2020 (12) TMI 217 - AT - Income Tax

Capital gain on tenancy rights - transfer u/s 2(47) - whether the assessee has rightly offered the income from the surrender of tenancy rights, under the head Capital Gains ? - HELD THAT - We have to necessarily uphold the order of the ld. CIT(A) that the assessee had acquired a capital asset in the form of tenancy rights and the transfer of this capital asset results in capital gains, which is taxable under the head Capital Gains . AO rejected the claim of the assessee that transfer of tenancy rights will be assessed under the head capital gains on the ground that no purchase price was paid for the tenancy - A loan of ₹ 8,00,000/- was given as construction loan which was refundable. This loan is directly linked to the tenancy rights and it is, in a way, consideration for obtaining the rights. Even if the assessee has not paid any amount for purchase of tenancy rights, the nature of rights would remain tenancy right and this is a capital asset. Section 55(2)(a) of the Act clearly stipulates that in case no price is paid for acquisition of an asset mentioned in clause (a) to Section 55(2) of the Act, then the cost shall be taken as Nil. Hence the Assessing Officer was legally incorrect in his view. Thus, we uphold the finding of the ld. CIT(A) on this issue. Deduction u/s. 54EC and 54F - As the main question as to whether the assessee has rightly offered the income from the surrender of tenancy rights, under the head Capital Gains has been held in favour of the assessee and as all the conditions prescribed for grant of claim of deduction u/s. 54EC and u/s. 54 of the Act, are met, in our view, the ld. CIT(A) has rightly granted relief to the assessee. Appeal of the revenue is dismissed.

Summary

Issues:
1. Delay in filing the appeal.
2. Assessment of total income for the Assessment Year 2016-17.
3. Claim of deduction under sections 54EC and 54F of the Income Tax Act.
4. Transfer of tenancy rights and its taxability under the head "Capital Gains."

Issue 1: Delay in filing the appeal
The appeal filed by the revenue faced a delay of 9 days, which was condoned by the Appellate Tribunal due to sufficient cause preventing the timely filing. The Tribunal admitted the appeal despite the delay.

Issue 2: Assessment of total income
The Assessing Officer determined the total income of the assessee for the Assessment Year 2016-17 at ?11,93,42,172, rejecting certain deductions claimed by the assessee under sections 54EC and 54F of the Act. The Commissioner of Income Tax (Appeals) later allowed these deductions after examining additional evidence furnished by the assessee.

Issue 3: Claim of deduction under sections 54EC and 54F
The Revenue challenged the allowance of deductions by the Commissioner of Income Tax (Appeals) under sections 54EC and 54F. The Tribunal upheld the decision, stating that the conditions for granting these deductions were met, and the income from the surrender of tenancy rights was correctly assessed under the head "Capital Gains."

Issue 4: Transfer of tenancy rights and taxability under "Capital Gains"
The key contention revolved around whether the transfer of tenancy rights constituted a transfer of capital asset. The Tribunal analyzed the terms of the agreement and relevant legal precedents. Referring to judgments by the Calcutta High Court and the Supreme Court, the Tribunal concluded that the transfer of tenancy rights resulted in capital gains, taxable under the head "Capital Gains." The Tribunal highlighted that even if no purchase price was paid for the tenancy rights, the nature of the rights remained a capital asset.

The Tribunal's detailed analysis covered the delay in filing the appeal, the assessment of total income, the claim of deductions under sections 54EC and 54F, and the taxability of the transfer of tenancy rights under the head "Capital Gains." By referencing legal precedents and scrutinizing the facts and agreements involved, the Tribunal provided a comprehensive judgment upholding the decisions made by the Commissioner of Income Tax (Appeals) regarding deductions and the tax treatment of the transfer of tenancy rights.