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TMI Blog2024 (3) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... out of Court settlement was made between landlord and OIPL for vacating the flat an in lieu thereof, a sum of Rs. 2,01,00,000/- was paid to OIPL by the Landlord for vacating the flat. Assessee is contending that, since assessee and his family members (directors in the OIPL) and were staying in the said flat rented by OIPL for more than 40 years and they had to vacate flat to find an alternative accommodation, therefore, the company had paid an amount of Rs. 75,00,000/- to each of the Director. Thus, the compensation received from the company for vacating the flat is for the occupancy rights, that is, they will not evoke any possessory or occupancy rights in respect of the said flat and therefore, surrender of said rights amounts to capital asset - We are unable to agree with the contention raised by the assessee, because, as rightly held by the ld. AO, assessee was neither a sub-tenant nor there was any kind of sub-licensing of the property by the company to the assessee from his family members. Though assessee might have resided in the property taken on rent by the company but it does not translate into any right in the property in the name of the assessee. Assessee was occupying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to vacate the premises in the favour of the landlord for which company was paid compensation. Lastly, If at all, the amount of entire compensation was taxable in the hands of the company which we find that it has offered as a capital gain in the return of income. However, it has claimed deduction for such payment made to the assessee. Such a claim is allowable or not the issue before us, because it is not a cost incurred on tenancy right albeit its application of income. Since, it is not the subject matter of issue before us therefore, we are refraining to go on this issue. Whether it is taxable in the hands of the assessee? - We hold that, the amount received from the company is neither chargeable under the head capital gains nor as income from other sources, albeit, it is a capital receipt in the hands of the assessee because the amount received from the company out of its own income, is an application of income by the company. The entire amount of compensation is capital gains in the hands of the company, which has been declared, albeit its computation and deduction is subject matter of examination there and since this not the issue before us so we refrain from any such adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tejura were born lived in the flat from childhood along with their parents, uncles cousins whe were all occupying the said flat as joint family for a very long period of time since 1965. 4 During the pending status of the suits filed by Mr. Puri against the company, the company received offer from Mr. Puri for making out of court settlement and vacating the flat. Mr. Puri offered to pay monetary compensation to the company for having the flat vacated from its directors family members residing in the flat handing over peaceful vacant possession of the same 5. However, Mr. Rakesh Tejura did not agree to vacate the premises. He, vide his letter dated 26-9-2011, addressed to the Chairman of the Company, Shri Mayank Tejura, expressed it clearly that he would not vacate the said premises unless he would be suitably compensated for giving up his occupancy rights thereof. The Chairman assured Shri Rakesh Tejura vide reply dated 12-10-2011 to resolve the issue in the best interests of the Company and its directors and family members. Copies of both these letters are enclosed herewith 6. In light of the above facts and situation, a Memorandum of Understanding (MOU) dated 16-1-2012 was entere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the Memorandum of Understanding dated 16-1-2012, the company proceeded with the offer received from the landlord Mr. Puri for giving effect to the proposal, the company OIPL passed a resolution at the meeting of the Board of Directors held on 4th April, 2012. Copy of the resolutions passed on 4th April 2012 is enclosed herewith. Vide the resolutions, the company recognized that it would be in the best interest of the company to enter into consent terms with Mr. Puri in the Eviction Suit. Further it was resolved to authorize the directors to file consent terms in the Eviction Suit pending before the Court of Small Causes at Bombay against the company and to carry out various necessary steps in this direction. One of the authorities given to the directors included the authority to handover quiet, vacant and peaceful possession of the Suit Premises to Mr. Puri in terms of the draft consent terms and give up all claims in relation thereto on or before the execution of the consent terms. 9. The company passed one more resolution at the meeting of equity shareholders held on 13th April, 2012 which is mentioned in para 19 of Court Decree. A copy of the said resolution is enclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jura (d) As per Clause - 10, the company had declared that the tenancy of the company in respect of the suit premises ite the flat together with the garage on the ground floor shall stand finally and irrevocably determined and extinguished and all the right (including the right of occupancy of the directors), title, interest claim or demand of whatsoever nature of the company in respect of the suit premises, whether contractual and/or otherwise under the provisions of law shall expire, stand determined and come to an end with the passing of a decree by the Court in terms of the consent terms On reading of this clause, it clearly emerges that all the rights of the company, whether contractual or otherwise, over the suit property had extinguished on entering the consent terms. It is natural that the tenancy rights of the company were subject to the occupancy rights of Mr. Mayank Tejura and Mr. Rakesh Tejura. Unless the occupancy rights of Mr. Mayank and Mr. Rakesh Tejura got extinguished, it was not possible for the company to surrender its tenancy rights to the landlord since both of them were having a clear occupancy rights over the said property as recorded time and again in vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r right of occupancy without any doubt. 11. In pursuance of the Consent terms before the court, the company OIPL received an amount Rs. 2,01,00,000/- from Mr. Puri, the landlord. As agreed in the MOU and also the resolution dated 13-4-2012 passed at the meeting of the shareholders of the company, the company paid Rs. 75 Lakhs each to both Mr. Mayank Tejura and Mr. Rakesh Tejura. The payment of these amounts was made on surrendering of the vacant and peaceful possession so as to enable the company to meet its commitment given in the consent terms and hand over the possession to the landlord The payment of Rs. 75 Lakhs each was made to Mr. Mayank Tejura and Mr. Rakesh Tejura on 8th December, 2012 after handing over of vacant and peaceful possession of the flat. Copies of the bank passbook of Mr. Mayank Tejura and Mr. Rakesh Tejura reflecting the entries for receipt of Rs. 75 Lakhs from OIPL are attached herewith. 12. Both Mr. Mayank and Mr. Rakesh deposited the amount of Rs. 75 Lakhs each in the Capital Gains Accounts Scheme Account with Union Bank of India Opera House Branch on 20-9-2013 since they could not finalise the alternate residential house for them by that date. As such, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not have any further obligation or responsibility to assist the company in acquiring alternative accommodation and the company had agreed that on receipt of Rs. 2,01,00,000/- from the landlord, the company had no further claims or demand of whatsoever nature against the landlord in respect of delivery of quiet, vacant and peaceful possession of the suit premises by the company to the landlord (c) As per Clause - 8, the company is required to vacate and hand over quiet, vacant and peaceful possession of the suit premises to the landlord in the manner stipulated in the consent terms. As such it is clear that the amount of Rs 2,01,00,000/-could not have been received by the company but for the vacant and peaceful possession of the flat which was hitherto occupied by Mr. Mayank and Mr. Rakesh Tejura (d) As per Clause - 10, the company had declared that the tenancy of the company in respect of the suit premises ite the flat together with the garage on the ground floor shall stand finally and irrevocably determined and extinguished and all the right (including the right of occupancy of the directors), title, interest claim or demand of whatsoever nature of the company in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Rs. 2,01,00,000/- to the company from the landlord for surrendering its tenancy rights in the said property. However, as the assessee and his brother did not have any rights in the said property, they were not compensated separately. The assessee had received amount from his closely held company as compensation for alternate accommodation. Hence, this amount received by the assessee from his closely held company is not for transfer of any capital asset and cannot be classified as Capital Gain. The said amount cannot also be qualified as salary, House Property Income or Business Income. As such, the compensation received by the assessee has to be characterized as Income from Other Sources and taxed accordingly. As a result of this, the claim for exemption of the said income u/s. 54F does not arise at all. Penalty proceedings/u/s. 271(1)(c) is initiated for filing inaccurate particulars of income. 6. The ld. CIT(A) too has confirmed the said addition made by the ld. AO. 7. Before us ld. Counsel submitted that here in this case, the right of occupancy of the flat is a valuable right and hence, a capital asset and without the right of the assessee company, OIPL could not have proceed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpensation received from the company for vacating the flat is for the occupancy rights, that is, they will not evoke any possessory or occupancy rights in respect of the said flat and therefore, surrender of said rights amounts to capital asset. However, we are unable to agree with the contention raised by the assessee, because, as rightly held by the ld. AO, assessee was neither a sub-tenant nor there was any kind of sub-licensing of the property by the company to the assessee from his family members. Though assessee might have resided in the property taken on rent by the company but it does not translate into any right in the property in the name of the assessee. Assessee was occupying the property on behalf of the company which company had allowed them to stay. There is also nothing on record that a separate consent between assessee and the landlord had also been agreed upon or assessee was part of the legal suit filed by the landlord. Further, it is also not on record the directors had paid any rent to the company nor did the company had shown any such perquisite given to its director. Thus, we agree, with the observation of the ld. AO to the extent that it is not chargeable to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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