|The Tax Publishers2020 TaxPub(DT) 5301 (Kol-Trib) : (2021) 085 ITR (Trib) 0113
INCOME TAX ACT, 1961
Section 14 Section 54EC Section 54F
Where assessee offered the income from the surrender of tenancy rights, under the head ''Capital gains', AO was not justified in treating the same as business income and consequently deny benefit of exemption to assessee under sections 54EC and 54F on allegation that no purchase price was paid for the tenancy because even if assessee did not pay any amount for purchase of tenancy rights, the nature of rights would remain tenancy right and this was a capital asset.
Head of income - Capital gains or Business income - Income from surrender of tenancy rights -
Assessee was an individual and filed her return of income declaring income from rent from house property and long-term capital gains from sale of tenancy rights, in addition to interest from fixed deposits. Her case was selected for scrutiny and notice under section 143(2). AO completed the assessment under section 143(3) by rejecting the claim of deduction of the assessee under section 54EC and deduction under section 54F on allegation that amount was received by assessee, just as compensation for vacating the tenancy and thus, receipt was taxable under the head 'Business income'. AO rejected the claim of the assessee that income was taxable under head 'Capital gains'. Held: Assessee had acquired a capital asset in the form of tenancy rights and the transfer of this capital asset resulted in capital gains, which was taxable under the head 'Capital gains'. AO rejected the claim of the assessee that transfer of tenancy rights will be assessed under the head Capital gains on the ground that no purchase price was paid for the tenancy. A loan was given as construction loan which was refundable. This loan was directly linked to the tenancy rights and it was, in a way, consideration for obtaining the rights. Even if assessee did not pay any amount for purchase of tenancy rights, the nature of rights would remain tenancy right and this was a capital asset. Section 55(2)(a) clearly stipulates that in case no price is paid for acquisition of an asset mentioned in clause (a) to section 55(2), then the cost shall be taken as Nil. Thus, AO was legally incorrect in his view. As the main question as to whether assessee rightly offered the income from the surrender of tenancy rights, under the head 'Capital gains' was held in favour of the assessee and as all the conditions prescribed for grant of claim of deduction under section 54EC and under section 54 were met, assessee was entitled to the relief.
FAVOUR : In assessee's favour.
A.Y. : 2016-17
IN THE ITAT, KOLKATA BENCH
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