IT Appeal No. 1876 (Mum) of 2012 [Assessment Year 2008-09]. Case: Yogesh Sunderlal Shah Vs Assistant Commissioner of Income-tax 24(1). ITAT (Income Tax Appellate Tribunal)

Case NumberIT Appeal No. 1876 (Mum) of 2012 [Assessment Year 2008-09]
JudgesD.K. Agarwal, J.M. and Rajendra Singh, A.M.
IssueIncome Tax
Judgement DateSeptember 21, 2012
CourtITAT (Income Tax Appellate Tribunal)

Order:

Rajendra Singh, A.M., (Mumbai ''G'' Bench)

  1. This appeal by the assessee is directed against the order dated 27.2.2012 of CIT(A) for the assessment year 2008-2009. The only dispute raised in this appeal is regarding allowability of exemption u/s 54 of the Act in respect of capital gain earned by the assessee from sale of house property.

  2. The facts in brief are that during the assessment proceedings it was noted by the AO that the assessee had sold a Bungalow No. 32 at Dariyalal C.H. Society, Mumbai 49, for a consideration of Rs. 3.50 crores on 8.8.2007. On 16.8.2007, the assessee purchased tenancy rights in two flats in the third floor of 'Symphony' situated at junction of 8th and 12th Road, Khar (West), Mumbai, for a consideration of Rs. 1.85 crores. The assessee computed the long term capital gain from sale of residential Bungalow at Rs. 2,13,02,427/- which was claimed exempt to the extent of Rs. 2,04,11,610/- because of the investments made in acquisition of the tenancy rights in the new two flats. The AO, however, observed that the exemption u/s 54 in respect of capital gain from sale of residential house property was available only when the assessee purchased or constructed a new residential flat. The assessee purchased only tenancy rights. The AO, therefore, asked the assessee to explain as to why the claim u/s 54 should not be rejected. The assessee submitted that he had acquired tenancy rights in perpetuity in the new flat which had to be considered as transfer of ownership of the flat. It was pointed out that as per the tenancy agreement, the assessee was required to use the said flat for residential purposes only and not for other purposes and the assessee was also entitled to bequeath rights in respect of the said flat to any other person subject to beneficiary complying with the terms of agreement. The assessee was also entitled to sublet or to give on leave and license the said flat and the landlord was not required to levy and charge transfer fees in respect of such assignment. The assessee could also avail or raise loan against the flat. Therefore, it was submitted that the assessee was as good as owner of the flat which had been acquired for use as a residential house and, therefore, the assessee was entitled to exemption u/s 54 of the Income Tax Act.

    2.1 The AO, however, did not accept the contentions raised. It was observed by him that there could not be any dispute that the assessee had purchased only the tenancy rights on paying the monthly rent of Rs. 500/- p.m. to the landlord. The assessee had neither purchased the flat nor constructed the flat as required u/s 54. He also referred to clause-12 of the agreement as per which the tenant was not required to make any structural alteration in the flat let out. Further, clause-17 provided that the right of the tenant was limited and restricted to the said flat and nothing more. The said clause also provided that the landlord was entitled to carryout further construction on the said plot and/or building without any recourse to tenant and in case any specific permission/no objection certificate was required, the tenant was required to grant his irrevocable consent/no objection. AO also observed that all the rights of the assessee regarding raising loan, transferring the flat were subject to the permissions or conditions laid down by the society. Further, the owner of the flats was the Laxminagar Co-operative Housing Society and the subsequent purchasers were tenants. The AO also observed that no doubt the tenancy right was a capital asset but this was not the type of the asset for which exemption u/s 54 was available. The exemption was available only in case of purchase or construction of the flat. The AO referred to the judgment of the Hon'ble Supreme Court in the case of CIT v. TN Aravinda Reddy 120 ITR 46 (SC) in which it was held that the word "purchase" occurring in section 54(1) had to be given its common meaning i.e. buy for a price or equivalent of price by payment in kind or adjustment towards a debt or for other monetary consideration. The person who is the owner of the property should possess absolute right in the property which was not so in this case. The AO, therefore, rejected the claim of the assessee of exemption u/s 54 of the Act in respect of tenancy rights acquired in the new flat. Accordingly, the claim of deduction u/s 54 of Rs. 2,04,11,610/- was disallowed.

  3. The assessee disputed the decision of AO and submitted before the CIT (A) that all the conditions for purchase of a flat were satisfied as the assessee had taken possession of the flat and full payment of purchase consideration of Rs. 1.85 crores had been made in addition to monthly rent of Rs. 500/-. The assessee had also paid stamp duty @ 5% of the consideration of Rs. 1.85 crores amounting to Rs. 9.25 lakhs. Thus, the residential house had been conveyed to the assessee within the meaning of the word "conveyance" as defined in clause-9 of section 2 of Bombay Stamp Act, 1958. The assessee...

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