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TMI Blog2015 (4) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... he property and holds mere tenancy right with respect to the impugned property. In view of this and in view of the specific provisions of section 54, CIT(A) correctly held that the appellant is not entitled to claim deduction under section 54 of the Act. The Assessing Officer is, therefore, justified in rejecting the claim of the appellant and in denying the deduction under section 54 of the Act. As the tenancy right is a capital asset other than residential house, the Assessing Officer has rightly granted the deduction under section 54F of the Act. - Decided against assessee. Cost of acquisition under section 55 - Assessing Officer rejected the claim of the assessee for cost of acquisition being fair market value as on April 1, 1981 and index cost based on the value as on April 1, 1981 and held that there is no cost incurred for purchase/acquisition of the tenancy rights and accordingly took the cost of acquisition at nil also confirmed by CIT(A) - Held that:- There is no dispute that the tenancy was acquired by the grandfather of the assessee in the year 1945 and capital asset in the shape of tenancy right became a property of the assessee by inheritance which clearly falls wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 and the assessee has utilised the said amount for purchase of another flat - Held that:- Deduction under section 54 is eligible even for purchase of more than one house. See Commissioner of Income-tax, Bangalore Versus Smt. Jyothi K. Mehta [2011 (1) TMI 551 - KARNATAKA HIGH COURT], CIT v. Mrs. K. G. Rukminiamma [2010 (8) TMI 482 - Karnataka High Court] - CIT(A) correctly allowed the exemption - Decided in favour of assessee. - I.T.A. No. 531/Mum/2013, I.T.A. No. 1186/Mum/2013 - - - Dated:- 4-9-2013 - SHRI VIJAY PAL RAO SHRI D. KARUNAKARA RAO, JJ. For the Appellant : Mr. Firoze B. Andhyarujina For the Respondent : Mr. Shekhar L. Gajbhiye ORDER Vijay Pal Rao (Judicial Member).- These cross-appeals are directed against the order dated November 2, 2012 of the Commissioner of Income- tax (Appeals) for the assessment year 2009-10. 2. In appeal I.T.A. No. 351 of 2013 the assessee has raised the following grounds : 1. On the facts and in the circumstances of the case and in law the Commissioner of Income-tax (Appeals) has erred in confirming the order of the Assessing Officer and denying the benefit of section 54 of the Income-tax Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... galow CS No. 590 of Malabar situated at Nepean Sea Road, Mumbai 400 036 was purchased by Mr. Bomanjee Eduljee Cassinath the great-great grandfather of the assessee in and around 1898. Shri B.E. Cassinath died around 1912 and left a will dated August 8, 1895 and the codicil thereto dated August 27, 1900, whereby created a trust and life interest clauses in favour of the heirs of the testator. Shri Wookerjee Bomanjee Cassinath (son of Bomanjee Eduljee Cassinath) was appointed as a trustee of the will who has further appointed trustees to execute the codicil of his father's will vide deed of settlement of trust registered with sub-registrar of Bombay under registration No. 35 book No. 1 dated January 19, 1932. In the meantime Mr. Cursetjee Wookerjee Cassinath another son of B. E. Cassinath mortgaged his share to several mortgagees in or around late 1930s and thereafter in the year 1942, 1943 and 1944. The property was also sold in the year 1942 by the trustees of the will to Sir Ezra Knight, however, the entire family of the sons of B. E. Cassi nath continued to reside in the same property even after its sale. Initially the 1st floor of the property was used for residence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Laxmi Niwas vide agreement dated August 4, 2008. The assessee claimed that she is deemed owner of the property in terms of section 27(iiib) read with section 269UA(b) of the Income-tax Act. The Assessing Officer concluded that the assessee had only tenancy rights and she was not the owner of the property. Accordingly, the Assessing Officer rejected the claim of the assessee under section 54 of the Act. However, the Assessing Officer allowed deduction under section 54F of the Act. The Assessing Officer also denied the benefit of indexed cost of acquisition. On appeal, the Commissioner of Income-tax (Appeals) confirmed the action of the Assessing Officer in denying benefit under section 54 and granting the deduction under section 54F. 6. Before us the learned authorised representative of the assessee has submitted that the tenancy/occupancy rights, other interest are in respect of residential house and therefore, cannot be treated separately from the residential house. The question of ownership of house is not relevant when the assessee transferred the tenancy/occupancy rights and interest in the residential property and the ownership of these rights are not disputed. The capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r interest and rights in the residential house property should be treated as capital asset equivalent to the capital asset being residential house. Even, otherwise when the property in question is under lease for more than 12 years and rather more than 6 decades then as per the provisions of section 27(iiib) read with section 269UA, the assessee is deemed owner of the property being the capital asset transferred by the assessee and therefore, is entitled for exemption under section 54 of the Act. The learned authorised representative has submitted that all the conditions required to take the benefit under section 54 of the Act are satisfied in the case of the assessee. 9. On the other hand, learned Departmental representative has submitted that the benefit of section 54 is available in the case, when the capital gain arises from transfer of building or land appurtenant thereto. Therefore, the capital asset being residential house is required to be transferred for a availing the benefit under section 54. What has been transferred by the assessee is the tenancy right in the property and not the residential house itself. He has referred to the transfer document and submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case that the ground floor was taken on rent/lease and therefore the rights vested with the assessee were only the tenancy rights. The property changed hands various times and finally M/s. Kapi Builders Pvt. Ltd. purchase the property in the year 2002. The assessee surrendered her rights/tenancy in respect of the ground floor of the property against the consideration. The Assessing Officer though accepted the consideration received by the assessee for transfer of capital asset being tenancy right however denied the exemption under section 54 and allowed the exemption under section 54F. 13. The Commissioner of Income-tax (Appeals) has discussed the issue elaborately and concluded the finding in paragraph 2.17 as under : 2.17 In the present case, there is no ambiguity. The appellant's own undertaking clearly states that she is tenant and consideration received by her was for surrender of tenancy right. The question of transfer of building or land does not arise at all. Similarly, argument such as appellant is deemed/beneficial owner is also not acceptable as the property is transferred to the builder by the landlords as admitted by the appellant in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the value as on April 1, 1981. On appeal, the Commissioner of Income-tax (Appeals) has confirmed the action of the Assessing Officer. 16. Before us the learned authorised representative of the assessee has submitted that though the property in question was sold by the trustees in the year 1942, however, the sale consideration was depressed due to right to reside vested in the legal heirs of the testator. Therefore, there was a cost of right to reside/occupy the property. Further even after the sale in 1942 the property was mortgaged by the brother of grandfather of the assessee which shows that the element of cost was involved in the absence of which the property could not be mortgaged. The learned authorised representative has submitted that the grandfather of the assessee paid ₹ 20,000 in cash, in respect of the ground floor taken on lease/rent though there was receipt/acknowledgment regarding ₹ 20,000 paid as pagadi/slami however, the assessee has made a categorical solemn affirmation on affidavit in this respect. The learned authorised representative has further submitted that if the Revenue takes a stand that there is no cost of acquisition for tenancy right, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost of acquisition of the previous owner cannot be ascertained the cost of acquisition means the fair market value on the date on which the capital asset became the property of the previous owner. Since the capital asset became the property of the previous owner before April 1, 1981, therefore, the cost of the capital asset to the previous owner or market value of the asset as on April 1, 1981 at the option of the assessee would be the cost of acquisition. The learned authorised representative has further contended that the Explanation to section 49(1) has made it clear that the expression previous owner in relation to the capital asset means the last previous owner of the capital asset. The learned authorised representative has also relied on the following decisions : (i) Mrs. Amy F. Cama (Trustee of the Estate of Late M. R. Adenwalla v. CIT [1999] 237 ITR 82 (Bom) ; and (ii) CIT v. Manjula J. Shah [2013] 355 ITR 474 (Bom). 19. On the other hand, the learned Departmental representative has submitted that there is nothing on record to show that amount of ₹ 20,000 was paid for acquisition of tenancy rights as claimed by the assessee. He has relied upon the orders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (a) of sub-section (1) of section 49. Once the capital asset in question became the property of the assessee as per section 49(1)(iii)(a) and the previous owner acquired the property prior to April 1, 1981, then the cost of acquisition of the capital asset for the purpose of sections 48 and 49 shall be the cost of acquisition of the asset to the previous owner or the fair market value (FMV) of the asset as on April 1, 1981 at the option of the assessee provided under the provisions of section 55(2)(ii)(b) of the Income-tax Act. For ready reference, we reproduce section 55(2)(a)(b) as under : (2) For the purposes of sections 48 and 49, 'cost of acquisition',- (a) in relation to a capital asset, being goodwill of a business, or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours,- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case not being a case falling under sub-clauses (i) to (iv) of sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of sub-clause (a) of clause (ii) of sub-section (2) of section 55 do not apply in the case of the assessee. 24. It is pertinent to note that the tenancy rights includes the enjoyment and occupation of the property, therefore it carries cost in the form of rent paid by the assessee. Though, the assessee could not prove the payment of consideration in a lump-sum for acquisition of tenancy rights however, the rent itself is cost of the tenancy rights. Further as we have already discussed, when the assessee has the option to adopt the fair market value as on April 1, 1981 then the cost of acquisition at the time of acquisition prior to April 1, 1981 becomes irrelevant. 25. Therefore, we are of the considered view that that fair market value of the tenancy rights as on April 1, 1981, shall be the cost of acquisition as per the provisions of section 55(2)(ii)(b). The assessee filed the valuation report for valuing the fair market value of the asset in question as on April 1, 1981 and the authorities below have not questioned the correctness of the value as on April 1, 1981. We further take note that the Bombay Stamp Act recognises the value of surrender of tenancy rights exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 58,26,773 on the improvement of the flat purchase by the assessee to make it inhabitable condition. The Assessing Officer has not disputed the genuineness of the expenditure incurred by the assessee but disallowed the claim of the assessee under section 54/54F, in respect of this amount on the ground that there is no structural damage to the house. On appeal the Commissioner of Income-tax (Appeals) confirmed the disallowance made by the Assessing Officer by following the decision of the hon'ble Delhi High Court in the case of D. P. Mehta v. CIT [2001] 251 ITR 529 (Delhi). 30. It is to be noted that the objective and scheme of granting exemption under sections 54 and 54F is promoting investment in the residential house out of the capital gains/proceeds of sale of capital asset. A residential house means a proper habitable house and not merely a structure. Therefore, the investment in the purchase or construction of residential house may be in the form of lump-sum payment for a ready to occupy house or getting a house constructed. In the case in hands the assessee has purchased an old house and thereafter, incurred the expenditure for making it habitable. Thus it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible as investment in the new asset for the purpose of section 54 of the Income-tax Act. In the case of D. P. Mehta v. CIT [2001] 251 ITR 529 (Delhi) the hon'ble Delhi High Court has observed as under (page 531) : We have heard learned counsel for the parties. Learned counsel for the assessee submitted that, in view of the conclusions of the Tribunal, that servant quarters had been constructed, the further conclusion that keeping in view of the assessee's status, it cannot be said that the house was being used for the purpose of residence cannot be maintained. It was further submitted that what was necessary for claiming exemption related to user of the property for the purpose of residence and the status of the assessee and/or total built in area has no relevance so far as that aspect is concerned. Learned counsel for the Revenue, on the other hand, referred to the statement dated January 28, 1974, wherein the assessee himself admitted that the building was not worth occupying. We find that the Tribunal has not really considered the essence of the dispute in the background of the factual aspects which were on record. It is to be noted that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has already claimed deduction/exemption, in respect of one house then as per the provisions of sections 54 and 54F no exemption can be granted for purchase of more than one house. 36. On the other hand the learned authorised representative of the assessee has submitted that in view of the various decisions of the High Court, a deduction under section 54 is eligible even for purchase of more than one house. He has relied upon the following decisions : (i) In the matter of Mrs. Jyothi K. Mehta 12 Taxman.com 440 (Kar) ; (ii) CIT v. Mrs. K. G. Rukminiamma [2011] 331 ITR 211 (Karn) ; (iii) CIT v. D. Ananda Basappa [2010] 320 ITR (St.) 19 (FRSC) ; (iv) CIT v. Jeo B. Fernandes [2010] 322 ITR (St.) 8 (FRSC) ; (v) CIT v. Smt. Rashmi Khanna [2010] 322 ITR (St.) 8 (FRSC) ; and (vi) CIT v. Anand Basappa [2009] 309 ITR 329 (Karn). 37. We have considered the rival submission as well as relevant material on record. Undisputedly the assessee has deposited ₹ 1.25 crore in the capital gain account within the prescribed period and further the said amount has been invested in another flat. The issue is now covered by the various decisions of the hon'ble High Co ..... 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