Unreported Decisions – September 2021

By Ajay R. Singh, Advocate and CA Rohit Shah

1. S. 50C: Applicability in case of Transfer of Reversionary Rights

Assessee company had e-filed its return of income for A.Y. 2011-12, declaring a total income of ` 2,02,57,520/-. Original assessment was framed by the A.O u/s 143(3) at an income of ` 8,35,36,800/- after inter alia assessing the Long-Term Capital Gain (LTCG) on sale of property u/s. 50C at ` 7,71,09,287/- (as against LTCG shown by the assessee in its return of income at ` 1,38,30,005/-). The property in question was originally leased by Rustomji Bymmjee Jeejeebhoy & Others i.e the lessors to Cursetjee Dinshaw Bolton i.e the lessee. Thereafter, the assessee company terminated the lease on the ground of breach of the terms and conditions of the lease and agreed to sell its reversionary rights in the aforesaid property for a lump sum price to Yash &Yashika Mercantile Pvt. Ltd. Accordingly, in the backdrop of the aforesaid facts, it was the claim of the assessee that as it had only transferred its reversionary rights qua the aforesaid property in question, thus, its market value could not be considered for the purpose of computing the income under the head capital gains.

CIT(A) accepted the assessee’s claim that in a case of mere transfer of reversionary rights the market value could not be considered for the purpose of computing the income under the head capital gain. Accordingly, the CIT(A) after perusing the agreement, qua the aforesaid transfer transaction observed, that as the assessee had only transferred its reversionary rights in the property in question, therefore, the provisions of Sec.50C would not stand triggered. Accordingly, the CIT(A) directed the A.O to take the sale consideration in respect of the transaction entered by the assessee with M/s. Yash & Yashika Mercantile Pvt. Ltd. as was reflected by the assessee in its return of income.

The Hon’ble ITAT, held that, it is not necessary that consideration paid by the buyer of a property, at the time of buying the property, must only relate to ownership rights. In the case of tenanted property, as is the case before us, while the buyer of property pays the owner of property for ownership rights, he may also have to pay, when he wants to have possession of the property and to remove the fetters of tenancy rights on the property so purchased, the tenants towards their surrendering the tenancy rights. Merely because he pays the tenants, for their surrendering the tenancy rights, at the time of purchase of property, will not alter the character of receipt in the hands of the tenant receiving such payment. What is paid for the tenancy rights cannot, merely because of the timing of the payment, cannot be treated as receipt for ownership rights in the hands of the assessee. This distinction between the receipt for ownership rights in respect of a property and receipt for tenancy rights in respect of a property, even though both these receipts are capital receipts leading to taxable capital gains, is very important for two reasons – first, that the cost of acquisition for tenancy rights, under section 55(2)(a), is, unless purchased from a previous owner – which is admittedly not the case here, treated as Nil; and, – second, since the provisions of Section 50C can only be applied in respect of ‘transfer by an assessee of a capital asset, being land or building or both’, the provisions of Section 50C will apply on receipt of consideration on transfer of a property, being land or building or both, these provisions will not come into play in a case where only tenancy rights are transferred or surrendered. Sale deed unambiguously shows, the assessee has given up all the rights and interests in the said property, which he had acquired by the virtue of lease agreements with owner and which were, therefore, in the nature of lessee’s rights; these rights could not have been, by any stretch of logic, could be treated as ownership rights. It has been specifically stated in the sale deed that the lessee, which included this assessee, had proceeded to, inter alia, ‘grant, convey, transfer and assign their leasehold rights, title and interest in the said premises’. There is nothing on the record to even remotely suggest that the assessee was owner of the property in question. The monies received by the assessee, under the said agreement, were thus clearly in the nature of receipts for transfer of tenancy rights, and, accordingly, as the Ld CIT(A) rightly held that, section 50C could not have been invoked on the facts of this case.

ACIT – 3(1)(1) vs. M/s. Byramjee Jeejeebhoy Pvt. Ltd.

[ITA No. 813/Mum/2020; dated : 05/08/2021; Bench : B; A.Y. 2011-12]

2. S. 69C: Addition on the basis of Sale of Flats at differential rates to different persons:

Assessee is a builder and developer, filed its return of income for the assessment year 2010-11 declaring total income at ` 57,19,810/-.Assessment order was passed u/s. 143(3) of the Act. The AO while passing the assessment order besides other additions/disallowances made addition of ` 2,74,66,992/- on account of undisclosed sales receipt u/s. 69C . On appeal before the CIT(A), both the additions/disallowances were deleted.

Before Hon’ble ITAT, dept contended that during the assessment the Assessing Officer noted that the assessee had sold flats to different persons at different rates. On comparison of the minimum and maximum booking rates it was found that the minimum booking rate was ` 2,191/- per sq ft and maximum booking rate was ` 3,518/- per sq ft. The assessee could not substantiate the difference in variation in rates and could not give details of any extra facilities provided to the buyers. Therefore, the undisclosed sales receipt was added to the income of the assessee.AR of the assessee submitted that there was a difference in rate of bookings and payments, depending upon the prevailing market condition, business necessities and financial needs. All sales of flats are supported by registered sale deeds.

The Hon’ble ITAT dismissed the ground and concluded that , there is no allegation against the assessee for selling the flat less than the market rate. There is no evidence on record to suggest that assessee received over and above the cheques amount. No enquiries were carried out from the buyers for paying any excess amount by them above the cheques. The contention of the assessee that lowest sale price of the flats is more than the fair market value notified by Govt. under Stamp Act has not been controverted.

ACIT Circle 3 vs. Ashapura Builders & Developers

[ITA No. 5146/Mum/2016; ITA No.5146/ Mum/2016; Bench H; dated : 10/8/2018; Assessment Year 2011-12]