1993 (10) TMI 312 - AT - Income Tax

Summary

Issues Involved:

1. Jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961.
2. Determination of the relationship between the company and the director regarding the flat (tenant vs. licensee).
3. Applicability of section 2(24)(iv) of the Income-tax Act, 1961.
4. Valuation of the property and the consideration paid.
5. Impact of the Bombay Rent Control Act on the valuation and tenancy rights.
6. Relevance of the Competent Authority's inaction on Form No. 37EE.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961:
The Commissioner of Income-tax invoked section 263, claiming the Income-tax Officer's assessment was erroneous and prejudicial to the interests of the Revenue. The core issue was whether the transfer of the flat at Rs. 2,30,000, when its market value was alleged to be Rs. 47 lakhs, constituted a benefit to the director under section 2(24)(iv) of the Act. The Tribunal had differing views, leading to a reference to a third member. The third member concluded that the Commissioner was not justified in setting aside the assessment, as the valuation of the property at Rs. 2,30,000 was reasonable given the tenancy rights and the provisions of the Bombay Rent Control Act.

2. Determination of the relationship between the company and the director regarding the flat (tenant vs. licensee):
The Tribunal had conflicting views on whether the relationship was that of a tenant and landlord or a licensee and licensor. The Accountant Member opined that the relationship was of a landlord and tenant, supported by the company's letter to the Income-tax Officer in 1964 and the continuous payment of rent. The Judicial Member, however, believed it was a licensee and licensor relationship, citing the company's board resolution and the absence of a bilateral tenancy agreement. The third member sided with the Accountant Member, emphasizing the legal definitions under the Bombay Rent Control Act and the continuous occupation and rent payments, establishing the relationship as that of a landlord and tenant.

3. Applicability of section 2(24)(iv) of the Income-tax Act, 1961:
The Commissioner argued that the difference between the market value and the sale price constituted a taxable benefit under section 2(24)(iv). The Accountant Member disagreed, stating that the benefit, if any, was conferred when the tenancy was created decades ago, not at the time of sale. The Judicial Member contended that the benefit arose at the time of sale. The third member concluded that the provisions of section 2(24)(iv) did not apply as the sale price was reasonable given the tenancy rights and the valuation method under the Bombay Rent Control Act.

4. Valuation of the property and the consideration paid:
The Commissioner valued the property at Rs. 47 lakhs, while the company sold it for Rs. 2,30,000. The Accountant Member highlighted the company's valuation report and the Competent Authority's inaction on Form No. 37EE as evidence that the sale price was fair. The Judicial Member dismissed these points, emphasizing the market value. The third member supported the Accountant Member's view, noting the property's negative income and the valuation method under the Rent Control Act, making the sale price reasonable.

5. Impact of the Bombay Rent Control Act on the valuation and tenancy rights:
The Accountant Member and the third member stressed that the Bombay Rent Control Act significantly impacted the property's valuation, as it limited the rent and made eviction difficult. The Judicial Member acknowledged the Act but believed the company could have taken steps to evict the tenant. The third member emphasized that the Act's provisions and the continuous occupation by the tenant justified the lower valuation and sale price.

6. Relevance of the Competent Authority's inaction on Form No. 37EE:
The Accountant Member argued that the Competent Authority's inaction on Form No. 37EE indicated acceptance of the sale price as fair. The Judicial Member dismissed this point, stating that acquisition proceedings were independent. The third member agreed with the Accountant Member, noting that the Competent Authority's inaction supported the reasonableness of the sale price.

Conclusion:
The third member concluded that the Commissioner of Income-tax was not justified in setting aside the assessment under section 263, as the sale price of Rs. 2,30,000 was reasonable given the tenancy rights and the valuation method under the Bombay Rent Control Act. The relationship between the company and the director was that of a landlord and tenant, and the provisions of section 2(24)(iv) did not apply. The appeal was allowed in favor of the assessee.