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2013 (9) TMI 690 - AT - Income TaxCapital gains or Income from other sources - transfer of sub tenancy rights, deemed tenancy rights - Held that - the assessee has been referred to as licensor. From the agreement deed it is clear that the assessee had incidental right of the premises through which the looms were to be used. The said right of the assessee has been recognised from the date of agreement till surrender of the said right. Even the original tenant and the original owner did not dispute such right of the assessee over the property. Now, the case of the Revenue is that the agreement dated June 13, 1972 did not provide any right to the assessee of sub-tenancy of the premises but it was only with respect to looms and machinery and user of the premises was only incidental. But the fact remains that incidental right to use the premises was provided by the agreement itself. The fact also remains that assessee has been referred to as licensee in the said agreement. The provisions of section 5(11)(bb) and 15A of the Rent Control Act have already been reproduced above. By virtue of amendment in 1973, i.e., subsequent to the date of agreement of the assessee that the licensees who are deemed to be tenant under section 15A were to be considered as tenant. Therefore, in any case, the assessee had acquired the status of tenant of the landlord. As per the provisions of section 55(2) tenancy right has been considered to be capital asset. Moreover, the definition of capital asset as per section 2(14) of the Act is wide enough to cover property of any kind and the type of right acquired by the assessee in the property used by it cannot in any manner be said to be less than any kind of property held by the assessee - assessee, in fact, was enjoying possession of the impugned property and for peaceful vacation thereof it had received the impugned amount which was described by both parties as amount paid for surrender of tenancy rights. The assessee had acquired the said right long back and the licensor to the assessee also had recognised the said right of the assessee. The right of the assessee was undisputed and the nature thereof was property of any kind which was held by the assessee and was to be termed as a capital asset within the meaning of section 2(14) of the Act. Tenancy rights have also been recognized as capital asset within the meaning of section 55(2)(a) of the Act - Decided in favour of assessee.
Issues Involved:
1. Classification of income from the transfer of sub-tenancy rights. 2. Determination of whether the consideration received is a capital asset or income from other sources. 3. Applicability of Section 54EC of the Income-tax Act, 1961 for exemption. Issue-wise Detailed Analysis: 1. Classification of Income from the Transfer of Sub-Tenancy Rights: The core issue was whether the consideration of Rs. 3,75,00,000 received by the assessee for the transfer of sub-tenancy rights should be classified under "Income from other sources" or "Capital gains". The Assessing Officer (AO) argued that the agreement dated June 13, 1972, between the assessee and Modern Textiles and Silk Mills P. Ltd. (Modern) was for the licence of looms and machinery, not for sub-tenancy of the land. Therefore, the AO concluded that the amount received was not for the transfer of a capital asset but was compensation for the loss of business profit, and thus, should be taxed as "Income from other sources". 2. Determination of Whether the Consideration Received is a Capital Asset or Income from Other Sources: The assessee contended that the agreement and subsequent occupation of the premises since June 13, 1972, provided possessory rights over the land, converting the status from "licensee" to "deemed tenant" under Section 5(11)(bb) and Section 15A of the Maharashtra Rent Control Act. The Commissioner of Income-tax (Appeals) upheld the AO's decision, emphasizing that the agreement was for machinery and equipment lease, not for land tenancy. However, the Tribunal recognized that the assessee had possessory rights and was considered a tenant by virtue of the Maharashtra Rent Control Act amendments. The Tribunal concluded that the right to use the premises was a capital asset under Section 2(14) of the Income-tax Act and thus, the amount received should be classified as "Capital gains". 3. Applicability of Section 54EC of the Income-tax Act, 1961 for Exemption: The assessee claimed exemption under Section 54EC by investing Rs. 50 lakhs in NHAI bonds. The AO denied this exemption, arguing that the amount received was not for the transfer of a capital asset. The Tribunal, however, determined that the amount received was indeed for the surrender of tenancy rights, a capital asset. Consequently, the assessee was entitled to the exemption under Section 54EC. Conclusion: The Tribunal held that the consideration received by the assessee for the surrender of sub-tenancy rights was a capital asset and should be assessed under "Capital gains". The appeal filed by the assessee was allowed, and the amount received was not to be assessed as "Income from other sources". The exemption under Section 54EC was also applicable. Order Pronounced: The order was pronounced in the open court on October 12, 2012.
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