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TMI Blog2024 (11) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... t, since the stamp duty value of new property was much higher. The provisions of Section 56(2)(x), being a deeming provision, the same has to be interpreted strictly. In the above said decisions, the transfer of tenancy right has been held to be outside the scope of sec. 50C of the Act. Since the provisions of Section 50C and Section 56(2)(b) of the Act are applicable to Immovable property being land or building or both , following the above said decisions, we hold that the provisions of Section 56(2)(x) of the Act will not apply to the transfer of tenancy right. We notice that the assessee was entitled for 753 Sq. ft on surrender of tenancy right. However, the assessee obtained 824.24 sq. ft, by purchasing additional area of 71.24 sq.ft. For purchasing the above said additional area, the assessee paid a consideration of Rs. 20.00 lakhs. Since the additional purchase of 71.24 sq.ft., is not related to tenancy right held by the assessee, the provisions of sec. 56(2)(x) will apply to the same. We noticed that the value determined by the stamp authorities for 824.24 sq.ft was Rs. 2,47,93,300/-. Hence proportionate value for 71.24 sq.ft will work out to Rs. 21,42,913/-. The assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rl, C P Tank, Mumbai with payment of additional cost of Rs. 20 lakhs. The assessee was given76.63 sq. Mtrs., of constructed area in lieu of the old shop admeasuring 14.95 Sq. Mtrs. The AO noticed that the Stamp Authorities have determined the value of the new property at Rs. 2,47,93,300/-. The AO noticed that the assessee has paid a sum of Rs. 50 lakhs only [Rs. 30 lakhs to the previous tenant and Rs. 20 lakhs to the builder]. Hence, he took the view that section 56(2)(x) of the Act, will be applicable to this transaction. Accordingly, he assessed the difference amount of Rs. 1,97,93,300/- as income of the assessee u/s. 56(2)(x) of the Act. 3. Before Ld CIT(A), the assessee contended that the provisions of sec. 56(2)(x) of the Act will not be applicable for transactions relating to tenancy rights. The Ld CIT(A) accepted the contentions of the assessee and accordingly deleted the above said addition. Hence the revenue is aggrieved. 4. We heard the parties and perused the record. The question is about the applicability of provisions of sec. 56(2)(x) to transfer/surrender of tenancy right. The provisions of Section 56(2)(x) as applicable to AY 2018-19 read as under:- 56(2)(x) where an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State Government (hereinafter in this section referred to as the stamp valuation authority ) for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48, be deemed to be full value of the consideration received or accruing as a result of such transfer 11.2 On going through the above provision, it transpires that where the full value of consideration shown to have been received or accruing on the transfer of an asset, being land or building of both, is less than the value adopted or assessed or assessable by stamp valuation authority, the value so adopted etc. shall, for the purposes of sec. 48, be deemed to be full value of consideration received or accruing as a result of such transfer. This section has been inserted by the Finance Act 2002 w.e.f. 01-04-2003 with a view to substitute the declared full value of consideration in respect of land or building or both transferred by the assessee with the value adopted or assessed or assessabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case in which the assessee was a partner in a firm which was dissolved in the year 1984 and the assessee was allotted a flat towards the credit in the capital asset with the firm. The assessee showed the flat as capital asset in its books of account and depreciation was claimed and allowed from year to year. In the previous year relevant to asst. year 1992-93, the assessee sold the flat and invested the net sale proceeds in a scheme eligible u/s. 54E of the Act and accordingly declared Nil income under the head 'Capital gains'. The AO formed the view that since the block of building ceased to exist on account of sale of flat during the year, the written down value of the flat was liable to be taken as cost of acquisition u/s. 54E of the Act. He further held that since the assessee had availed depreciation on such asset, which was otherwise a long-term capital asset, the deeming provision u/s. 50 would apply and it would be treated as capital gain on the sale of short-term capital asset and hence no benefit u/s. 54E could be allowed. When the matter came up before the Hon'ble Bombay High Court, it was noticed that sub-sections (1) and (2) of sec. 50 contained a deeming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t being any land or building or any rights in land or building or any asset referred to in any other clauses of this sub-section) forming part of an industrial undertaking shall be exempt from tax. Here also it is worth noting that a distinction has been drawn between 'land or building' on one hand and 'or any rights in land or building' on the other. Considering the fact that we are dealing with special provision for full value of consideration in certain cases u/s. 50C, which is a deeming provision, the fiction created in this section cannot be extended to any asset other than those specifically provided therein. As sec. 50C applies only to a capital asst, being land or building or both, it cannot be made applicable to lease rights in a land. As the assessee transferred lease right for sixty years in the Plot and not land itself, the provisions of sec. 50C cannot be invoked. We, therefore, hold that the full value of consideration in the instant case be taken as Rs. 2.50 crores. 12. To sum up, we hold that capital gain on the transaction of assignment of lease rights in the Plot is to be computed in the year in question by adopting the full value of consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be treated as income in the hands of the tax-payers in the nature of the tenancy rights . According to him, the cost of acquisition is nil, the excess amount need to be taxed as capital gain. According to the Ld. CIT(A), the assessee/executors/trustees had to be paid consideration by Shri Chunilal Shri Tejaram for regularizing the tenancy, since the 2nd and 3rd floor properties were given on rent by assessee to M/s. Dinesh Metal Industries and to Shri TilokChand D Shah respectively, and they in-turn gave the property to Shri Chunnilal and Shri Tejaram, (without the consent of land- lords); and vide agreement executed in the relevant year (AY. 2011-12), the assessee A.Y. 2011-12 Ashwin Vardhichand Shah had entered into an agreement with Shri Chunnilal and Shri Tejaram for regularizing the tenancy and pursuant to that stamp-duty of two properties (Rs.71,07,480/-) had to be remitted for registration of the agreement. According to the Ld. CIT(A), the Estate of land-lord i.e. Late Jasumathi V Shah (mother of assessee) had given notice for vacating the said premises to the original tenants i.e. TilokChand D Shah and Dinesh Metal Industries who had illegally given away the said propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to show that tenancy agreement entered into between assessee [who was one of the four owner of the properties (two flats)] and the two persons, were in the nature of transfer, AO/Ld CIT(A) erred in holding that the agreement was sham or colourable device to avoid tax. Therefore, it was urged that the action of AO/Ld. CIT(A) to bring in deeming section 50C of the Act to tax the transaction is erroneous. The Ld. AR cited the following decisions in support of his aforesaid contention, which are as under: - (1) Atul G. Puranik v ITO (ITAT Mumbai) (2011) 11 taxmann.com 92 Section 50C of the Act applies only to a capital asset, being land or building or both, it cannot be made applicable to lease rights in a land.As the assessee transferred lease right for sixty years in the Plot and not land itself, the provisions of section 50C of the Act cannot be invoked. A distinction has been drawn between 'land or building' on one hand and 'or any rights in land or building' on the other. Considering the fact that we are dealing with special provision for full value of consideration in certain cases u/s 50C of the Act, which is a deeming provision, the fiction created in this sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or building (It is rights in building). Consequently, section 50C of the Act has no application and the capital gains have to be computed on the basis of the actual consideration and not the stamp duty value. 8. In the light of the aforesaid discussion, we find that there is no material on record to find that the registered agreement between parties be treated as sale/transfer of properties in question. Assessee is A.Y. 2011-12 Ashwin Vardhichand Shah one of four (4) co-owners of two flats and from the averments of the registered tenancy agreement, the Ld. DR could not show that title of the property has been passed on to the tenant;(Shri Chunnilal or Shri Tejaram). From the terms of the agreement between the assessee who was one of the four (4) owners of the facts in question, we find it is a tenancy agreement and the terms of the agreement shows that provisions of MRC Act, 1999 are incorporated and therefore applies to the agreement between parties. Moreover, there was no evidence of any consideration being passed between the assessee and Shri Chunnilal and Shri Tejaram. The agreement between parties was for giving the flats in question on rent. Thus, the Ld. CIT(A) erred to upho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable in case of Tenancy rights. Thus, this Appellate authority finds force in the submissions of the appellant considering the facts of case and the various decisions of higher courts cited by him / placed reliance upon. Whereas, on the other hand while considering the contention of the Assessing officer w.r.t the deemed applicability of the sec. 56(2)(x) in the case of appellant, it is seen that, the AO's contention on one side that the assessee has acquired a new property tenancy right in Rs 20,00,000/-. But, then the Stamp duty value of Rs. 2.47 crores is also not found correct (as already discussed in above para's). Thus, the Assessing officer has not been able to justify its stand for invoking this section 56(2)(x) of the Income-tax Act,1961. 8. It is pertinent to note that the decision rendered by the co-ordinate bench in the case of Atul G Puranik (supra) was not challenged by the Revenue before Hon ble High Court, meaning thereby, the revenue has accepted the above said decision. The Tribunal had decided an identical issue in favour of the assessee in the case of Greenfield Hotel and Estates P Ltd. However, the said decision came to be challenged by the Revenue b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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