2016 (11) TMI 77 - HC - Income Tax

Deduction of consideration paid for surrender of tenancy rights - genuine transaction - whether the said amount cannot be taken into account while arriving at the costs of the capital asset while computing the capital gains on sale of 2/3rd of its property? - ITAT allowed the claim - Held that - We find that the impugned order of the Tribunal has rendered a finding of fact that the Revenue had itself accepted the transaction with regard to the recipient of the the amounts as surrender of tenancy to be a genuine transaction. Therefore, once the transaction is accepted by the Revenue to be a genuine in respect of one part of the transaction, is not open to the Revenue to urge that in respect of the other part i.e. person making the payment, the transaction is not genuine. This is not permissible as the payment and receipts are two sides of the same coin.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding deduction claim for surrender of tenancy rights.

Analysis:
The case involves an appeal challenging the order of the Income Tax Appellate Tribunal regarding a deduction claim for the surrender of tenancy rights. The Revenue contested the justification of allowing the deduction claimed by the assessee based on evidence provided by a third party. The Respondent, a partnership firm engaged in Real Estate Development, claimed a deduction of ?4.25 Crores paid to a tenant for the surrender of tenancy rights. The Assessing Officer disallowed the payment, considering it not genuine. The Commissioner of Income Tax (Appeals) upheld this decision, leading to the appeal before the Tribunal.

The Tribunal noted that the Revenue had previously sought to tax a similar payment received by another party for surrendering tenancy rights. However, in that case, the Tribunal had allowed an exemption for the amount received. Based on this precedent, the Tribunal concluded that the transaction in question was genuine, as accepted by the Revenue in the previous case. Therefore, the Tribunal allowed the appeal of the Respondent-Assessee, restricting the deduction to 2/3rd of the total amount as only a portion of the property was sold.

The Revenue argued that the surrender of tenancy rights was not genuine, and thus, the amount should not be considered while computing capital gains. However, the Tribunal found that once the Revenue accepted the transaction as genuine for the recipient, it could not dispute the genuineness of the payment made by the assessee. The Tribunal emphasized that the payment and receipts were interconnected, and if one side of the transaction was deemed genuine, the other side must be considered genuine as well. Consequently, the Tribunal dismissed the appeal, stating that the question raised did not present a substantial legal issue.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision. The Court found that the Revenue's acceptance of the genuineness of the transaction in one aspect precluded them from challenging the same transaction's genuineness in another aspect. Therefore, the deduction claim for the surrender of tenancy rights was allowed based on the principle that both sides of the transaction must be considered genuine once one side is accepted as such.