BEST. The Assessing Officer has
attempted to point out some deficiencies in the receipt as well as the agreement
dated 10.4.1995 in which the name of the assessee was written in typing Bhogilal
M. Mehta and then HUF has been inserted with pen. We find that the said typing
mistake has been corrected at the time of signing the agreement and parties have
endorsed by signing the said correction in the agreement. Therefore, merely
because a correction is made in the agreement would not render entire agreement
as non genuine when at all other places the name of the assessee is correctly
mentioned in the agreement. Even this is immaterial mistake which has been
corrected in the name of the assessee, therefore, it does not affect the terms and
conditions of the agreement. Further we note that the rent receipts placed on record
are duly signed and also bearing dates and month for which the rent was paid. The
rent receipt coupled with the agreement in respect of the premises in question
establish the fact that the assessee was having tenancy right in respect of the
premises. The said tenancy right was surrendered by the assessee in lieu of
alternative accommodation to be constructed by the developer under the
redevelopment plan. In this respect an MOU was executed between the assessee
and the developer on 5.12.1995. The relevant part of the MOU in para 6 and 7 of
recitals and clause 7 of the terms and conditions of the agreement are as under:-
"6. The owners hereby commit and agree with the tenant that a residential
premises admeasuring approx. 840 .45 Sq. Ft. carpet area and ledge area of
14.85 Sq. ft. i.e. total build up area of 1145.67 sq. ft. shall be reserved for the
tenant/occupant between 8th and 10th floor and same shall not be allotted or
given possession of to anybody else.
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Bhogilal M. Mehta (HUF)
7. The tenant/occupant hereby agrees to pay a nominal construction charge of
Rs. 6,15,000/- to the said owners."
Clasue 7
"It is further agreed by and between the parties hereto that, on completion of
all the cigvil works pertaining to the flat to be allotted between 8th and 10th
floor the said owners shall, intimate the said tenant/occupant to take the
inspection of the said permanent alternate accommodation and if the
tenant/occupant does not approve the said permanent alternate
accommodation and declines to accept possession of the same then the said
owners shall pay to the said tenant/occupant an amount of Rs. 60,00,000/-
as compensation in lieu of the permanent alternate accommodation,
inclusive of Rs. 6,15,000/- to be paid by the tenant/occupant."
8. It is clear from the MOU that in lieu of surrender of tenancy/occupancy rights
of the existing premises the assessee along with his brother (HUF) was to be given
the build up area of 1145. 67 sq. ft. The assessee and his brother (HUF) also
agreed to pay construction charges of Rs. 6,15,000/- over and above the surrender
of tenancy rights. As per the said MOU the assessee and his brother (HUF) were
given the option to decline to accept the possession of the alternative
accommodation and to receive an amount of Rs. 60,00,000/- as compensation in
lieu of permanent alternative accommodation inclusive of Rs. 6,15,000/-
construction cost paid by the assessee and his brother (HUF). On 25th March 2000,
the parties entered into an agreement whereby the assessee and his brother HUF
agreed to receive Rs. 60,00,000/- against the surrender of tenancy rights and the
rights in the alternative accommodation. The amount of Rs. 6,15,000/- was
comprising of payment of Rs. 3,15,000/- and Rs. 2,65,000/- by assessee and
brother (HUF) according to the areas under tenancy. There is no dispute that the
rent was being paid in respect of premises in question and the builder wanted to
reconstruct the property under the redevelopment agreement, therefore, the
assessee along with his brother (HUF) was offered alternative accommodation by
the builder. The tenancy right has been recognized as the capital asset u/s 55(2) of
the Income Tax Act. Therefore, there is no doubt that the consideration to be
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Bhogilal M. Mehta (HUF)
received by the assessee against the surrender of tenancy rights is capital in nature
and to be assessed as capital gain. The question arises whether the capital gain is
longer capital gain or short term capital gain. Since the assessee has agreed to
surrender the tenancy right in the year 1995 and also paid the construction cost as
agreed between the parites, therefore, the value of tenancy rights along with the
construction cost was converted/substituted into the alternative accommodation to
be provided by the builder in the year 2000. In stead of accepting the alternative
accommodation, the assessee preferred to receive the agreed sum of Rs.
36,00,000/- inclusive of 3,50,000/- as construction cost paid by the assessee. Thus
the assessee has finally surrendered its tenancy right as well as alternative
accommodation rights only by way of the agreement dated 25th March 2000.
Therefore, this amount was received after more than three years. The Hon'ble
Jurisdictional High Court in the case of CIT Vs. R. R. Chaturvedi in Income Tax
Appeal No. 1196 of 2011 has accepted the status of the tenants as per the list of
tenants certified by Mumbai Buildings Repairs and Reconstruction Board
(MBRRB). Hon'ble Jurisdictional High Court in the case of CIT Vs. Rejendra R.
Chaturvedi (supra), the earlier tenant in respect of the building in question has
observed in para 3 as under:-
"3) This appeal filed by the revenue relates to consideration received by the tenants in
respect of surrender of tenancy. Once, it is accepted that the amounts paid by M/s.
R.R. Chaturvedi (AOP) to the respondent assessee herein, was for the
transfer/surrender of tenancy it follows that the amount received by the respondent
assesseee herein, in his hands would be amounts received as transfer of tenancy
assessable as "capital gain" and not as "income from other sources". In the above
circumstances we see no reason to entertain question (a).
9. The Hon'ble High Court has held that the amount received against the
transfer of tenancy is assessable as capital gain and not income from other
sources. In the case in hand, the amount received by the assessee is against the
transfer of capital asset and, therefore, we do not find any justification in treating the
same as income from other sources by the authorities below. The assessee has
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Bhogilal M. Mehta (HUF)
produced sufficient material to establish the tenancy rights and surrender of
tenancy rights and creating the right to have alternative accommodation. Finally the
assessee surrendered the right in alternative accommodation and received the
amount in question which is capital gain in nature. The CIT(A) has allowed the
deduction of Rs. 3,50,000/- from the total receipt of Rs. 36,00,000/-. Since the
amount has been invested in the prescribed units u/s 54EA, therefore, the
assessee is entitled for deduction u/s 54EA against the said receipt.
10. Ground No. 3 is regarding charges of interest u/s 234 B and 234C. Since the
levy of interest is mandatory and consequently, therefore, when the issue on merit
has been decided in favour of the assessee this issue becomes infructuous.
11. The assessee has also raised an additional ground as under:-
"On the facts and circumstances of the case and law, the Ld. CIT(A) erred in
considering that if it is assumed that tenancy right is not genuine than receipt
of Rs.. 32,50,000/- is an capital receipt which is not chargeable under the
head "Income From Capital Gain" and cannot be taxed under the head
"Income From other Sources"
12. Since the main ground has been decided in favour of the assessee, then the
additional ground raised by the assessee becomes infructuous.
13. In the result appeal of the assessee is allowed..
Order pronounced in the open court today i.e 4-6-2014
Sd/- Sd/-
(Rajendra) (Vijay Pal Rao)
(Accountant Member/ys[kk lnL;) (Judicial Member/U;kf;d lnL;)
Mumbai dated 4-6-2014
SKS Sr. P.S,
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