2015 (6) TMI 1158 - AT - Income Tax

Capital gain on tenancy rights transfer - Cost with reference to certain modes of acquisition - AO denied the indexation in view of the provisions of section 55(2)(a) - cost of acquisition of tenancy rights is to be treated as nil, if the assessee has not paid any purchase price for the acquisition of the same - Date of acquisition of tenancy rights by the father of the assessee - Held that - Since the tenancy rights have been dealt with/discussed in section 55(2)(a), the provisions of section 55(2)(b) are not attracted in the case of the assessee. Section 55(3) states that where cost for which the previous owner acquired the property cannot be ascertained the cost of acquisition to the previous owner will be the fair market value on the date on which the capital asset became the property of the previous owner. Date of acquisition of tenancy rights by the father of the assessee is required to be ascertained and further whether the father of the assessee had acquired the tenancy rights on paying some price or not and whether the provisions of section 55(3) are applicable to the case of the assessee are the questions of facts and law which are required to be determined by way of appreciation of evidence. Photostat copies of the rent receipts shows that there are certain notable differences and discrepancies in the said receipts when the said receipts are compared with each other e.g. the signatures of the landlord Shri Krishanraj Dwarakadas Kapadia appears to be different on different receipts and even there is tampering in dates of receipts and further in one of the receipts the date has been mentioned as 31st Jan 06 by striking off 199 . The possibility of any or some of the receipts to be true or correct cannot be ruled out. We restore this issue to the file of the AO with the direction that the AO will give proper opportunity to the assessee to produce the evidences relating to the tenancy rights and cost of the acquisition of the tenancy rights by the father of the assessee in the property in question and thereafter to decide the issue afresh as per provisions of law and in the light of observations made above. Whether the provisions of section 54 are applicable in case of transfer of tenancy rights? - Held that - A.R. of the assessee has fairly admitted that the issue is covered against the assessee by the decision of the co-ordinate Bench of the Tribunal in the case of Meher R Surti vs. ITO (2015 (4) TMI 52 - ITAT MUMBAI). So, the issue raised vide ground No.2 is accordingly dismissed.

Summary

Issues involved:
1. Deduction of "fair market value" of rights in the residential property for computing Capital Gains.
2. Allowance of deduction under Section 54 of the Act from long term capital gains arising on surrender of tenancy rights.

Issue 1: Deduction of "fair market value" of rights in the residential property for computing Capital Gains.
The assessee claimed indexation of the cost of acquisition of tenancy rights sold, but the Assessing Officer denied indexation under section 55(2)(a) as the cost of acquisition was treated as nil due to no purchase price paid. The assessee argued that the tenancy rights were akin to ownership rights, and the cost of acquisition should be the fair market value of the property as of 01.04.1981. The CIT(A) held that the evidence did not establish the date of acquiring tenancy rights by the father of the assessee, leading to denial of indexation and deduction under section 54. The Tribunal found discrepancies in the rent receipts submitted as additional evidence and directed the AO to examine the evidence and decide the issue afresh.

Issue 2: Allowance of deduction under Section 54 of the Act from long term capital gains arising on surrender of tenancy rights.
The assessee claimed deduction under section 54 for transfer of tenancy rights, but the Tribunal noted that a previous decision was against the assessee on this issue. Consequently, the Tribunal dismissed the claim for deduction under section 54. In another related appeal by the brother of the assessee, the Tribunal made similar findings and restored one ground for further examination by the AO while dismissing the other ground.

In conclusion, the Tribunal partly allowed both appeals for statistical purposes, directing further examination of evidence for the deduction of "fair market value" of rights in the residential property and dismissing the claim for deduction under Section 54. The judgment highlights the importance of establishing the date and cost of acquisition for determining capital gains and allowable deductions under the Income Tax Act.