2012 (9) TMI 555 - HC - Income Tax

Claim of depreciation on property which was exchanged for another property in respect of which the assessee had forgone the tenancy rights - surrender of tenancy rights - Held that - The Revenue does not dispute the existence of such an agreement with the landlord, which showed the payment of consideration for the surrender of tenancy rights. It is also not disputed by the Revenue that the purchase of the premises by the assessee was from M/s.Harsaran Singh Constructions Pvt. Ltd., which had nothing to do with the landlord. Given the fact that tenancy right is a capital asset, as decided in CIT Vs. D.P.Sandhu Bros Chembur P. Ltd.(2005 (1) TMI 13 - SUPREME COURT ) that the surrender of tenancy rights amounted to transfer and hence, being a capital receipt, on the facts thus placed before this Court that the amount paid on account of surrender of tenancy rights being given by the assessee to the builder, there is no exchange of one property for the other. Hence no hesitation in accepting the plea of the assessee to hold that the assessee is entitled to depreciation - in favour of assessee.

Summary

Issues:
1. Validity of reassessment under Section 143(3) read with 147 for the assessment year 1994-95 due to lack of notice under Section 143(2).
2. Allowability of expenditure on renting a guest house as a business expenditure under Section 37(4).
3. Claim of depreciation under Section 32 for a property exchanged for another property due to surrender of tenancy rights.

Analysis:

Issue 1:
The Tribunal held that the reassessment under Section 143(3) read with 147 for the assessment year 1994-95 was invalid due to the absence of a notice under Section 143(2). The High Court noted that only two substantial questions of law survived in this regard. The first question was answered against the assessee due to the absence of the required notice.

Issue 2:
Regarding the expenditure on renting a guest house, both parties agreed that the question was settled against the assessee based on a previous decision of the Apex Court. Consequently, this question was answered against the assessee.

Issue 3:
The issue of claiming depreciation under Section 32 for a property exchanged for another property due to surrender of tenancy rights was extensively discussed. The High Court reviewed agreements between the assessee and involved parties, highlighting that the consideration for surrender of tenancy rights was directed towards the purchase of the new property. The Court distinguished this case from previous judgments and granted the assessee the relief of depreciation, rejecting the Revenue's contentions.

The High Court emphasized the presence of agreements showing consideration for the surrender of tenancy rights and the purchase of the new property, concluding that there was no exchange of properties. As a result, the Court held in favor of the assessee, allowing the claim for depreciation under Section 32.

In conclusion, the High Court answered the second substantial question of law against the assessee related to expenditure under Section 37(4) and renting of a guest house. However, the third substantial question of law regarding the claim of depreciation under Section 32 was answered in favor of the assessee. The Court noted the absence of a formal petition for a name change by the assessee and disposed of the Tax Cases accordingly, without imposing any costs.