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TMI Blog2015 (9) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... "the Property", belonged to Gurappa Channabasappa Belagavi, and Sanna Irapava, who were the joint owners of the property. By a registered lease deed dated 1.3.1905 they granted on lease for a period of 99 years the property to one Anant Parasuramasa Goankar. The lessees had a right to continue the lease on the same terms and conditions. The lease deed also provided that the lessee can alienate the leasehold rights. By a registered sale deed dated 7.12.1907, Anant Parasuramasa Goankar sold the leasehold rights over the property to one Ramdas S/o. Vittaldas Darbar for a sum of Rs. 8,500/-. It is not in dispute that the Assessee herein succeeded to the property and was the sole owner of the leasehold rights over the property. 4. A ginning factory was constructed by the Assessee over the property and business of ginning was carried on by the Assessee therein. Smt. Madhukanta Laxmidas Darbar was the wife of the Assessee. The Assessee and his wife had differences and decided to live apart. By an agreement to live apart dated 4.11.1972 the Assessee and his wife agreed that the leasehold right over the property and the business of ginning together with the factory building will be given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipt of Rs. 33 lacs was declared by the Assessee as Income under the head "Long Term Capital Gain" (LTCG) on surrender of tenancy rights. The computation of LTCG as given by the Assessee was as follows:- Amount received as per Receipt-cum-Acknowledgement Dt 27/06/2005 33,00,000 Less: Dismantling expenses of structure on leasehold property 5,81,090 27,18,910 Less: Registration expenses towards Compromise Decree Stamp Duty 7,58,500 Regn. charges 85,475 Commission charges 1,139 Misc Exp. 4,525 8,49,639 Income subject to LTCG 18,69,271 Less: Cost of Acquisition As tenancy right hence value as on 1981 as compensation received including residential structure constructed by lessee during tenure of lease, the lessee is absolute owner and hence valuation of structure as on 1981 (as per Valuation Report) Rs.205120 Nil Hence inflation cost as per index 2005/06 497 205120 X 497 100 1019446 10,19,446 8,49,825 Less: Amount deposited in capital gain A/c in Bank of Baroda, Hubli On 14/12/2005 (for construction of Residential house) &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of Rs. 5,81,090. 12. As far as deduction of Rs. 10,19,446 which was the indexed cost of acquisition of the structure claimed as deduction by the assessee in the computation of capital gain, the AO noticed that value of the structure claimed by the assessee as on 1.4.1981 was Rs. 2,05,120. The valuation report in support of the claim of the assessee had also been filed. According to the AO, there was no documentary proof available with the assessee to prove that construction was made by the assessee in his capacity as lessee. There was no asset shown in the balance sheet of the assessee in the earlier years. The AO also referred to the statement of the assessee recorded u/s. 131 of the Act on 12.11.2008, wherein he admitted that investment of Rs. 2,05,120 on construction was made by his wife and that a sum of Rs. 1,63,555 was spent by the assessee's wife since the year 1972 and reflected in the balance sheet of the assessee's wife's business of ginning. The AO also notice that even in the F.Y. 2006-07, value of the factory building was appearing in the balance sheet of assessee's ginning factory. 13. For the above reasons, the AO disallowed the claim of assessee for deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of capital gain u/s. 48 is not possible and therefore the charge to tax u/s. 45 of the Act should also fail. 16. The assessee thus pleaded that capital gain in question cannot be brought to tax either in the hands of assessee or in the hands of his wife. The assessee also pleaded that mere declaration of income by the assessee, when there was no liability or charge to tax, cannot be the basis to bring the receipt to tax, when it is in law not taxable. 17. Without prejudice to the above, the assessee also claimed that computation of capital gain as given by the assessee should be accepted. 18. The CIT(Appeals), however, issued a notice of enhancement dated 30.1.2014 to the assessee. According to the CIT(A), the receipt of Rs. 33 lakhs by the assessee was not part of the compromise decree filed before the court. The said sum was paid only for the purpose of dismantling the structure. The CIT(A) was also of the view that there was no transfer of any capital asset by the assessee and therefore provisions of section 45 of the Act did not come into play. According to him, the entire receipt of Rs. 33 lakhs had to be assessed as 'income from other sources' in the hands of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f appeal may be summed up in the form of following issues:- (i) Whether the CIT(Appeals) was right in coming to the conclusion that there was no transfer of leasehold rights by the assessee in favour of the lessors? (ii) Whether receipt of Rs. 33 lakhs by the assessee cannot be attributed to such transfer (relinquishment) of leasehold rights in favour of lessors? (iii) Whether the action of the CIT(Appeals) in bringing to tax the FMV of 42 guntas of land & building obtained by the assessee under compromise decree in the form of perpetual leasehold right under the head 'income from other sources' can be sustained? (iv) Whether the claim of assessee for computation of capital gains tax as made in the return of income should be accepted? (v) Whether the assessee is not liable to tax on the capital gain in question by reason of the family arrangement dated 4.11.1972 and therefore the income in question was rightly assessable to tax only in the hands of the assessee's wife? (vi) Whether the claim of the assessee that in the event of assessee not being allowed deduction of a sum of Rs. 10,19,446, which was the indexed cost of acquisition of the structure, then whether assessee is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of Capital Asset. In Ponds (India) Ltd. V/s. DCIT 64 ITD 33 (Mum) the ITAT had to decide a case in which by an agreement dated 18.04.81, the assessee agreed to purchase immovable property from 'K' and took the possession. By another agreement dated 03.01.1991, the assessee gave up his rights acquired for certain consideration. It was held that the compensation received on giving up right to purchase was treated as long Term Capital Gain. In J.K. Kashyap V/s. ACIT 302 ITR 255 (Delhi) the question before the Hon'ble Delhi High Court was as to what was relinquishment of right in capital asset u/s.2(14) of the Act. The assessee made payment for acquisition of property by an agreement in 1990. The transaction did not materialize. He relinquished his right in favour of new vendee in 1995. The consideration received for relinquishment of interest in property was held to be liable to long term capital gain. In CIT v/s. Vijay Flexible Containers 186 ITR 693(Bom), it was held that giving up of the right to obtain conveyance of immovable property amounts to transfer of a capital asset. Similar ruling was also rendered in the case of CIT V/s. Vimal Lalchand Mutha 187 ITR 613(Bom). I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 8,49,639 was incurred as stamp duty and registration expenses in registering the compromise decree. A further sum of Rs. 5,81,090 had also been incurred to demolish the structure on the area surrendered to the lessors by the Assessee. It may be true that the compromise decree does not refer to the payment of the sum of Rs. 33 lacs as a payment for surrender of leasehold rights by the Assessee, but the circumstances of the case clearly show that the said payment was towards surrender of leasehold rights. The only modification is that the said sum of Rs. 33 lacs was to be taken by the Assessee after incurring expenses for registration of compromise decree and expenses of demolition of structures. The sum of Rs. 33 lakhs is therefore rightly assessable to tax u/s. 45 of the Act and not under the head 'income from other sources. The fact that the compromise decree does not refer to the payment of Rs. 33 lacs cannot be the basis to hold that the said sum is not towards surrender of leasehold rights. There was no necessity for the lessors to pay the aforesaid sum but for the Assessee relinquishing leasehold rights over part of the property in favour of the lessors. We therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto:" 33. U/s. 48 of the Act, there is no requirement that expenditure incurred wholly and exclusively in connection with the transfer, has to be incurred only by the assessee. Since the factum of expenditure having been incurred is not disputed and since, admittedly, this was an expenditure incurred wholly and exclusively in connection with such transfer, the deduction claim, in our view, had to be allowed. We hold and direct accordingly. We also find merit in the contention of the learned counsel for the Assessee that since this expenditure was specifically required to be incurred by the Assessee under the receipt cum acknowledgement dated 27.6.2006, it constitutes a diversion of income at source and cannot be construed as income that accrued to the Assessee. 34. As far as deduction of Rs. 10,19,446 being the indexed cost of acquisition of the structure is concerned, we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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