IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "D", MUMBAI
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND
SHRI B.R. BASKARAN, ACCOUNTANT MEMBER
ITA No.1053/M/2011
Assessment Year: 2006-07
ACIT 19(2), Shri Ratan Phiroze Vevaina,
Room No.315, 3rd Floor, Mithi Minar,
Piramal Chambers, Vs. Juhu Tara Road,
Lalbaug, Juhu, Santacruz (W),
Parel, Mumbai 400 054
Mumbai 400 012 PAN: AABPV 6463G
(Appellant) (Respondent)
CO No.51/M/2013
Assessment Year: 2006-07
Late Ratan Phiroze Vevaina, The Addl. Commissioner of
By Executor Mr. Shachin Income Tax,
Jagdish Nanavati, Cir. 19(2),
Mithi Minar, Vs. Room No.315, 3rd Floor,
Juhu Tara Road, Piramal Chambers, Lalbaug,
Juhu, Santacruz (W), Parel, Mumbai 400 012
Mumbai 400 054
PAN: AABPV 6463G
(Appellant) (Respondent)
Present for:
Assessee by : Shri Jignesh R. Shah, A.R.
Revenue by : Shri Love Kumar, D.R.
Date of Hearing : 28.04.2015
Date of Pronouncement : 28.04.2015
ORDER
Per Vijay Pal Rao, Judicial Member:
This appeal by the Revenue and cross objection by the assessee are
directed against the order dated 12.11.2010 of CIT(A) for the assessment year
2006-07. The Revenue has raised the following grounds of appeal:
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2 Shri Ratan Phiroze Vevaina
"1. On the facts and in the circumstances of the case and in law, the
Learned CIT(A) has erred in allowing the expenditure of Rs.68,85,000/-
claimed by the assessee against the sale consideration of Rs.2 crores,
being payment of Rs.65,00,000/- to a tenant residing in ground floor and
Rs.3,85,000/- to a tenant of basement garage to vacate the premises on the
grounds that the agreement was transferred the tenancy rights, ignoring the
fact that both these expenditure cannot be treated as either cost of
acquisition of property or cost of improvement of property or cost
connected to transfer of property as per provision of section 48 of the I.T. Act.
2. The appellant prays that the order of the CIT(A) on the above ground
be set aside and that of the AO be restored."
2. The facts relating to the issue raised in this appeal emerging from the
record are that during the year under consideration the assessee has sold the
property bearing Plot No.8B of Gamdevi Estate known as Hill View, Malabar
Hill Division, situated at Hughes Road, Mumbai for a consideration of Rs.2
crores. The assessee has shown long term capital gain from sale of the said
property after claiming expenditure of Rs.68,85,000/- paid for vacating the
tenancy of ground floor and garage. The Assessing Officer (AO) disallowed
the claim of expenditure mainly on two grounds, firstly that the payment of
Rs.65,00,000/- was not made to the tenant Mrs. Leila Lakhani and the payment
of Rs.3,85,000/- allegedly made to M/s. Everlasting Construction wherein the
assessee is one of the directors. Thus the AO found that the payment in
question was not made for getting the property vacated from the tenants
because the payment to Mrs. Leila Lakhani was not made by the assessee and
it was made by one Mr. J.C. Nanavati in whose favour the tenancy was
transferred by the assessee before the property was sold to the
developer/builder. In case of alleged payment of Rs.3,85,000/- to M/s.
Everlasting Construction the AO found that the assessee is one of the directors
in the said company and therefore there was no need of making any payment
for getting the property vacated. The second ground of disallowing the claim
of expenditure stated by the AO is that the alleged expenditure was not
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3 Shri Ratan Phiroze Vevaina
incurred in respect of transfer of the property in question and therefore it does
not fall in the purview of expenditure incurred wholly and exclusively in
connection with the transfer of the property or the cost of acquisition of the
asset or cost of any improvement thereto as per section 48 of the Income Tax
Act. In support of his finding the AO has placed reliance on the various
judgments of the Hon'ble High Courts and Hon'ble Supreme Court.
3. The assessee challenged the action of the AO before the Ld. CIT(A) and
contended that the payment in question was made by the assessee for getting
the property vacated from the tenants and therefore it has a direct link with the
transfer and only made to better title for enhancement of the salability of the
property and therefore the said expenditure is allowable as per the provisions
of section 48 of the Income Tax Act. The Ld. CIT(A) has accepted the claim
of the assessee and held that the said expenditure of Rs.68,85,000/- is an
allowable deduction on account of vacating the property while computing the
long term capital gain.
4. Before us, the Ld. D.R. has vehemently argued that the payment in
question so far as allegedly paid to Mrs. Leila Lakhani for getting the ground
floor of the property vacated was not made by the assessee and further it was
not made for getting the property vacated, rather the payment was made by one
Mr. J.C. Nanavati in whose favour the assessee has transferred the tenancy of
the ground floor from Mrs. Leila Lakhani, therefore the said payment is not for
vacating the premises in question but it was only for transfer of the tenancy
from one tenant to another tenant. He took us to the relevant facts discussed
by the AO as well as the documents under which the tenancy was transferred
in favour of Mr. J.C. Nanavati and further to M/s. Kakadia Exports. Thus, the
Ld. D.R. has submitted that the finding given by the Ld. CIT(A) is contrary to
the record and the facts brought out on record by the AO.
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5. On the other hand, the Ld. A.R. of the assessee has submitted that the
assessee got vacated statutory tenancy and thereby the value of the property
got enhanced. The payment was made by the assessee for getting the property
vacated from the tenant. He has referred letter dated 11.02.05 of M/s. Patdiam
Brik Construction Company the purchaser of the property and submitted that it
was a precondition of the transaction of purchase and sale that the assessee
should obtain vacant possession from the tenant of the ground floor premises
and the garage area. Thus the Ld. A.R. has submitted that without getting the
ground floor and garage vacated from the tenant the sale could not have taken
place. He has then referred the letter dated 15.10.05 of the assessee whereby
he has acknowledged the payment of Rs.65,00,000/- by Mr. J.C. Nanavati to
Mrs. Leila Lakhani a tenant on the ground floor of the property in question.
The Ld. A.R. has submitted that the payment was finally made by the assessee
to Mr. J.C. Nanavati and therefore the final payment was made by the assessee
through Mr. J.C. Nanavati to the tenant for getting the property vacated. In
support of his contention that the amount paid by the assessee is allowable
deduction against the capital gain arising from the sale of property he has
relied upon various decisions as under:
i) CIT v Miss. Piroja C. Patel [2000] 242 ITR 582 (Bom.)
ii) CIT v Shakuntala Kantilal [1991] 190 ITR 56 (Bom)
iii) Naozar Chenoy v CIT [1998] 234 ITR 95 (AP)
iv) CIT v Shakuntala Rajeshwar [1986] 196 ITR 840 (Del)
v) CIT v A. Venkatraman & Others [1982] 137 ITR 846 (AP)
vi) CIT v Abrar Alvi [2001] 247 ITR 312 (Bom)
vii) CIT v Bradford Trading Co. Pvt. Ltd. [2003] 261 ITR 222 (Mad)
viii) CIT v Eagle Theatres [2012] 205 Taxman 449 (Del)
ix) Ms. Nita A. Patel v ITO [2011] 128 ITD 24 (Mum)
x) CIT v Spencer & Co. Ltd. (No.3) [2013] 359 ITR 644 (Mad)
xi) ITO v Taj Services (P) Ltd. [2012] 143 TTJ (Mumbai) 70
xii) KRA Holding & Trading (P.) Ltd. v. Dy. CIT [2011] 46 SOT 19
(Pune)
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6. Thus the Ld. A.R. has supported the finding of the Ld. CIT(A) and
submitted that the Ld. CIT(A) has given the finding of fact after examination
of the record and therefore in the absence of any contrary fact brought by the
Revenue the finding of fact recorded by the Ld. CIT(A) should be accepted.
7. We have considered the rival submissions as well as relevant material on
record. As far as the legal proposition on the point of allowability of the
expenditure being payment made to the tenant for getting the property vacated,
there is no quarrel that if the payment is made by the assessee for getting the
property vacated from the tenant before it was transferred, then the said
payment will be regarded as the expenditure incurred by the assessee in
connection with the transfer of the property and improvement thereto. As per
the assessee's own claim and statement the following expenditure were
claimed to be incurred in relation to the transfer as deduction:
i) Payment to Ground Floor Tenant Mrs. Leila Lakhani;
(Under an agreement to transfer the tenancy right),
(Paid by Mr. J.C. Nanavati which was subsequently refunded) Rs.65,00,000/-
ii) Payment to Tenant of basement garage to vacate Rs. 3,85,000/-
iii) Brokerage paid to for the sale of property Rs. 1,00,000/-
iv) Legal charges paid to M/s. A.H. Parpia & Co. Rs. 2,00,000/-
v) M/s. J. Sagar Associates Re. Transfer to Tenancy and the Rs. 76,840/-
Title Certificate etc.
Thus, the assessee itself has admitted this fact that initially the payment
of Rs.65,00,000/- was made by one Mr. J.C. Nanavati to Mrs. Leila Lakhani
the tenant at ground floor. The AO has reproduced the clauses of the
agreement dated 03.03.05 under which Mrs. Leila Lakhani has transferred the
tenancy right in favour of Mr. J.C. Nanavati. The clause (d) & (e) of the
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recitals as well as the relevant part of the agreement has been reproduced by
the AO at page 7 of the order as under:
"(d) The Transferor-Tenant is, with the consent of the Landlord,
desirous of transferring and assigning the tenancy rights in the said
Premises to the Transferee-Tenant on the agreed terms and conditions
hereinafter appearing.
(e) The Landlords have consented to the transfer of the tenancy in
terms hereof and agreed to accept the Transferee-Tenant as the new
tenant of the said Premises.-------
NOW THIS AGREEMENT WITNESSETH
The Transferor-Tenant hereby agrees to transfers, conveys and assign
the tenancy rights in Flat admeasuring 163.44 sq. meters on the ground
floor of the said building known as "Hill View", situated at Plot No. 8-
B Gamdevi Estate, Mumbai 400 007, together with all other and incidental
rights and interest(hereinafter called "the said premises") unto the Transferee-
Tenant.
1. The Transferee-Tenant as on or before the execution hereof paid to
Transferor-Tenant a sum of Rs.65 lacs (Rupees Sixty Five Lacs only) in
consideration of the transfer and assignment of the said tenancy rights -
- - -"
8. The matter did not rest at this stage but subsequently the assessee repaid
the said amount of Rs.65,00,000/- to Mr. J.C. Nanavati and executed a tenancy
agreement in favour of M/s. Kakadia Exports. Thus it is manifest from the
record that it is not a simple case of payment to the tenant for getting the
tenancy vacated but before the property was transferred/sold to the purchaser,
the assessee has changed the tenants in respect of the ground floor of the
property. It is pertinent to note that any change in the tenancy of the property
shall have a direct bearing in respect of the rights of the tenant in the property
to be developed by the purchaser. Though the assessee has contended that the
entire exercise was nothing but to get the property vacated from the tenant and
to handover the possession to the purchaser and therefore the payment is an
allowable deduction. However, this is only the assertion and submissions of
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the assessee and there was no examination on this aspect whether the induction
of two new tenants in the property just before transfer of the property in
question has created any rights in favour of such tenants in the property to be
developed by the developer. Since it is not a simple case of payment for
getting the property vacated but the payment has rooted through third party and
further at the time of transfer of the property to the purchaser by the assessee
the status of the property remained same except the change of tenant. The Ld.
CIT(A) has allowed the claim of the assessee by accepting the contention but
without any evidence brought on record to establish that the two intermediary
tenants namely Mr. J.C. Nanavati and M/s. Kakadia Exports got nothing out of
this transaction.
9. In view of the above facts and circumstances of the case, we find that the
matter has not been properly examined by the authorities below and therefore
the same is set aside to the record of the AO for proper verification and
examination of relevant fact particularly on the point whether two tenants
introduced by the assessee prior to the transfer of the property got any right or
interest in the property to be developed by the purchaser. Needless to say the
assessee will be given an opportunity of hearing.
10. In the cross objection, the assessee has raised the following grounds:
"1. On the facts and in the circumstances of the case, the learned CIT(A)
correctly allowed deduction of Rs.68,85,000/- as deduction in computing
the long term capital gain on sale of property.
2. (a) On the facts and in the circumstances of the case, the learned assessing
officer should be directed to take market value of the property as on 1-4-81
and allow the index cost where on.
(b) The learned assessing officer as erred in taking the value at Rs.65,100/-
as on 1-4-81 which is not the market value."
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8 Shri Ratan Phiroze Vevaina
11. Ground No.1 is nothing but supports the finding of the Ld. CIT(A),
therefore in view of our finding on the appeal of the Revenue the ground No.1
of the cross objection stands disposed off being dismissed.
Ground No.2:
12. At the time of hearing the Ld. A.R. of the assessee has stated that the
assessee does not press the ground No.2 and the same may be dismissed.
The Ld. D.R. has raised no objection if the ground No.2 of the cross
objection is dismissed as not pressed. Accordingly, ground No.2 of the cross
objection is dismissed being not pressed.
13. In the result, appeal of the Revenue is allowed for statistical purpose and
cross objection of the assessee is dismissed.
Order pronounced in the open court on 28.04.2015.
Sd/- Sd/-
(B.R. Baskaran) (Vijay Pal Rao)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 28.04.2015.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT (A) Concerned, Mumbai
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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