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2024 (2) TMI 688 - AT - Income TaxTaxability as capital gain or not - surrender / transfer of tenancy rights - Applicability of section 50C for valuation - AO was of the opinion that the assessee had surrendered his rights in the properties and offered stamp duty value as sale consideration for both floors and calculated the Long Term Capital Gain - according to CIT(A) action of the AO confirmed by holding that money paid to the tax-payers for regularizing the tenancy agreement is to be treated as income in the hands of the tax-payers in the nature of the tenancy rights and as the cost of acquisition is nil, the excess amount need to be taxed as capital gain. HELD THAT - We find that there is no material on record to find that the registered agreement between parties be treated as sale/transfer of properties in question. Assessee is one of four (4) co-owners of two flats and from the averments of the registered tenancy agreement, the DR could not show that title of the property has been passed on to the tenant. From the terms of the agreement between the assessee who was one of the four (4) owners of the facts in question, we find it is a tenancy agreement and the terms of the agreement shows that provisions of MRC Act, 1999 are incorporated and therefore applies to the agreement between parties. Moreover, there was no evidence of any consideration being passed between the assessee and Shri Chunnilal and Shri Tejaram. The agreement between parties was for giving the flats in question on rent. Thus, the Ld. CIT(A) erred to upholding the action of the as AO erroneously treated the transaction of tenancy/rental agreement to be that of transfer of property without any material to hold otherwise. Therefore, we are inclined to delete the addition made by AO, that also by applying section 50C of the Act, which deeming provision in no case is applicable to the facts of the case. Appeal of assessee allowed.
Issues Involved:
1. Confirmation of capital gain under Section 50C of the Income Tax Act, 1961. 2. Nature of the transaction - whether it was a tenancy agreement or a sale/transfer of property. 3. Applicability of Section 50C to tenancy rights. Summary: 1. Confirmation of Capital Gain under Section 50C: The main grievance of the assessee was against the action of the Ld. CIT(A) confirming the capital gain of Rs. 71,07,480/- under Section 50C of the Income Tax Act, 1961. The AO treated the transaction as a transfer and computed the Long Term Capital Gain (LTCG) by applying the deeming provision of Section 50C, considering the stamp duty value of Rs. 71,07,480/- as the sale consideration. 2. Nature of the Transaction - Tenancy Agreement or Sale/Transfer: The assessee contended that the registered documents were tenancy agreements and not sale agreements. The AO, however, viewed the transaction as a surrender of rights in the properties, treating it as a colourable device to avoid taxation. The Ld. CIT(A) upheld the AO's decision, stating that the money paid for regularizing the tenancy agreement was to be treated as income in the nature of tenancy rights and taxed under capital gains. 3. Applicability of Section 50C to Tenancy Rights: The Tribunal examined whether Section 50C, which applies to land or building, can be extended to tenancy rights. The Tribunal referred to several decisions, including Atul G. Puranik v ITO and Kishori Sharad Gaitonde v ITO, which held that Section 50C does not apply to tenancy rights. The Tribunal found no material evidence to treat the registered tenancy agreement as a sale/transfer of property. The terms of the agreement indicated it was a tenancy agreement governed by the Maharashtra Rent Control Act, 1999, with no consideration passed between the landlord and tenants. Conclusion: The Tribunal concluded that the AO and Ld. CIT(A) erred in treating the transaction as a transfer of property and applying Section 50C. The appeal of the assessee was allowed, and the addition made by the AO was deleted. Order Pronounced: The appeal of the assessee is allowed, and the order was pronounced in the open court on 12/12/2023.
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