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TMI Blog2015 (6) TMI 177X X X X Extracts X X X X X X X X Extracts X X X X ..... Consequently, the order of the learned CIT(A) qua this issue is set aside and the order of the Assessing Officer is restored. - Decided in favour of revenue. Applicability of section 50C, in respect of the sale of lease hold property - CIT (A) treating the value of the property at ₹ 1,40,00,0001- instead of at its stamp value of ₹ 3,07,71,0001-, as done by the AO - the lease hold rights cannot be equated with the ownership of the land and, therefore, the deemed provisions of section 50C, cannot be applied in case of transfer of lease hold rights as per assesse - Held that:- There is no dispute that what is transferred by the assessee is the lease hold property and, therefore, until and unless the property is converted into free hold the lessee holds only lease hold rights over the property. See ITO v/s Pradeep Steel Re–rolling Mills Pvt. Ltd. [2011 (7) TMI 1101 - ITAT MUMBAI] and Atul G. Pauranik v/s ITO [2011 (5) TMI 576 - ITAT, Mumbai] wherein held since the section 27(iiib) has not been extended to the computation of capital gains under section 45 and is limited to the computation of the income under the head "Income from house property", the conclusion of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of' 3,07,71,0001-, as done by the AO uls SOC, by placing reliance on the decision of Hon'ble Tribunal in the case of Atul G. Puranik vs. I.T.O ITR (Trib) 120, without appreciating that the case relied upon is distinguishable from the facts of the assessee's case in as much as in the case relied upon there was transfer of lease rights for 60 years in the plot and not land itself whereas in the present case the assessee is holding land on lease deed signed with MIDC which is sold for ₹ 1,40,00,000/- thereby attracting the provisions of sec. 50C. 3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 3. Ground no.1, is regarding deletion of addition made by the Assessing Officer on account of security deposit with Maharashtra State Electricity Board (MSEB) and sales tax authorities. 4. The Assessing Officer, during the assessment proceedings, noted that the assessee has inter alia claimed Rs. 1,15,333, made towards security deposit with MSEB and Rs. 3,30,696, with the sales tax department. The Assessing Officer asked the assessee as to why these deposits should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection was installed, then the deposit with the MSEB is part of the sale consideration of the factory premises. We do not agree with the findings of the learned CIT(A) as well as the contention of the assessee that since the assessee has sold the business premises / factory and, therefore, the amount of security deposits with the MSEB and Sales Tax Department become irrecoverable. If the assessee decided to disconnect the electricity connection and take back the security deposit amount, then there is no impediment in the right of the assessee to receive back the amount. It appears that the assessee has transferred the factory premises along with the electricity connection. Therefore, no separate claim of business loss on account of security deposit of electricity connection is allowable when the same is transferred along with the factory premises. Similarly, the deposit with the Sales Tax Department cannot be treated as irrecoverable amount. Merely because the assessee decided to written off these amounts in the books of account would not automatically become an allowable deduction being business loss. We further note that for the assessment year 2007 08, this claim of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no dispute that what is transferred by the assessee is the lease hold property and, therefore, until and unless the property is converted into free hold the lessee holds only lease hold rights over the property. In the case of ITO v/s Pradeep Steel Re rolling Mills Pvt. Ltd., the Tribunal, while dealing with an identical issue, has held as under: 4. The revenue is in appeal. We are unable to find fault with the decision of the CIT(A) that section sac cannot be invoked to a transfer of leasehold rights. The section applies only to capital assets being land or building or both. It does not in terms include leasehold rights in the land or building within its scope. The Assessing Officer's conclusion to the contrary is based on section 27(iiib) of the Act, which says that a person who acquires any rights, excluding any rights by way of a lease from month to month or for a period not exceeding one year, in or with respect to any building or part thereof, by virtue of any such transaction as is referred to in clause (f) of section 269UA, shall be deemed to be the owner of that building or part thereof. Firstly, this provision has been expressly limited in its appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years as per the provisions of sec. 36(2). 17. Ground no.1(a) is regarding deduction claimed on account of disallowance written off in respect of the tender amount due from the Government. 18. We have considered the rival contentions as well as the material on record. Since this was a deposit with the Government, therefore, the said amount cannot be treated as either bad debt or irrecoverable amount. In view of our findings given above on the similar issue for the assessment year 2006 07 regarding deposits with the MSEB and Sales Tax Department, we set aside the order of the learned CIT(A) qua this issue and restore the order of the Assessing Officer. 19. Ground no.1(b), is regarding deduction claimed on account of advance written off in respect of old / ex employees balance. 20. The assessee claimed deduction, inter alia, in respect of the amount of Rs. 4,18,056, written off towards earnest money deposit for leased premises for their employees. The Assessing Officer disallowed the claim of the assessee on the ground that this expenditure has not been incurred for the purpose of business and further it does not fulfill the condition prescribed under section 36(2)(i) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mere fact that the factory would be ready in a year or so would not make any difference. We are in agreement with Shri Dastur that the principles in this regard are laid down by the Supreme Court in its judgment in CIT v. Mysore Sugar Co. Ltd. [1962] 46 ITR 649. The relevant observations in this case have already been noted by us earlier in Empire Jute Co. Ltd. v. CIT, [1980] 124 ITR 1 (SC). Apart from the fact that this court had already held that the length of the lease agreement is not very material for the purpose of determining the nature of the expenditure incurred on lease agreement, the Supreme Court has clearly laid down in Empire Jute Co. Ltd. [1980] 124 ITR 1, that even assuming that a lease for a period of 10, 15 or 20 years would amount to an advantage of enduring nature, it is not that every advantage of enduring nature would result in a capital outlay. What is required to be seen is whether the advantage of enduring nature is in the capital field. As the acquisition of premises on lease would not ordinarily; be in the capital field, we have no hesitation in holding that the moneys advanced by the assessee in pursuance of these agreements to the landlord for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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