2014 (6) TMI 575 - AT - Income Tax

Denial of exemption u/s 54EA of the Act - Addition of surrender of tenancy rights Income from other sources Held that - Merely because the correction is made in the agreement would not render entire agreement as non-genuine when all other place the name of the assessee is correctly appearing in the agreement even this is immaterial mistake which has been corrected in the name of the assessee - it does not affect the terms and conditions of the agreement - the rent receipts placed on record are duly signed and also appearing dates and month for which the rent was paid - The rent receipt coupled with the agreement in respect of the premises establish the fact that the assessee was having tenancy right in respect of the premises - tenancy right was surrendered by the assessee in lieu of alternative accommodation to be constructed by the developer under the redevelopment plan. The tenancy right has been recognized as the capital asset u/s 55(2) of the Income Tax Act - there is no doubt that the consideration to be received by the assessee against the surrender of tenancy rights is capital in nature and to be assessed as capital gain - 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 - the amount received against the transfer of tenancy is assessable as capital gain and not income from other sources - the amount received by the assessee is against the transfer of capital asset there was no justification in treating the same as income from other sources - assessee has produced sufficient material to establish the tenancy rights and surrender of tenancy rights and creating the right to have alternative accommodation - the assessee surrendered the right in alternative accommodation and received the amount in question which is capital gain in nature the amount has been invested in the prescribed units u/s 54EA thus, the assessee is entitled for deduction u/s 54EA against the receipt Decided in favour of Assessee.

Summary

Issues Involved:
1. Denial of exemption under Section 54EA.
2. Chargeability of interest under Sections 234B and 234C.
3. Invocation of penalty provisions under Section 271(1)(c).

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 54EA:
The assessee filed a return of income claiming a deduction under Section 54EA for the receipt against the surrender of tenancy rights. The Assessing Officer (AO) denied this deduction and taxed the amount as "income from other sources." The CIT(A) upheld this decision, leading to the current appeal. The assessee argued that the transaction was genuine and supported by various documents, including rent receipts, agreements, and lists from MHADA and BEST, proving tenancy rights. The Tribunal found that the tenancy rights were genuine and the amount received should be treated as capital gain, not income from other sources. The Tribunal relied on precedents set by the Hon'ble Jurisdictional High Court, which held that amounts received for the transfer of tenancy rights are assessable as capital gains. Consequently, the Tribunal allowed the exemption under Section 54EA.

2. Chargeability of Interest under Sections 234B and 234C:
The assessee contested the chargeability of interest under Sections 234B and 234C. The Tribunal noted that the levy of interest is mandatory. However, since the main issue on merits was decided in favor of the assessee, this issue became infructuous.

3. Invocation of Penalty Provisions under Section 271(1)(c):
The CIT(A) had confirmed the invocation of penalty provisions under Section 271(1)(c). However, since the Tribunal decided the main issue in favor of the assessee, the additional ground regarding the penalty also became infructuous.

Conclusion:
The Tribunal allowed the appeal of the assessee, recognizing the amount received from the builder as capital gains eligible for exemption under Section 54EA. The issues of interest chargeability and penalty invocation were rendered moot due to the favorable decision on the main issue. The order was pronounced in the open court on 4-6-2014.