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TMI Blog2012 (9) TMI 769X X X X Extracts X X X X X X X X Extracts X X X X ..... 04,11,610/- because of the investments made in acquisition of the tenancy rights in the new two flats. The AO, however, observed that the exemption u/s 54 in respect of capital gain from sale of residential house property was available only when the assessee purchased or constructed a new residential flat. The assessee purchased only tenancy rights. The AO, therefore, asked the assessee to explain as to why the claim u/s 54 should not be rejected. The assessee submitted that he had acquired tenancy rights in perpetuity in the new flat which had to be considered as transfer of ownership of the flat. It was pointed out that as per the tenancy agreement, the assessee was required to use the said flat for residential purposes only and not for other purposes and the assessee was also entitled to bequeath rights in respect of the said flat to any other person subject to beneficiary complying with the terms of agreement. The assessee was also entitled to sublet or to give on leave and license the said flat and the landlord was not required to levy and charge transfer fees in respect of such assignment. The assessee could also avail or raise loan against the flat. Therefore, it was submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the conditions for purchase of a flat were satisfied as the assessee had taken possession of the flat and full payment of purchase consideration of Rs. 1.85 crores had been made in addition to monthly rent of Rs. 500/-. The assessee had also paid stamp duty @ 5% of the consideration of Rs. 1.85 crores amounting to Rs. 9.25 lakhs. Thus, the residential house had been conveyed to the assessee within the meaning of the word "conveyance" as defined in clause-9 of section 2 of Bombay Stamp Act, 1958. The assessee had the right to mortgage the said flat or re-sale the said flat and all future benefits on the said flat were allowed to the assessee. The assessee was also authorised to bequeath the rights with respect to the said flat. It was also pointed out that under the provisions of Section 27(iii)(b), the acquisition of tenancy rights in perpetuity amounted to ownership of the property for the purposes of computation of income from house property. Similar provisions were contained in section 269UA(f). Since, the assessee had been given the possession of the property, it would constitute transfer u/s 2(47) for the purpose of capital gain. It was further pointed out that legal title in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en constructed by Kasmita Properties Pvt. Ltd., to whom the landlord i.e. A.D. Daru and S.D. Daru had given development rights. The assessee had acquired the tenancy right on payment of non-refundable deposit of Rs. 1.85 crores in addition to monthly rent of Rs. 500/-. The learned AR for the assessee reiterated the submissions made before the lower authorities that as per clause-12 of the agreement, the tenant had unfettered rights to assign, transfer or sublet his flat. The assessee was also entitled to make alternation in the interior of flat in terms of clause-12 of the agreement. It was pointed out that the assessee had perpetual tenancy right which had been deemed as a owner under the provisions of section 27(iii)(b) and also for the purposes of section 269UA(f). Thus, the income from the flat was assessable as the income from house property. Further, the assessee had been handed over the possession of the flat which amounted to transfer under the provisions of section 2(47). The assessee had also paid stamp duty @ 5% which also shows that it had been treated as a case of transfer of flat. The learned AR argued that the purposes of section 54 was to acquire a new residential h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot purchase. It was also submitted that though as per clause-10, the tenant was entitled to take loan, that was only against right of the tenant in the flat and not against any ownership right. The clause-17 provided that the right of tenancy was limited and restricted to the said flat and no more. Further, clause-19 provided that the tenant was not entitled to do any act that affected the right of the landlord in the said building and in the said property. It was pointed that in the agreement the words "tenant" and "landlord" had been used and not "purchaser or seller" of the flat. Learned DR also referred to clause-12 of the agreement which clearly provided that the tenant was not entitled to make any structural changes in the said flat. He was entitled to make changes only inside the flat with MCD permission without affecting the outer walls. The learned DR further pointed out that though clause-21 gave unfettered right to the tenant to assign, transfer or sublet the flat but such unfettered right was only in respect of tenancy right and not as owner of the flat. It was accordingly argued that the assessee was only a tenant in the new flat and not owner of the flat and, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us aspects of the matter. We find that under the provisions of section 54, exemption of capital gain is available in respect of transfer of residential house owned by the assessee. The purpose of the section is to grant exemption in case the assessee acquires a new residential house by investing the capital gain as an owner. It is because of this reason, the words used in section 54 are "purchase" or "construction" of a new residential house. The requirement of section is not that assessee may acquire a new residential house by any other mode. The word "purchase" appearing in section 54 had come for consideration before Hon'ble Supreme Court in case of CIT v. T.N. Arvinda Reddy 120 ITR 46 in which Hon'ble Supreme Court held that the word "purchase" appearing in section 54(1) has to be given its common meaning i.e. buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. Thus, for application of provisions of section 54, the assessee has to buy a property as an owner. In this context, it may be appropriate to refer to the judgment of Hon'ble High Court of Bombay in case of Hameed Jaffery v. CIT 227 ITR 724 which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be entitled to exemption under section 54 of the Act. However, we find that the provision of deemed owner under section 27(iiib) is only for the purposes of section 22 to 26 as clearly mentioned in the said section, which relate to computation of income from house property. Therefore, argument of deemed owner is relevant only in connection with computation of income from house property and not in relation to exemption provisions of section 54. Similarly, treating the tenancy as conveyance under the Bombay Stamp Act was only for the purpose of payment of stamp duty and cannot be considered as conveyance of the title of the property to the assessee as an owner. As for taking possession of the flat, taking possession can not be considered as ownership as the possession had been taken as a tenant and not as an owner of the flat. 5.4 It has also been argued that under the provisions of tenancy agreement, assessee had right to bequeath the flat, sub-let/lease it and was also entitled to raise loan against the flat. The assessee had also right to make alteration in the flat and therefore, considering these factors and also the fact that the lease was perpetual, the assessee had to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tenancy right could be given to the buyers. Moreover the circular related to a case where individual members had paid the entire cost of the flat as purchaser, which is not so in the present case. Therefore, the circular does not find any application to the facts of the case. The ld. AR has also referred to opinion of the solicitor, Maya Bhatt & Co. placed at page 61 of the paper book but there is nothing in the opinion to show that the assessee was an owner. The solicitor had only stated that the land lord had given irrevocable right to the builder Kashmita Property Pvt. Ltd. to enter the property for the purpose of development and that the property was free from any encumbrance. Thus the solicitor had given only an opinion that the builder was entitled to development right in the property for construction of the building. So the opinion given is of no help to the assessee. The ld. AR has also placed reliance on the decision of the Tribunal in the case of Prema P. Shah v. ITO 100 ITD 60 and based on the said decision it has been argued that the assessee has to be treated as owner. However, on careful perusal of the said decision we find that the said decision is distinguishable. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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