Reckoning period of holding in case of purchase of the property where the tenancy right is converted into ownership

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Reckoning period of holding in case of purchase of the property where the tenancy right is converted into ownership

Short Overview : Where assessee had tenancy right in property, which was converted into ownership before sale of shop, then period of holding would be determined from the date the assessee acquired ownership of the asset because on purchase of the property the tenancy right was converted into ownership and assessee had sold shop not tenancy right.

Assessee claimed capital gain on sale of Shop. AO asked assessee to substantiate the claim of LTCG. The assessee furnished the details, wherein the assessee contended that he was tenant in the said shop vide agreement dated 16-1-1998 and had purchased the said shop vide agreement dated 6-5-2010 form the owner for a consideration by registered agreement. Thus, the assessee|s tenancy right acquired on 16-1-1998 was converted into Ownership Right of a lump sum consideration resulting into LTCG. The contention of assessee was not accepted by AO holding that the assessee acquired the shop vide agreement dated 6-5-2010 and sold vide agreement dated 12-10-2010, the capital asset was held by assessee only for five months. Thus, the AO denied the LTCG and treated the same as STCG.

 it is held that Assessee had taken the property in question on a monthly rent vide agreement dated 16-1-1998 from landlord. The assessee acquired the said property vide agreement dated 6-5-2010 on payment of consideration. On purchase of the property the tenancy right was converted into ownership. The tenancy right was extinguished on 6-5-2010. The assessee sold the property on 12-10-2010 for a consideration. Hence, assessee had not sold the tenancy right in the property, rather the assessee became owner of the property on payment of consideration on 6-5-2010. The assessee had transferred the property as his absolute owner. The assessee held the asset as owner of the property only for five months thus arises on such sale was Short Term Capital Gain (STCG).

Decision: Against the assessee.

IN THE ITAT, MUMBAI “J” BENCH

RAJENDRA, A/M. & PAWAN SINGH, J.M.

Jayantilal K. Jain v. ITO

ITA No. 1125/Mum/2015

A.Y. 2011-12

31 July, 2017

Assessee by: Hero Rai Advocate

Revenue by: Anju Garodia (Departmental Representative)

ORDER

Under section 254(1) of Income Tax Act

Pawan Singh, J.M.

This appeal by assessee under 253 of the Act (‘Act’) is directed against the order of learned Commissioner (Appeals)-33, Mumbai dated 30-1-2015 for assessment year 2011-12. The sole ground of appeal raised by assessee relates to confirming the treatment of Capital Gain arising out of sale of Shop as Short Term Capital Gain (STCG) and in denying the exemption under section 54 of the Act.

2. Brief facts of the case are that the assessee is an individual and deriving its income from Business, Other Sources and Capital Gain, filed his return of income for relevant assessment year on 20-7-2011. The assessment was completed on 25-11-2013 under section 143(3) of the Act. The assessing officer while framing the assessment order denied the benefit of LTCG claimed. The assessing officer treated the LTCG as STCG. After deducting the cost of acquisition, the STCG of Rs. 77,66,743 was calculated and was brought to tax. On appeal before the learned Commissioner (Appeals), the action of assessing officer was confirmed. Thus, further aggrieved by the order of learned Commissioner (Appeals), the assessee has filed the present appeal before us.

3. We have heard the learned Counsel/Authorised Representative (AR) of the assessee and learned Departmental Representative (DR) for the Revenue and perused the material available on record. The learned Authorised Representative of the assessee argued that assessee acquired the tenancy in the property in the year 1998. The tenancy right of the assessee was converted into ownership on 6-5-2010 on payment of lump sum consideration of Rs. 9,11,000. Thus, the assessee is entitled for LTCG on the asset. In support of his submission, the learned Authorised Representative of the assessee relied upon the decision of Hon’ble Allahabad High Court in CIT v. Smt. Rama Rani Kalia (2013) 358 ITR 499 (All) and decisions of Tribunal in (i) Mrs. Tauqeer Fatema Rizvi v. ITO in ITA No. 8862/Mum/2011, dt. 2-5-2014,(ii) Late Mulya B. Das v. ITO in ITA No. 2628/Mum/12, dt. 30-4-2014 (2014) 40 CCH 0173 (Mum. Trib.), (iii) Mr. Ajit M. Pendurkar v. ITO in ITA No. 3225/Mum/2009, dt. 19-12-2012. On the other hand, learned Departmental Representative for the Revenue supported the order of authorities below. It was further argued that the assessee acquired the capital asset only on 6-5-2010 and was not qualified for LTCG. It was argued that case law relied by learned Departmental Representative for Revenue are distinguishable on the facts.

4. We have considered the rival submission of the parties and have gone through the orders of authorities below and the various decision cited by learned Authorised Representative of the assessee. In the return of income, the assessee claimed Capital Gain of Rs. 88,00,000 on sale of Shop situated at Turner Road, Bandra. The assessing officer assessee was asked to substantiate the claim of LTCG. The assessee furnished the detailed, wherein the assessee contended that he was tenant in the said Shop vide agreement dated 16-1-1998 under Mr. Maneck Gidwani. The assessee purchased the said Shop vide Agreement dated 6-5-2010 form the owner for a consideration of Rs. 9,11,000 by registered Agreement. Thus, the assessee’s tenancy right acquired on 16-1-1998 was converted into Ownership Right of a lump sum consideration of Rs. 9,11,000. The assessee sold the said Shop on 12-10-2010 for a consideration of Rs. 88,00,000. The contention of assessee was not accepted by assessing officer holding that the assessee acquired the Shop vide Agreement dated 6-5-2010 and sold vide Agreement dated 12-10-2010, the capital asset was held by assessee only for five months. Thus, the assessing officer denied the LTCG and treated the same as STCG. After deducting the cost of acquisition, the STCG of Rs. 77,66,743 was calculated and was brought to tax. The learned Commissioner (Appeals) confirmed the action of the assessing officer holding that the assessee had taken the property in question on a monthly rent vide agreement dated 16-1-1998 form landlord Maneck Gidwani. The assessee acquired the said property vide agreement dated 6-5-2010 on payment of consideration of Rs. 9,11,000. On purchase of the property the tenancy right was converted into ownership. The tenancy right was extinguished on 6-5-2010. The assessee sold the property on 12-10-2010 for a consideration of Rs. 88,00,000. The learned Commissioner (Appeals) concluded that the assessee has not sold the tenancy right in the property, rather the assessee become owner of the property on payment of consideration on 6-5-2010. The assessee had transferred the property as his absolute owner. The assessee held the asset as owner of the property only for five months thus gain arises on such sale is Short Term Capital Gain (STCG). We have considered the various decisions cited by learned Authorised Representative of the assessee. In our view none of the decision is applicable on the facts of the present case as the ratio decided in all the case are at variance. In case of CIT v. Rama Rani Kalia (supra) the assessee was himself owner of the leasehold property since July 1984 which was converted in to freehold in March 2004, under the Rule by Collector and thus was qualified for LTCG. In Mrs. Tauqueer Fatema Rizvi v. ITO (supra) the property/flat was allotted in lieu of surrender of tenancy in 1982 and was sold in October 2004. In Late Mulya B Dass v. ITO (supra) the assest was acquired on surrender of tenancy in the year 2005 and sold within 36 months of taking possession of the property, the assessing officer treated the same as STCG, the assessing officer treated the cost of acquisition of the property as nil. The coordinate bench of the Tribunal remanded the matter to the file of assessing officer with the direction to consider the cost of acquisition as per market value; however no finding was given by Tribunal with regard to claim of Long Term or short Term. In Ajit M Pendurkar v. ITO, the assessee was tenant in the property form the year 1984. On 4-3-2004 by the scheme of the Government the assessee become owner of the property on payment of certain amount. The assessee sold the property on 31-10-2004. The assessing officer treated the gain as STCG as property was sold in less than 36 month. During the appeal before the Tribunal the assessee conceded that the Gain could be treated as STCG. Thus, none of the decision relied by the learned Authorised Representative for the assessee is helpful to the assessee. In our view the conclusion of the learned Commissioner (Appeals) is based on factual matrix and well as on legal aspect is correct. Thus, the ground of appeal raised by the assessee is dismissed.

5. In the result, appeal filed by assessee is dismissed.

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