2017 (12) TMI 1779 - AT - Income Tax

Correct head of income - premium received on account of the tenancy rights - Capital gain or income from other sources - allowed deduction u/s 54EC - HELD THAT - We find that the issue is of recurring in nature and stood in assessee s favor from AY 2007-08 to 2011-12 wherein held that legislature has intended to define the term capital asset in the widest possible manner. This definition has been curtailed to the extent of exclusions given in section 2(14) itself which include stock in trade and personal effects. The impugned asset does not clearly fall in the aforesaid exclusions given in section 2(14). The bundle of rights acquired by the assessee are undoubtedly valuable in terms of money. In our view, the said tenancy rights shall form part of a capital asset in the hands of the assessee and, therefore, any gains arising therefrom would be assessable under the head Income from capital gains eligible for deduction u/s 54EC of the Act. - Decided in favour of assessee.

Summary

Issues:
1. Assessment of premium received on property as capital gain u/s.45(1) or income from other sources u/s.56(1).
2. Change of ownership in case of transfer of tenancy and taxation implications.
3. Applicability of deduction u/s 54EC from Long Term Capital Gains.

Analysis:
1. The appeal by the revenue contested the order of the Ld. Commissioner of Income-Tax (Appeals)-9 [CIT(A)] regarding the assessment year 2012-13. The primary issue was whether the premium of ?4,97,95,000 received on the transfer of tenancy should be assessed as capital gain u/s.45(1) or as income from other sources u/s.56(1). The revenue argued that the ownership did not change, so it should be treated as income from other sources. However, the CIT(A) directed the AO to assess it as capital gain. The AO had initially framed the assessment at ?522,24,560, treating the premium as Long Term Capital Gains (LTCG) taxable at 20%.

2. During the assessment proceedings, it was found that the assessee owned a market and rented out shops to tenants. When there was a change in tenancy of 17 shops, the assessee received the premium. The AO considered it as income from other sources since the ownership remained with the assessee. However, the CIT(A) upheld the stand of the assessee, stating that merely changing tenants did not constitute a change in ownership. The Tribunal referred to previous orders where it was held that the tenancy rights formed part of a capital asset, making gains assessable under the head of "Income from capital gains." The Tribunal dismissed the revenue's appeal based on these precedents.

3. The assessee claimed a deduction of ?50 Lacs u/s 54EC from LTCG. The Tribunal, following the consistent view taken in previous years, upheld the CIT(A)'s decision and dismissed the revenue's appeal. The Tribunal's decision was based on the broad definition of "capital asset" and the valuable nature of the tenancy rights acquired by the assessee. The orders of the Tribunal for various assessment years supported the assessee's position, leading to the dismissal of the revenue's appeal.

This detailed analysis highlights the key legal arguments, the interpretation of relevant provisions, and the precedents relied upon to arrive at the final decision in this tax appeal case.