2015 (4) TMI 506 - HC - Income Tax

Compensation received on surrender of tenancy rights - Taxability in the hands or in the hands of Firm - who is the owner of tenancy right - Payment of rent by Firm - Partners claimed exemption under Section 54EC out such receipt - Held that - We find that the Respondent Assessee had in fact before Assessing Officer pointed out that the Tripartite Agreement was entered into, making Respondent Assessee party thereto was on the insistence of the builders so as to take care of builders apprehension in respect of the said property. It was also pointed out that sale consideration was received by the individual partners and not by the firm from the builders. So far as payment of the rent by the firm is concerned, it was a normal allowable business expenditure of the firm. Thus, both the CIT(A) and the Tribunal have come to a concurrent finding of the fact on examination of evidence that the tenancy of the rental premises belonged to the individual partners and not to the Respondent Assessee. It is also noticed that the amounts received by the partners in the individual capacity, was disclosed in their return of income claiming the benefit of Section 54EC of the Act. - Decided against the revenue.

Issues:
1. Challenge to the order passed by the Income Tax Appellate Tribunal under Section 260A of the Income Tax Act, 1961.
2. Determination of liability to pay tax on compensation received on surrender of tenancy rights.
3. Whether tenancy rights are vested in the Respondent-Assessee or its individual partners.

Analysis:
1. The appeal challenged the order of the Income Tax Appellate Tribunal (the Tribunal) regarding the Assessment Year 2006-07. The main question raised was whether the Tribunal was correct in deleting the additions made by the Assessing Officer on account of compensation received on surrender of tenancy rights.
2. The core issue in this case was to determine whether the tenancy rights were vested in the Respondent-Assessee or its individual partners for the purpose of tax liability on the compensation received for surrendering the tenancy.
3. The Respondent-Assessee conducted business from a rental premises owned by Mr. V. Shantaram. The Assessing Officer discovered an agreement indicating the surrender of tenancy by the Respondent firm in favor of a builder, with a compensation of Rs. 2.50 Crores. The Respondent argued that the tenancy was in the name of the partners individually, not the firm.
4. The Commissioner of Income Tax (Appeals) set aside the Assessing Officer's order after examining documents, including a letter from 1959 directing the landlord to treat the partners as tenants in their individual capacity. The Partnership Deed also confirmed that the tenancy rights belonged to the partners individually, not the firm.
5. The Tribunal upheld the CIT(A)'s findings, stating that the tenancy rights were always held by the partners, not the firm. The Revenue contended that the Tripartite Agreement indicated the firm as a party, but the partners were not mentioned, and rent was paid by the firm. However, the Tribunal found that the partners received the sale consideration individually and that rent payment was a normal business expenditure.
6. The concurrent findings of fact by the CIT(A) and the Tribunal established that the tenancy belonged to the individual partners, not the Respondent-Assessee. Since the conclusion was based on factual findings, no substantial question of law arose, leading to the dismissal of the appeal.

This detailed analysis covers the issues raised in the legal judgment comprehensively, outlining the arguments, findings, and conclusions regarding the tax liability on compensation received for surrendering tenancy rights.

← Previous Next →