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Mrs. Tauqeer Fatema Rizvi Bungalow no.27, Saraswat CHS Ltd. Kalyani Nagar, Pune 411 014 Vs. Income Tax Officer Ward19(3)4, Mumbai
May, 07th 2014
                 ,   ,,' 

                 IN THE INCOME TAX APPELLATE TRIBUNAL
                               "E" BENCH, MUMBAI

      ,  ,    ,    

         BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND
                   SHRI AMIT SHUKLA, JUDICIAL MEMBER



                     . / ITA no. 8862/Mum./2011
                    (  / Assessment Year : 2005­06)

Mrs. Tauqeer Fatema Rizvi
                                                              .......................  /
Bungalow no.27, Saraswat CHS Ltd.
Kalyani Nagar, Pune 411 014                                                           Appellant

                                     v/s

Income Tax Officer                                                 ...................  /
Ward­19(3)­4, Mumbai
                                                                               Respondent

  ./ Permanent Account Number ­ AAPPR7311C


                / Assessee by                 : Mr. Vipul B. Shah
                / Revenue by                  :   Mr. Ashok Suri


     /                                                    /
Date of Hearing ­ 03.03.2014                         Date of Order ­ 02.05.2014


                                   / ORDER

 ,     /
PER AMIT SHUKLA, J.M.


      The   present    appeal    has   been       preferred    by      the      assessee
challenging the impugned order dated 8th October 2011, passed by the
learned Commissioner (Appeals)­XXX, Mumbai, for the quantum of
assessment passed under section 143(3) of the Income Tax Act, 1961
(for short "the Act") for the assessment year 2005­06. The sole dispute
                                                       Mrs. Tauqeer Fatema Rizvi

                                                                             2


in this appeal is, whether or not the learned Commissioner (Appeals)
was justified in confirming the action of the Assessing Officer in
charging the long term capital gain at ` 27,44,173, without considering
the cost of the property at the time of acquisition.


2.   Facts in brief:­ The assessee is an individual who has shown sale
of flat on which she has received sale consideration of ` 38,78,375. The
cost of acquisition of the property has been taken by the assessee at `
3,64,000.


3.   The assessee, before the Assessing Officer had submitted that the
flat which has been sold during the year was allotted to the assessee
on 6th May 1982, as an alternate accommodation for surrendering her
tenancy rights in the old structure by the builder. The assessee was an
old tenant along with her son in the old building admeasuring 1,200
sq.ft. An agreement was entered into with the builder M/s. Abis
Construction, on 6th May 1982, who has undertaken the old structure
for development. In lieu of the surrender of the tenancy rights, the
builder had offered two flats admeasuring 728 sq.ft. and 500 sq.ft. on
ownership basis as permanent alternate accommodation. The assessee
was also required to deposit ` 2,000 with the builder towards society
deposit. The assessee has taken the value of the allocated flat as on
16th May 1982, at ` 3,64,000 @ ` 500 per sq.ft. which was on the basis
of sale agreement entered into by the builder in the same month in the
same building with other persons. Hence, it was submitted that the
cost of acquisition of the flat which was acquired by way of
surrendering of tenancy right should be taken as ` 3,64,000.





4.   However, the Assessing Officer rejected the assessee's contention
and held that under section 48, only the amount actually incurred
wholly and exclusively in connection with the transfer of capital asset
                                                   Mrs. Tauqeer Fatema Rizvi

                                                                         3


and the actual cost of acquisition of the asset can be allowed to be
deducted from the full value of consideration. The assessee has not
paid any consideration except for making deposit of ` 2,000 with the
builder that to be towards society deposit. Apart from that the assessee
was also required to pay sum of ` 218.75 to the builder every month
from the date of taking of possession of the new premise in the
management of the building till the property was handed over by the
builder to the society. Hence, the Assessing Officer took the cost of
acquisition of ` 2,000 only. The Assessing Officer relied upon the
decision of the Hon'ble Supreme Court in Varghese (K.P.) v/s ITO,
[1981] 131 ITR 597 (SC) and held that notional value cannot be
accepted. He also distinguished the case laws relied upon by the
assessee in CIT v/s Irani (D.A.)(Dr.), [1981] 234 ITR 850 (SC) and the
decision of Jurisdictional High Court in CIT v/s Abrar Alvi, [2001] 247
ITR 312 (Bom.). Accordingly, he rejected the cost of acquisition of the
flat at ` 3,64,000 and the same was taken at ` 2,000. Thus, the long
term capital gain was worked out in the following manner:­


           Sale consideration as per market     ` 37,78,375
           value under section 50C
           Less: Brokerage                         ` 35,000
                                                ` 38,43,375
           Less: Indexed cost of acquisition        ` 8,862
           as per the original return
           Less: Exemption u/s 54               ` 10,90,340
           Long term capital gain               ` 27,44,173



5.   The learned Commissioner (Appeals) also confirmed the action of
the Assessing Officer in adopting the cost of acquisition at ` 2,000
instead of ` 3,64,000 and upheld the calculation of the long term
capital gain at ` 27,44,173, worked out by the Assessing Officer.
                                                            Mrs. Tauqeer Fatema Rizvi

                                                                                  4



6.     The learned Counsel for the assessee, after explaining the entire
facts submitted that the assessee has got the ownership right of the
property in exchange of tenancy rights as the assessee was an old
tenant in the said building. Because of the surrender of tenancy rights,
the builder offered alternate accommodation on ownership basis to the
assessee. Thus, the tenancy rights have to be valued as on the date of
agreement with the builder i.e., 6th May 1982. The said newly acquired
flat was sold on 29th October 2004 and, therefore, the long term capital
gain has arisen to the assessee and while computing the tax on long
term capital gain, the cost of acquisition on account of surrender of
tenancy rights has to be given. In support of his contention, he relied
upon the following case laws:­

i)     CIT v/s George Henderson & Co. Ltd., [1967] 66 ITR 622 (SC);
ii)    CIT v/s Abrar Alvi, [2001] 247 ITR 312 (Bom.);
iii)   Balmukund P Acharya v/s ITO [2010] 45 DTR (Mum.) (Trib.) 281;
iv)    Atul G. Purnaik v/s ITO, [2011[ 132 ITD 499 (Mum.)


7.     As regards the value of the flat of ` 3,64,000, he submitted that
the assessee has taken the said value on the basis of similar
transactions undertaken by the builder in the month May 1982,
therefore, such a basis cannot be rejected.


8.     The learned Departmental Representative, on the other hand,
relied upon the findings of the Assessing Officer and the learned
Commissioner (Appeals) and submitted that the assessee has not
incurred any money on the acquisition of the flat and, therefore, the
A.O. has rightly denied the cost of acquisition of flat of ` 3,64,000.


9.     We have carefully considered the rival contentions and perused
the relevant findings of the authorities below. The assessee, in the
                                                     Mrs. Tauqeer Fatema Rizvi

                                                                           5


present case, is an old tenant in a building wherein, she was residing
with her son in the flat area admeasuring 1,200 sq.ft. The said premise
was under the joint tenancy along with her son. On 6th May 1982, the
agreement was entered into by a builder, M/s. Abis Construction,
whereby the builder undertook to develop the said property and in
order to rehabilitate the tenants, he allocated two flats, one to the
assessee and other to her son, admeasuring 728 sq.ft. and 500 sq.ft.
respectively,   on   ownership   basis   as   a   permanent     alternative
accommodation. In this manner, the assessee got the acquisition of the
flat on ownership basis in the proposed new building. Besides this, the
assessee was also required to deposit ` 2,000 with the builder for
society membership. Thereafter, the assessee on 29 th October 2004,
has sold this property and for the purpose of section 50C, the value of
the same was taken at ` 38,78,375. The Revenue's case has been that
the assessee has not incurred any cost of acquisition and, therefore, no
cost can be attributed for acquiring the flat, whereas the assessee's
case is that the flat was allotted to her on ownership basis in lieu of
surrender of tenancy right and, therefore, the market value of the
acquired flat should be taken as on the date of 16th May 1982. For the
purpose of ascertaining the cost, the assessee has taken the instance
of sale of similar kind of premise in the same month with the builder
which was sold for ` 3,64,000. It is now quite settled that for the
purpose of cost of acquisition under section 48 and 49, the tenancy
rights is to be taken into consideration. This is evident from sub­section
(2) of section 55. The builder has given the alternate flat to the
assessee only by virtue of surrender of tenancy rights by the assessee.
Had there been no tenancy right, the builder would have not offered
any flat to the assessee, on ownership basis. Thus, it is a valuable right
on which cost of acquisition has to be determined. It is not a case that
the cost of acquisition cannot be determined in lieu of the surrender of
                                                    Mrs. Tauqeer Fatema Rizvi

                                                                          6


tenancy right at all. Once the cost of acquisition is determinable, the
benefit of such acquisition has to be given while computing the tax on
capital gain. In the present case, the tenancy right got converted into
acquisition of a flat, when the assessee must have got the possession
of new flat constructed by the builder. Thus, the market value of the
said flat as on the date of its possession would be the cost of its
acquisition and, accordingly, such cost deductible while computing
income by way of capital gains, whether long term capital gain, as the
case may be. This is as the holding period of the capital assets, being
the said residential flat, would only commence from the date the
assessee is put in possession thereof after its completion. Accordingly,
we set aside the impugned order passed by the learned Commissioner
(Appeals) and restore the issue back to the file of the Assessing Officer
and direct him to take the value of the flat for the purpose of cost of
acquisition from the year in which the assessee got the actual
possession of the flat and then only he shall compute the capital gain.
Thus, the assessee's ground is partly allowed for statistical purposes.





10.                

10. In the result, assessee's appeal is partly allowed for statistical
purposes.
                         2 May 2014   
                                        nd

     Order pronounced in the open Court on 2nd May 2014


           Sd/-                                              Sd/-
                                                          
                                                         
     SANJAY ARORA                                      AMIT SHUKLA
  ACCOUNTANT MEMBER                                  JUDICIAL MEMBER


 MUMBAI,  DATED: 2nd May 2014
                                            Mrs. Tauqeer Fatema Rizvi

                                                                  7



     / Copy of the order forwarded to:

(1)    / The Assessee;
(2)    / The Revenue;
(3)    () / The CIT(A);
(4)     / The CIT, Mumbai City concerned;
(5)    ,   ,  / The DR, ITAT, Mumbai;
(6)     / Guard file.
                                   / True Copy
                                    / By Order
 .  / Pradeep J. Chowdhury
   / Sr. Private Secretary
                           /   / (Dy./Asstt. Registrar)
                           ,  / ITAT, Mumbai

 
 
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