2024 (10) TMI 84 - AT - Income Tax

Addition u/s 56(2)(x) - transfer of tenancy right - revenue has agitated the issue on the ground that there is no tenure mentioned in the agreement related to the transfer of tenancy right - HELD THAT - Assessee is purely a tenant under the landlord and paying rent of Rs. 700/- pm. In exchange of the rent, the assessee is only getting the right to stay or some modification in the property, but there is no ownership right is vested with the assessee, which attracts provisions of section 56(2)(x) of the Act. The transfer of property is guided by the Transfer of Property Act, 1882. Section 56 of the Transfer of Property Act deals with the rights of a buyer who purchases one or more properties from an owner who has mortgaged two or more properties to one person1. In the absence of a contract to the contrary, the buyer is entitled to have the mortgaged-debt satisfied out of the property or properties not sold to him, so far as the same will extend, but not so as to prejudice the rights of the mortgagee or persons claiming under him or of any other person who has for consideration acquired an interest in any of the properties. The right of transfer is vested with selling right and right to mortgage of the property. Factually, the revenue was not able to bring any such evidence for transfer of property as per guided by the Transfer of Property Act, 1882. AR respectfully relied on the decisions pertaining to Section 50C of the Act. However, we, with due respect, rely on the findings in the orders of Greenfield Hotels Estates (P.) Ltd. 2016 (12) TMI 353 - BOMBAY HIGH COURT and The Bombay Drug Distributors 2024 (2) TMI 1438 - ITAT MUMBAI - We find that the addition is unjustified on the basis of the tenancy right. We set aside the impugned appeal order and the addition is deleted. Appeal of assessee allowed.

Summary

Issues:
Interpretation of section 56(2)(x) of the Income Tax Act, 1961 regarding addition of income from other sources based on stamp duty valuation for tenancy rights.

Detailed Analysis:
The appeal was filed against the order of the Learned National Faceless Appeal Centre (NFAC), Delhi, confirming the addition of Rs. 54,08,000 under section 56(2)(x) of the Income Tax Act, 1961 for Assessment Year 2018-19. The assessee acquired tenancy rights through an agreement with a monthly rent amount of Rs. 700. The assessment was completed with an addition based on 50% of the stamp duty valuation, which the assessee challenged before the tribunal.

The assessee argued that there was no transfer of property as per the Transfer of Property Act, 1882, and thus, section 56(2)(x) was not applicable. The absence of a specific tenure in the tenancy agreement was also highlighted. The assessee relied on relevant case laws such as CIT vs. Greenfield Hotels & Estates (P.) Ltd and The Bombay Drug Distributors Vs ACIT to support the argument against the addition.

The tribunal considered the nature of the agreement and the rights of the assessee as a tenant paying rent. It was noted that the assessee did not have ownership rights in the property, and the transfer of property is guided by the Transfer of Property Act, 1882. The tribunal found that the addition based on the tenancy right was unjustified and deleted the amount of Rs. 54,08,000 added to the income from other sources.

In conclusion, the tribunal allowed the appeal of the assessee, ITA 457/Mum/2024, on the basis that the provisions of section 56(2)(x) were not applicable in the case of the assessee due to the nature of the tenancy agreement and the absence of evidence for transfer of property as per the Transfer of Property Act, 1882.