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TMI Blog2016 (3) TMI 243X X X X Extracts X X X X X X X X Extracts X X X X ..... tment in NABARD for acquiring Bonds/Debentures - Held that:- Assessing Officer did not make any addition to the assessee’s income in respect of the investment of ₹ 25.00 lakhs made by it in NABARD Bonds/Debentures; which formed the sole basis of the Assessing Officer’s recorded reason to believe income had escaped assessment for initiation of proceedings u/s.147 of the Act (supra). In these circumstances, the Hon’ble Bombay High Court in the case of Jet Airways (I) Ltd. (2010 (4) TMI 431 - HIGH COURT OF BOMBAY ) has held that when no addition is made in respect of such income which formed the basis for the recorded reasons for belief of income escaping assessment, the Assessing Officer cannot make any other addition to the assessee’s income in respect of any other income which has escaped assessment. Since the Assessing Officer ostensibly accepted the assessee’s claims regarding the investment of ₹ 25.00 lakhs in investment in NABARD Bonds/Debentures and no addition has been made in this regard, the Assessing Officer ought to have dropped the re-assessment/ assessment proceedings initiated u/s. 147/148 of the Act for assessment year 2005-06. - Decided in favour of asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee but as income from house property. 2.3 Aggrieved by the order of assessment for assessment year 2005- 06 dated 15/01/2013, the assessee preferred an appeal before the CIT(Appeals) -29, Mumbai. The CIT(Appeals) disposed of the appeal vide the impugned order dated 22/11/2013 allowing the assessee partial relief. In so doing, the CIT(Appeals) (1) reversed the order of the Assessing Officer in holding the premium of ₹ 51.00 lakhs received on transfer of tenancy rights as exigible to tax under the head income from house property and held it to be assessable as capital gains as declared by the assessee, (2) the CIT(Appeals), however, dismissed the legal ground raised by the assessee challenging the validity of the order passed under section.147 r.w.s. 143(3) of the Act. 3.1 Aggrieved by the order of the CIT(Appeals) -29, Mumbai dated 22/11/2013 for assessment year 2005-06, Revenue has preferred an appeal raising the following grounds:- 1. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition made by the A.O. without appreciating the fact that the Tenancy right is a self-arising asset in the hands of tenant. This asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the case of Shri Vinod V. Chhapia (HUF), the landlords received the- amount as a confirming party to the agreement between the old tenant and the new tenant whereas in the instant case, the landlords being the owner of the property entered into agreements directly with the new tenants and surrendered the tenancy rights of the property in question without clarifying how the direct nature of agreements leads to the conclusion that there is a transfer of capital asset. 6. On the facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition made by the A.O. by holding at para 55 of his order that in the instant case, the tenancy agreement is a direct agreement between the landlords and the tenants without appreciating the fact that the landlords had entered into separate agreements with the old tenants as well with new tenants respectively. As per the agreements between the landlords and tenants, the landlords had received back the vacant possession of the premises from the old tenants who had surrendered the tenancy rights in favour of the landlords without getting any consideration for the same whatsoever. By no stretch of imagination it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout giving any decision I comments on Clause 4(1) and Clause 4(2) of the Agreements between landlords and new tenants wherein it has been specified that in consideration of the premium the landlords hereby agree to grant to the tenant and the tenant hereby agrees to accept from the landlords the monthly tenancy in respect of the tenanted premises. Similarly, Clause 4(2) states that as consideration for the grant of the monthly tenancy, the tenant paid to the landlords a lump sum premium. The Ld. Departmental Representative for the Revenue was heard in support of the grounds raised. He vehemently supported the orders of the Assessing Officer in concluding that the premium received from the tenants by the assessee amounting to ₹ 51lakhs in the relevant period pertaining to assessment year 2005-06 is not for grant of tenancy rights and is nothing but lumpsum rent received in advance and, therefore, exigible to tax under the head income from house property and not LTCG as claimed by the assessee. 3.2.1 Per Contra, the Ld. Representative for the assessee supported the finding of the CIT(Appeals) in the impugned order in holding that the premium of ₹ 51 lakhs re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bari Tea Co. Ltd. (1965) 57 ITR 422(SC) of the Hon ble Bombay High Court in the case of Ratilal Tarachand Mehta(1977) 110 ITR 71(Bom); of the Co-ordinate Bench of the ITAT Mumbai in the case of Wadhwa Associates Realtors Pvt. Ltd.(ITA No.695/Mum/2012) held that the premium of ₹ 51.00 lakhs received by the assessee trust for grant of tenancy rights to the six tenants is transfer of capital asset and is exigible to capital gains and not as advance rent to be taxed under the head income from house property as held by the Assessing Officer. In this regard, the Ld. Representative for the assessee also placed reliance on the decision in the case of R.K.Palshikar (HUF) (1988) 172 ITR 0311 (SC) wherein it was held that the right to possession and enjoyment of properties leased for long periods on which a premium has been charged amounts to a transfer of capital asset. 3.2.3 Alternatively, the Ld. Representative for the assessee submitted that if at all the premium of ₹ 51.00 lakhs was to be treated as income from house property as alleged by the Assessing Officer, then the assessee ought to have been taxed only in respect of that portion of the premium/advance rent that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chappia(Kartha HUF) (supra) has been correctly distinguished on facts and concur with the view of the CIT(Appeals) in this matter. 3.3.3 In this context the CIT(Appeals) s elaborate examination and decision in the matter at paras 40 to 56 of the impugned order is extracted hereunder:- 40. The above arguments of the AR of the appellant have been considered and! intend to agree with the above arguments. The main issue under consideration here is to whether the premium charged by the appellant Trust for surrender of Tenancy rights is capital receipt chargeable to capital gains or is in the nature of advance rent as stated by the AO in the assessment order 41. The issue of premium/salami received on the transfer of a capital asset has been decided in various judicial pronouncements and overwhelmingly the courts including the Hon'ble Supreme Court have held that the premium/salami received on the transfer of a capital asset, in whatever form, is a one-time payment and non recurring in nature and therefore a capital receipt. 42. It is an accepted principle as of now that the tenancy right is a capital asset by virtue section 2(14) of the I.T. Act, where the capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to prove the same. In the absence of any evidence, to term it as advance rent would be only a presumption. Even if this presumption of the AO has to be believed, then the advance rent has to be for a certain period of time. As per the rent agreement, the tenancy would continue in operation unless the tenant did not pay the rent or other charges for a period of six months. This is as per para 11 of the agreement wherein it provided as under:- 11. The Landlords hereby covenant with the Tenant that the Tenant paying the rent hereby reserved the Tenant shall and may peaceable hold and enjoy the Tenanted Premises without any lawful interruption or disturbance from or by the Landlords or any person lawfully or equitably claiming by from through under or in trust for it. It is hereby expressly agreed and understood that the Landlords shall not be entitled to , terminate the tenancy of the Tenant in respect of the Tenanted ' Premises on any ground or for any reason whatsoever save on the ground of non--payment of rent or other amounts which the tenant is liable to pay to the Landlords hereunder for a period of six months from the same the same becomes due. 47. It is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court in the case of Commissioner of Income-tax Vs. Ratilal Tarachand Mehta ([1977J 110 ITR 71 (BOM.)), wherein it was held that By its nature the salami being a non-recurring payment -made by a tenant to the landlord at the inception of the grant of the lease has a/ways been regarded as a receipt of a capital nature in the hands of the landlord. The finding that had been recorded by the Tribunal was that this payment was made to the assessee by the tenants for getting them accepted as tenants. In other words, it was by way of a premium or salami that these payments were received by the assessee as a consideration for granting monthly tenancies to the tenants. Obviously, it was a non-recurring payment made by the tenants to the assessee for the purpose of getting the monthly tenancy. Every payment by way of a salami or a premium need not necessarily be held to be of a capital nature or on capital account, but since prima facie that is the nature of such payment it is for the department to establish facts which would go to show that such payment was in the - nature of income and not on capital account. In the instant case no facts have been established or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that both the decisions pertain to the same issue i.e. whether lease premium was a revenue or a capital expenditure. The Id. CIT(A) also discussed the decision in the case of Raja Benedur Kamakshya Narain Singh of Ramgarh v. Commissioner of Income-tax 11 ITR 513 PC wherein it has been held that the payment which' under the lease is exigible by the lesser may be classed under 3 categories (1) Premium or salary (2) the minimum royalty and (3) the royalty per ton. The salary have been rightly treated as capital receipt. It is a single payment made for the acquisition of the right of the lessees to enjoy the benefits granted both by the lease. The Ld. CIT(A) has also considered the decision of the Hon'ble Supreme Court in the case of Member for the Board of Agricultural Income Tax, Assam Vs Sindhurani Chaudhrani Ors 321TR 169 wherein it has been held that Salami is in the form of a lump sum non recurring payment made by a prospective tenant to the landlord as a consideration and is paid anterior to the constitution of relationship of .landlord and tenant, it is not rent within the meaning of the word used in the definition of agricultural income in section 291) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. On appeal before the ITAT, Mumbai, it was held that normally in the case of surrender of tenancy rights, it is the original tenant who receives the consideration from the landlord to surrender the tenancy rights. But the instant case is unique in nature and the land lord did not receive any consideration from the original tenant and it is the new tenant who paid the consideration to the original tenant. Under these factual matrix of the case, the principle relating to the surrender of tenancy rights is not applicable to the assessee and it is case of windfall . gain received by the assessee which was rightly taxed as income from other sources . 55. The above contentions of the AO have been considered. But the facts of the above case of VV. Chhapia HUF Vs ITO (supra) are not identical to the facts of the instant case. In the above case, the tenancy rights were not with landlords of the property and the such rights were vested with the old tenant and the same were transferred to a new tenant by him vide agreement entered into between the two. The amount of ₹ 7,26,000/- which the landlord received in the above case was only as a confirming party to the agreement betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds at S.No. 1 to 10, having been duly considered, are dismissed. 4. In the result, Revenue s appeal for assessment year 2005-06 is dismissed. Assessee s Cross-Objection C.O.No.76/Mum/2015: 5.1 In its cross objection the assessee has raised the following grounds:- 1.The order passed u/s. 143(3) r.w.s. 147 of the Act is void ab-initio and bad in law. 2. The Appellant craves to add to and /or alter and/or modify and /or delete and/or amend the aforesaid ground of cross objection. 5.2 The grounds raised in the cross objection (supra) pertain to the single issue of challenging the validity of the order of assessment issued u/s. 143(3) r.w.s. 147 of the Act on 15/1/2013 for assessment year 2005-06. Before us, the Ld. Representative for the assessee submitted a copy of letter dated 3/9/2013 wherein the reasons recorded by the Assessing Officer for initiation of proceedings u/s. 147 of the Act in the case on hand have been reproduced and provided to the assessee. The Ld. Representative for the assessee contended that a perusal of the letter and the order of assessment would evidence that while the reasons recorded for initiation of proceedings u/s. 147 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x return, I have reason to believe that the income which has escaped assessment amount to or likely to amount more than ₹ 1 lakh. Hence, to issue notice under section. 148 of the I.T. Act, 1961 for the A.Y 2005-06 approval of Joint CIT Rg. 18(2), Mumbai is needed as per the provision of section 151(2) r.w.s. 149 (1)(b) of the I.T.Act, 1961. The proposal in prescribed proforma is put up for grant of approval to issue notice under section. 148 of the I.T. Act, 1961. 5.4.2 A perusal of the impugned order of assessment passed u/s. 143(3) r.w.s. 147 of the Act vide order dated 15/1/2013 for assessment year 2005-06 clearly shows, as contended by the Ld. Representative for the assessee, that no addition has been made therein based on the reasons recorded in respect of the investment of ₹ 25.00 lakhs by the assessee in NABARD for acquiring of Bonds/Debentures during the year under consideration. However, the Assessing Officer in the impugned order of assessment has proceeded to treat the premium of ₹ 51.00 lakhs received for grant of tenancy rights and offered to tax by the assessee under the head capital gains , as advance rent and proceeded to bring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of assessment proceedings. 5.4.4 The Hon ble Court in the aforesaid decision held that if after initiation of proceedings u/s. 147/issue of notice u/s. 148 of the Act, the Assessing Officer accepts the contention of the assessee and does not make any addition of such income on the basis of which he initially formed the reason to believe that income had escaped assessment, and as a matter of fact has not escaped assessment, he cannot independently assess some other income. 5.4.5 In the case on hand it is factually amply clear as per our observations at para 5.4.1 and 5.4.2 that the Assessing Officer did not make any addition to the assessee s income in respect of the investment of ₹ 25.00 lakhs made by it in NABARD Bonds/Debentures; which formed the sole basis of the Assessing Officer s recorded reason to believe income had escaped assessment for initiation of proceedings u/s.147 of the Act (supra). In these circumstances, the Hon ble Bombay High Court in the case of Jet Airways (I) Ltd. (supra) has held that when no addition is made in respect of such income which formed the basis for the recorded reasons for belief of income escaping assessment, the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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