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Indulal Mehta (HUF) 201, Kesar Building, Princess Street, Mumbai -400 002. Vs. The Income Tax Officer -14(3)(1)
June, 12th 2014

   Jh fot; iky jko] U;kf;d lnL; ,oa Jh jktsUnzz] ys[kk lnL; ds le{k

                       vk;dj vihy la[;k/ITA NO.7510/Mum/2013
                          ¼fu/kkZj.k o"kZ@Assessment year: - 2001-02
             Indulal Mehta (HUF)                           The Income Tax Officer -
             201, Kesar Building,                   Vs.    14(3)(1)
             Princess Street,
             Mumbai -400 002.
             Appellant                                       Respondent

             Assessee By/fu/kkZfjrh dh vksj ls     Shri D.D. Anjariya

               Revenue By/jktLo dh vksj ls         Shri Maurya Pratap

                 Date of hearing
                 Date of pronouncement

Per Vijay Pal Rao, JM

      This appeal by the assessee is directed against the order dated 7.10.2013 of
CIT for A.Y. 2001-02. The assessee has raised following grounds in this appeal:-

1. The Ld. CIT(A) erred in confirming the addition of Rs.21 ,35,000/ - on account of
   surrender of tenancy right as income from other source against long term
   capital gain claimed by assessee and not allowed exemption u/s 54EA.
2. The Ld. CIT(A) Failed to appreciate that-
   a) Transaction is genuine and cannot be termed as a colorable devise.
   b) Mere suspicion cannot take the place of evidence.
   c) List of tenants provided by MHADA cannot be ignored as MHADA 1S
                                                                   Indulal Mehta (HUF)

        appropriate authority.
     d) In case of builder, tenancy right was accepted as genume by Hon'ble
        Bombay High Court.
     e) Even if Tenancy Right is not considered as genuine than also gain is long
        term capital gain as "Constriction cost" of Rs.2,65,000 I-was paid in 1995.
        Hence, acquiring alternate accommodation is a "Right to acquire property".
     f) "Right to acquire property" is capital asset, hence taxable under the head
        capital gain and cannot be taxed under "Income From Other Source.
     g) "Capital Asset" is held for more than 3 years therefore asset is long term
        capital asset, and gain on sale of same is long term capital gain.
     h) Exemption uls 54EA is allowable on long term capital gain.
3. The Ld. CIT(A) erred in confirming the charge ability of interest uls 234B &
     234C of the Income Tax Act, 1961.
4. The Ld. CIT(A) erred in confirming invocation of prOV1SlOn of penalty uls
     271 (1)( c) of the Income Tax Act, 1961.

2.     We have heard the Ld. Authorized Representative as well as Ld. DR and
considered the relevant material on record. The ground raised by the assessee in
this appeal as well as the facts giving rise to the dispute are common to the case of
Bhogilal M. Mehta (HUF) in I.T. Appeal No. 6705/Mum/2013. We further note that
the transaction in this case is arising out of the common agreement of surrender of
tenancy right. The assessee in present appeal, is brother (HUF) of assessee in I.T.
Appeal No. 6705/Mum/2013. An identical issue has been considered and decided
by us in ITA No. 6705/Mum/2013 vide even dated order in para 7 and 9 as under;-

       "7.    We have considered the rival submissions as well as relevant material on
       record. The assessee has received Rs. 36,00,000/- from the builder M/s. Shripati
       Group of Companies. This fact of receipt of Rs. 36, 00,000/- out of total of Rs.
       60,00,000/- shared between the assessee and his brother (HUF) has not been
       disputed by the authorities below. The dispute is only on the point whether this

                                                                        Indulal Mehta (HUF)

    amount received by the assessee is against the surrender of tenancy and the
    surrender of right in the property to be developed by the developer and to be
    considered as capital gain or not. Authorities below held that this amount cannot be
    treated as capital gain as the entire transaction was just a colourable device to
    evade payment of tax. The Assessing Officer has refused to accept the rent receipt,
    the list of tenants provided by MHADA as well as BEST. The Assessing Officer has
    attempted to point out some deficiencies in the receipt as well as the agreement
    dated 10.4.1995 in which the name of the assessee was written in typing Bhogilal
    M. Mehta and then HUf has been inserted with pen. We find that the said typint
    mistake has been corrected at the time of signing the agreement and parties have
    endorsed by signing the said correction in the agreement. Therefore, merely
    because the correction is made in the agreement would not render entire
    agreement as non genuine when all other place the name of the assessee is
    correctly appearing in the agreement even this is immaterial mistake which has
    been corrected in the name of the assessee, therefore, it does not affect the terms
    and conditions of the agreement. Further we note that the rent receipts placed on
    record are duly signed and also appearing dates and month for which the rent was
    paid. The rent receipt coupled with the agreement in respect of the premises in
    question establish the fact that the assessee was having tenancy right in respect of
    the premises. The said tenancy right was surrendered by the assessee in lieu of
    alternative accommodation to be constructed by the developer under the
    redevelopment plan. In this respect the MOU was executed between the assessee
    and the developer on 5.12.1995. the relevant clauses of the MOU are as under:-
    ( para 6 and 7 as recitals and clause 7 of the terms and conditions of the

          "6.    The owners hereby commit and agree with the tenant that a residential
                 premises admeasuring approx. 840 .45 Sq. Ft. carpet area and ledge area of
                 14.85 Sq. ft. i.e. total build up area of 1145.67 sq. ft. shall be reserved for the
                 tenant/occupant between 8th and 10th floor and same shall not be allotted or
                 given possession of to anybody else.

                                                                      Indulal Mehta (HUF)

          7.     The tenant/occupant hereby agrees to pay a nominal construction charge of
                 Rs. 6,15,000/- to the said owners."

    Clasue 7

                 "It is further agreed by and between the parties hereto that, on completion of
                 all the cigvil works pertaining to the flat to be allotted between 8th and 10th
                 floor the said owners shall, intimate the said tenant/occupant to take the
                 inspection of the said permanent alternate accommodation and if the
                 tenant/occupant does not approve the said permanent alternate
                 accommodation and declines to accept possession of the same then the
                 said owners shall pay to the said tenant/occupant an amount of Rs.
                 60,00,000/- as        compensation in lieu of the permanent alternate
                 accommodation, inclusive of           Rs. 6,15,000/- to be paid by the

    8.    It is clear from the MOU that in lieu of surrender of tenancy/occupancy rights
    of the existing premises the assessee along with his brother (HUF) was to be given
    the build up area of 1145. 67 sq. ft. The assessee and his brother (HUF) also
    agreed to pay construction charges of Rs. 6,15,000/- over and above the surrender
    of tenancy rights. As per the said MOU the assessee and his brother (HUF) were
    given the option to decline to accept the possession of the alternative
    accommodation and to receive an amount of Rs. 60,00,000/- as compensation in
    lieu of permanent       alternative accommodation inclusive of Rs. 6,15,000/-
    construction cost paid by the assessee and his brother (HUF). On 25th March 2000,
    the parties entered into an agreement whereby the assessee and his brother HUF
    agreed to receive Rs. 60,00,000/- against the surrender of tenancy rights and the
    rights in the alternative accommodation. The amount of Rs. 6,15,000/- was
    comprising of payment of Rs. 3,15,000/- and Rs. 2,65,000/- by assessee and
    brother (HUF) according to the areas under tenancy. There is no dispute that the
    rent was being paid in respect of premises in question and the builder wanted to
    reconstruct the property     under the redevelopment agreement, therefore, the
    assessee along with his brother (HUF) was offered alternative accommodation by
    the builder. The tenancy right has been recognized as the capital asset u/s 55(2) of
    the Income Tax Act. Therefore, there is no doubt that the consideration to be
    received by the assessee against the surrender of tenancy rights is capital in nature
    and to be assessed as capital gain. The question arises whether the capital gain is
    longer capital gain or short term capital gain. Since the assessee has agreed to

                                                                     Indulal Mehta (HUF)

    surrender the tenancy right in the year 1995 and also paid the construction cost as
    agreed between the parites, therefore, the value of tenancy rights along with the
    construction cost was converted/substituted into the alternative accommodation to
    be provided by the builder in the year 2000. In stead of accepting the alternative
    accommodation, the assessee preferred to receive the agreed sum of Rs.
    36,00,000/- inclusive of 3,50,000/- as construction cost paid by the assessee. Thus
    the assessee has finally surrendered its tenancy right as well as alternative
    accommodation rights only by way of the agreement dated 25th March 2000.
    Therefore, this amount was received after more than three years. The Hon'ble
    Jurisdictional High Court in the case of CIT Vs. R. R. Chaturvedi in Income Tax
    Appeal No. 11/96 of 2011 has accepted the status of the tenants as per the list of
    tenants certified by Mumbai Buildings Repairs and Reconstruction                    Board
    (MBRRB). Hon'ble Jurisdictional High Court in the case of CIT Vs. Rejendra R.
    Chaturvedi (supra), the earlier tenant in respect of the building in question has
    observed in para 3 as under:-

    "3)    This appeal filed by the revenue relates to consideration received by the tenants in
           respect of surrender of tenancy. Once, it is accepted that the amounts paid by M/s.
           R.R. Chaturvedi (AOP) to the respondent assessee herein, was for the
           transfer/surrender of tenancy it follows that the amount received by the respondent
           assesseee herein, in his hands would be amounts received as transfer of tenancy
           assessable as "capital gain" and not as "income from other sources". In the above
           circumstances we see no reason to entertain question (a).

    9.     The Hon'ble High Court has held that the amount received against the
    transfer of tenancy is assessable as capital gain and not income from other
    sources. In the case in hand, the amount received by the assessee is against the
    transfer of capital asset and, therefore, we do not find any justification in treating the
    same as income from other sources by the authorities below. The assessee has
    produced sufficient material to establish the tenancy rights and surrender of tenancy
    rights and creating the right to have alternative accommodation. Finally the
    assessee surrendered the right in alternative accommodation and received the
    amount in question which is capital gain in nature. The CIT(A) has allowed the
    deduction of Rs. 3,50,000/- from the total receipt of Rs. 36,00,000/-. Since the

                                                                               Indulal Mehta (HUF)

       amount has been invested in the prescribed units u/s 54EA, therefore, the assessee
       is entitled for deduction u/s 54EA against the said receipt.

3.     In view of the finding in the assessee's brother (HUF) case the appeal of the
assessee is treated as allowed.

4.     In the result appeal of the assessee is allowed..

       Order pronounced in the open court today i.e                   04 -6-2014

                              Sd/-                                                   Sd/-
                          (Rajendra)                                         (Vijay Pal Rao)
           (Accountant Member/ys[kk lnL;)                        (Judicial Member/U;kf;d lnL;)

       Mumbai dated                  04-6-2014
       SKS Sr. P.S,

Copy to:
             1.   The   Appellant
             2.   The   Respondent
             3.   The   concerned CIT(A)
             4.   The   concerned CIT
             5.   The   DR, "J" Bench, ITAT, Mumbai
                                                      By Order

                                                Assistant Registrar
                                            Income Tax Appellate Tribunal,
                                              Mumbai Benches, MUMBAI

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