2019 (7) TMI 1268 - AT - Income Tax

Capital gain computation - whether leasehold land is entitled for benefit of FMV for determination of cost of acquisition - Tenancy right v/s ownership of the land - land was acquired vide registered lease deed dated 02.07.1977 for a period of 90 years in the industrial area Ghaziabad - HELD THAT - Covenants inserted in the lease deed go to prove that the assessee is not having tenancy right rather he is having ownership of the land which can be mortgaged/sold by him and the property in question can be inherited by his legal heirs also. Moreover, substantial interest of the assessee has been created in the property in question. So, when the tenure of the lease is for 90 years it certainly creates ownership rights in favour of the assessee who is entitled to erect industrial unit on the same though with the prior permission of the lessor, namely, UP State Development Corporation Ltd. Coordinate Bench of the Tribunal in case of JCIT vs Mukund Ltd. 2007 (2) TMI 358 - ITAT MUMBAI held that premium paid by the assessee for acquisition of the leasehold rights for 99 years in the land are capital in nature and as such the premium paid by the assessee could not be considered as advance payment of rent. Tribunal in case of ITO vs. Shri Hari Om Gupta 2016 (1) TMI 486 - ITAT LUCKNOW while deciding the identical issue held that lease right for the period of 99 years is also capital assets to which provisions of section 50C are applicable. Assessee s leasehold rights for 90 years in the property in question are capital in nature and not tenancy rights and he is entitled for benefit of FMV. FMV valuation as on 01.04.1981 - HELD THAT - When it is established that the property in question was acquired by the assessee firm on 02.07.1977 as per registered lease deed for the period of 90 years i.e. prior to 01.04.1981 assessee is entitled for benefit of valuing the property in question on the basis of fair market value as on 01.04.1981 and the cost of acquisition is not to be taken into account for computing the capital gain particularly when the assessee has opted for use the fair market value. So, the second question framed is also answered in affirmative in favour of the assessee. We are of the considered view that assessee s leasehold right for a period of 90 years in question is a capital asset and not tenancy rights to which provisions contained u/s 50C are applicable and assessee is entitled for benefit of fair market value as on 01.04.1981 in order to compute the capital gain. So, the findings returned by the ld. CIT (A) are hereby reversed and the AO is directed to compute the capital gain accordingly. Decided in favour of the assessee. Disallowance of deduction claimed on account of brokerage paid to the agents - no evidence has been produced regarding the alleged expenses made on transfer/brokerage etc. - HELD THAT - As assessee challenging the impugned finding contended that he has made payment of brokerage through banking channel after duly deducting the TDS. Also that payment on account of brokerage has been made to the agents after getting permission from UPSIDC for transfer and has also brought on record PAN and ITR of the payee for the relevant period along with bank statement. In these circumstances, AO is directed to decide the issue afresh after taking into account the evidence brought on record after providing adequate opportunity of being heard to the assessee. Ground determined in favour of the assessee for statistical purposes.

Summary

Issues:
1. Denial of Long Term Capital Gain addition
2. Denial of Indexation on Long Term Capital Gain
3. Valuation of property as on 01.04.1981
4. Denial of deduction on account of brokerage
5. General issues

Issue 1: Denial of Long Term Capital Gain addition
The appellant sought to set aside the order passed by the Commissioner of Income-tax (Appeals) regarding the assessment year 2011-12. The Assessing Officer (AO) noticed discrepancies in the Long Term Capital Gain (LTCG) computation by the appellant, resulting in a reopening of the assessment under section 147 of the Income-tax Act, 1961. The AO made an addition of ?52,22,895 after denying the indexation on the assets transferred. The appellant contested the addition and denial of brokerage deduction, leading to an appeal before the Tribunal.

Issue 2: Denial of Indexation on Long Term Capital Gain
The appellant challenged the denial of indexation on the Long Term Capital Gain, asserting the incorrect interpretation of law and facts by the AO. The appellant claimed entitlement to valuation as of 01.04.1981 under section 55(2)(b) and provided necessary documents for LTCG computation. The AO's denial of indexation and deduction on brokerage were key contentions in the appeal.

Issue 3: Valuation of property as on 01.04.1981
The dispute centered on whether the appellant, as a lessee holding rights for 90 years in the property, should benefit from Fair Market Value (FMV) as of 01.04.1981 for LTCG computation. The Tribunal analyzed the lease deed terms, establishing the appellant's substantial ownership rights over the property, allowing for the FMV valuation. Precedents and case laws supported the appellant's claim for FMV valuation, leading to a favorable determination by the Tribunal.

Issue 4: Denial of deduction on account of brokerage
The AO disallowed the deduction claimed by the appellant for brokerage paid to agents due to lack of evidence. The appellant contended that payments were made through proper channels with TDS deductions and presented supporting documentation. The Tribunal directed the AO to reconsider the issue considering the evidence provided by the appellant, resulting in a determination in favor of the appellant for statistical purposes.

Issue 5: General issues
Ground No.1 was deemed general and did not require specific adjudication. The Tribunal reversed the findings of the CIT (A) and directed the AO to compute the capital gain in accordance with the FMV valuation as on 01.04.1981. The overall appeal was allowed for statistical purposes, providing relief to the appellant on the contested issues.

This detailed analysis of the judgment highlights the key legal issues, arguments presented, and the Tribunal's findings, ensuring a comprehensive understanding of the case.