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2016 (10) TMI 102 - AT - Income TaxNature of income - capital gain or income from other sources - nature of possession in the property - assessee HUF has claimed that it has got capital rights in the shape of tenancy rights in the premises in question and that it has got the consideration of ₹ 50 lakhs for surrender of those tenancy rights and hence the income in the hands of the assessee was in the nature of capital gains - Held that - As put a specific query to the Ld. A.R. whether there was any evidence to show that the assessee was inducted as a tenant in the premises but the Ld. A.R. could not show us any such evidences. Further, a query was raised whether the assessee had ever paid any rent to M/s. Carlton Coats Pvt. Ltd. but the Ld. A.R. has been fair enough to admit that there was no evidence of any payment of rent by the assessee to M/s. Carlton Coats Pvt. Ltd. The Ld. A.R. has also failed to explain as to what was the nature of the rights of the assessee in the property in question. He simply has stated that the same was occupancy rights. However, there is no evidence on the file as to under what circumstances and under what right or contract the assessee has come into possession of the property in question. It is pertinent to note here that the karta of the assessee HUF namely Mr. Amol C. Shah is also the director of the payer company M/s. Carlton Coats Pvt. Ltd. along with another director Mr. Milind C. Shah. The entire stress of the assessee has been on the copy of memorandum of understanding vide which the company has agreed to pay ₹ 50 lakhs to Mr. Amol C. Shah (HUF) wherein it has been mentioned that the said Mr. Amol C. Shah (HUF) claims share right title and interest on certain portions of the said property. It has also been mentioned that the assessee HUF is in the possession of the property in question since the original purchase of the property by M/s. Carlton Coats Pvt. Ltd. There is nothing mentioned in the copy of the agreement that what was the nature of possession in the property in question of the assessee HUF and how or under what rights the assessee HUF come into the possession of the property. We have perused the copies of the income tax returns and have found that the assessee had shown certain income from the activity of stacking/cutting/cloning of papers at Apti Khalapur. However, it is not sufficient to prove that the said address is of the property in question at Apti Khalapur. There may be any other property being used by the assessee HUF at Apti Khalapur. In the absence of any evidence to show that the assessee had ever been a tenant in the said property or the nature of rights and possession in the property in question; the assessee at the most can be said to be the licensee in the said property who has to vacate the premises at the will of the licensor. No capital rights under such circumstances can be held to be owned by the assessee in this respect. Even otherwise as observed above, the karta of the assessee HUF is the director of the payer company and under such circumstances the heavy burden is cast upon the assessee to prove that the above transaction is not a sham transaction. The assessee has miserably failed to prove that it was owning any capital rights in the property in question which was purchased by the company. Under such circumstances, we do not find any infirmity in the order of the Ld. CIT(A) in upholding the additions made by the AO.In our view, the amount received by the assessee HUF is not in lieu of surrender of any capital rights but its income from other sources. - Decided against assessee
Issues Involved:
1. Classification of ?50 Lakhs received by the assessee: 'Income From Other Sources' vs. 'Income From Long Term Capital Gains'. 2. Identification and source of ?50 Lakhs. 3. Validity of the claim that ?50 Lakhs was received for surrendering rights in a property. 4. Examination of the assessee's rights or title in the property at Apti. Issue-wise Detailed Analysis: 1. Classification of ?50 Lakhs received by the assessee: 'Income From Other Sources' vs. 'Income From Long Term Capital Gains': The primary issue was whether the ?50 Lakhs received by the assessee should be classified under 'Income From Other Sources' or 'Income From Long Term Capital Gains'. The assessee claimed that the amount represented compensation for vacating tenancy rights on the property at Apti Khalapur, and thus, should be classified as long-term capital gains with the corresponding deduction under section 54EC of the Income Tax Act. However, both the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] did not find any legal agreement confirming the assessee's rights or interest in the property, leading them to classify the amount as 'Income From Other Sources'. 2. Identification and source of ?50 Lakhs: The AO treated the amount received on surrender of tenancy rights as income from undisclosed sources, as there was no evidence of any tenancy rights held by the assessee HUF. The CIT(A) upheld this view, noting that the assessee failed to provide any documentary evidence to prove the source and nature of the ?50 Lakhs received. The ITAT also observed that the assessee could not produce any evidence to establish occupancy or tenancy rights in the property. 3. Validity of the claim that ?50 Lakhs was received for surrendering rights in a property: The assessee argued that the ?50 Lakhs was received for surrendering tenancy rights in the property at Apti. However, the AO and CIT(A) found no legal agreement or documentation to support this claim. The Memorandum of Understanding (MOU) relied upon by the assessee was considered self-serving, as the Karta of the HUF was also a director in the payer company, M/s. Carlton Coats Pvt. Ltd. The ITAT noted that there was no evidence of the assessee being a tenant or having any legal right in the property, and thus, the claim was not substantiated. 4. Examination of the assessee's rights or title in the property at Apti: The CIT(A) and the ITAT both examined the evidence presented by the assessee, including past income tax returns and the MOU. However, they found that the assessee could not prove any legal right, title, or interest in the property. The ITAT specifically noted that the assessee failed to provide evidence of tenancy or payment of rent, and the Karta's position as a director in the payer company raised doubts about the legitimacy of the transaction. Consequently, the ITAT upheld the classification of the ?50 Lakhs as 'Income From Other Sources'. Conclusion: The ITAT dismissed the appeal of the assessee, affirming the findings of the AO and CIT(A) that the ?50 Lakhs received by the assessee was not in lieu of surrendering any capital rights but was income from other sources. The assessee's failure to provide sufficient evidence to prove tenancy or legal rights in the property led to the denial of the claim for deduction under section 54EC. The decision emphasized the need for substantial evidence to support claims of capital gains and the importance of legal documentation in establishing property rights.
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