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2016 (3) TMI 243 - AT - Income TaxTransfer of tenancy rights to long term capital gains - deduction under section. 54EC to the extent of investment of the capital gain - Held that - Taking into account the factual matrix and circumstances of the case on hand and the legal position on this issue espoused in section 2(14) and 2(47) of the Act and the ratio of the judicial pronouncements on the issue of grant of tenancy rights similar to the facts of the case on hand, inter-alia, laid down by the Hon ble Apex Court in Parbani Tea Company (1965 (4) TMI 19 - SUPREME Court ), and R.K.Palshikar (HUF) (1988 (5) TMI 3 - SUPREME Court ) and Ratilal Tarachand Mehta(1976 (11) TMI 37 - BOMBAY High Court ) we concur with and uphold the finding of the CIT(Appeals) that the grant of tenancy rights by the assessee trust and the premium of ₹ 51.00 lakhs received in lieu thereof from the tenants is a capital asset in the hands of the assessee and is therefore liable for capital gains and is not advance rent exigible to tax under the head income from house property. Reopening of assessment - investment in NABARD for acquiring Bonds/Debentures - Held that - Assessing Officer did not make any addition to the assessee s income in respect of the investment of ₹ 25.00 lakhs made by it in NABARD Bonds/Debentures; which formed the sole basis of the Assessing Officer s recorded reason to believe income had escaped assessment for initiation of proceedings u/s.147 of the Act (supra). In these circumstances, the Hon ble Bombay High Court in the case of Jet Airways (I) Ltd. (2010 (4) TMI 431 - HIGH COURT OF BOMBAY ) has held that when no addition is made in respect of such income which formed the basis for the recorded reasons for belief of income escaping assessment, the Assessing Officer cannot make any other addition to the assessee s income in respect of any other income which has escaped assessment. Since the Assessing Officer ostensibly accepted the assessee s claims regarding the investment of ₹ 25.00 lakhs in investment in NABARD Bonds/Debentures and no addition has been made in this regard, the Assessing Officer ought to have dropped the re-assessment/ assessment proceedings initiated u/s. 147/148 of the Act for assessment year 2005-06. - Decided in favour of assessee
Issues Involved:
1. Tax Treatment of Premium Received on Grant of Tenancy Rights 2. Validity of the Reassessment Proceedings under Section 147 Detailed Analysis: 1. Tax Treatment of Premium Received on Grant of Tenancy Rights Facts and Proceedings: - The assessee trust filed a return declaring income of Rs. 3,88,000 for AY 2005-06. - Proceedings under Section 147 were initiated due to AIR information about the assessee's investment in NABARD bonds amounting to Rs. 25,00,000. - The assessment was completed under Section 143(3), determining the income at Rs. 40,43,750. - The assessee granted tenancy rights of a property for a premium of Rs. 51,00,000 and claimed it as long-term capital gains (LTCG) with a deduction under Section 54EC for investments in NABARD bonds. - The Assessing Officer (AO) treated the premium as income from house property, not capital gains. CIT(A) Decision: - The CIT(A) reversed the AO's decision, holding that the premium received on transfer of tenancy rights should be assessed as capital gains, not as income from house property. - The CIT(A) found that the tenancy rights are a capital asset under Section 2(14) and their transfer results in capital gains under Section 2(47). - The CIT(A) noted that the premium was a one-time, non-refundable payment, indicating it was a capital receipt. Tribunal's Findings: - The Tribunal upheld the CIT(A)'s decision, agreeing that the premium received was for the transfer of a capital asset and should be taxed as capital gains. - The Tribunal distinguished the case from Vinod V. Chhapia (HUF) Vs. ITO, where the amount received by the landlord was considered a windfall gain and not a transfer of capital rights. - The Tribunal cited several judicial precedents supporting the view that premium/salami received for transfer of tenancy rights is a capital receipt. Conclusion: - The Tribunal concluded that the premium of Rs. 51,00,000 received by the assessee trust for granting tenancy rights is a capital receipt liable to capital gains tax, not advance rent taxable as income from house property. 2. Validity of the Reassessment Proceedings under Section 147 Facts and Proceedings: - The reassessment was initiated based on AIR information about an investment in NABARD bonds amounting to Rs. 25,00,000. - No addition was made in the assessment order regarding this investment; instead, the AO assessed the premium received on tenancy rights as income from house property. Assessee's Argument: - The assessee argued that if the AO does not make any addition based on the reasons recorded for initiating reassessment, he cannot assess other income. - The assessee relied on the Bombay High Court's decision in Jet Airways (I) Ltd., which held that the AO must assess the income mentioned in the reasons recorded for reopening before assessing any other income. Tribunal's Findings: - The Tribunal noted that the AO did not make any addition related to the investment in NABARD bonds, which was the reason for reopening the assessment. - The Tribunal held that, as per the Jet Airways (I) Ltd. decision, the AO cannot make any other addition if the income initially believed to have escaped assessment is not assessed. Conclusion: - The Tribunal quashed the reassessment order as void ab-initio since the AO did not make any addition based on the reasons recorded for reopening the assessment. Final Order: - The Revenue's appeal for AY 2005-06 is dismissed. - The assessee's cross-objection challenging the validity of the reassessment proceedings is allowed. - The reassessment order passed under Section 143(3) r.w.s. 147 for AY 2005-06 is quashed as void ab-initio.
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