Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Heena Agriculture (P) Ltd. on 8 September, 2006
ORDER
I.P. Bansal, Judicial Member
1. The appeal is filed by the Revenue and the C.O. by the assessee. Both are directed against the order of CIT(A) dated 31.01.2002 for Asst. Year 1992-93.
2. The Cross Objection was not pressed hence dismissed.
3. Ground of revenue's appeal reads as under:
1. The Id. CIT(A) has erred in law and as well as on facts in deleting addition of Rs. 30 lakhs Under Section 69 which has otherwise also taxable Under Section 45 being surrender of lease right. The assessee company was having lease right in the agricultural land. The same was transferred. This is clearly transfer of capital asset.(Lease right is a capital asset). The Id. CIT(A) wrongly held in paragraph 5(iv) of his order that the right in agricultural land as per Section 2(14)(iii) was not an asset. In fact as per Section 2(14)(iii), agricultural land was not an asset. But lease right is an asset and liable for capital gain tax. The company was having the lease right, hence the on money received for surrender of lease right was rightly taxed in the hands of the company by the A.O.
4. The present assessment is framed under Section 143(3) read with Section 147 of the Act. The assessee was required to show as to why a sum of Rs. 30 lakhs being the amount of on money received on surrender of lease hold rights in land near Amalsad, district Valsad as disclosed by Shri Jitmal Parekh being director of the company in his statement recorded Under Section 132(4) of the Act, should not be added to the total income of assessee. It was submitted that a sum of Rs. 30 lakhs was received on surrender of leasehold rights in agricultural land admeasuring more than 11 acres at village Dambhar on 13th May, 1991. The agricultural land is situated beyond 8 kms. from the nearest municipality and thus it is not a capital asset within the meaning of Section 2(14) of the Act. It was submitted that land in question qualifies as "agricultural land" and surrender of lease hold rights does not attract capital gain. To raise such contention, reliance was placed on Special Bench decision of the Tribunal, Bombay Benches in the case of Cadell Weaving Mills Company (P) Ltd. v. ACIT 217 ITR 51. It was pleaded that assessment year involved is 1992-93 and for that year tenancy rights or leasehold rights on the immovable were not liable to tax even if such rights were in respect of property to other than agricultural land. Thus it was pleaded that said amount of Rs. 30 lakhs cannot be brought to tax. The Assessing Officer did not accept such submission of the assessee for the following reasons:
1. The assessee had acquired a leasehold right for a period of 98 years which is as good as purchase in agricultural land on 14.11.1984 with lease rent of Rs. 6000/- to be paid annually in advance vide lease deed dated 14.11.1984. It is stated in the said lease deed that the company is entitled to sell gift charge or transfer its rights acquired through the said deed.
2. The assessee had surrendered the said rights in the favour of original owner vide release deed dated 13.5.1991. It is clearly mentioned in paragraph 20 of the said deed that the possession of the land is given back to the owner without any precondition and no consideration for that is received at present or not to receive in future.
3. The assessee had filed its returns of income for Asst. Year 1992-93 for the previous year 1/4/91 to 31/3/92. The assessee had not shown to have received any amount on account of surrender of lease right in the land in question as evident from profit and loss account and balance-sheet for the year under consideration which is in accordance with the terms of the release deed mentioned above in paragraph (2) and also in any of the assessment year thereafter. Moreover, even after admission by Shri Jeetmal Parekh director that on money was received by him on surrender of leasehold rights by the land at Amalsad in his statements recorded on oath on different dates, the assessee company has not taken any legal action against the director of the company.
4. The search under Section 132 of the Act had been earned out in Mahalaxmi Group of which the assessee is one of the main member. During the course of action Under Section 132 of the Act, Shri Jeetmal B. Parekh who is director of the assessee company and also the key person of the Group, had given a statement on oath Under Section 132(4) on 16/1/1995 that he had received a sum of Rs. 30,00,000/- as on money on surrendering lease hold rights in land. It is also stated in his statement dated 2/3/95 that the said sum was received by him only which was utilized for setting the issue of division of the business within his brother.
5. The assessee company has not reflected receipt accrual of Rs. 30,00,000/- in any of the return of income filed till date. The assessee was given one more opportunity by way of issuance of notice Under Section 148 of the Act but the assessee did not file any return of income in response thereto and have shown the said sum of Rs. 30,00,000/-. However, the assessee vide its letter 22.3.01 during the course of assessment proceedings admitted that it got Rs. 30 lacs in consideration of surrender of leasehold rights and contended that the said amount is not taxable in any provision of the Act.
6. Considering all the facts and circumstances it has been clearly emerged that the sum of Rs. 30,00,000/- had been received by the assessee through its director. The receipt of the said sum is not the result of release of leasehold rights as evidenced by the release deed.
It is under these circumstances a sum of Rs. 30 lacs has been brought to tax under the provisions of Section 69 of the Act. Aggrieved assessee filed an appeal before CIT(A) who has deleted the addition with the following observations:
5(iii) The preponderance of evidence, the observations of CIT(A) in the case of director, the statement of Shri J.B. Parekh undisputed by the Assessing Officer in the assessment of Shri J.B. Parekh tilt the balance in favour of appellant that Rs. 30 lacs, if believed to have been received has to be taken as received in consideration of surrender of lease right in the land. There is no evidence to refute the contention of the appellant and to uphold the view of the Assessing Officer that the receipts are from unexplained sources. Rs. 30 lacs became matter of consideration only because of statement of the director and in order to explain the income surrendered during search. There is no evidence to show that the money was earned by the appellant from any unknown source and was either kept as deposit with the Director or was used by director except the statement. The statement of the director, undisputed till the passing of the impugned order is either to be accepted in to or not at all. If on account of his contention, Rs. 30 lacs is presumed to have been received, it is also to be accepted that the same is for relinquishment of lease rights, in absence of any evidence to the contrary. It cannot be brought to tax Under Section 69 as taxable income from undisclosed sources, is erroneous. Hence the addition is required to be deleted.
5(iv) Even otherwise the land is an agricultural land as is mentioned in all the agreements entered prior to the date of search. It is also established that it is an agricultural land as defined in Section 2(14)(iii) of the IT Act and hence not a capital asset. This contention has not been disputed by the Assessing Officer in the assessment order.
Thus, there is no capital gain chargeable to tax arising from surrender of leasehold right in agricultural land. The addition is therefore deleted.
The revenue is aggrieved hence in appeal.
5. The facts as admitted by Assessing Officer are that the assessee had acquired leasehold rights for a period of 98 years in the subject agricultural land on 14th November, 1984 with lease rent of Rs. 6000/- per annum vide lease deed dated 14.11.1984 and the assessee company had been given right to sell/gift/charge or transfer its right acquired through the said deed. The assessee company had surrendered the said rights in favour of original owner vide release deed dated 13th May, 1991. However, in the lease deed there was no mention of consideration or it was mentioned that the possession has been given back without consideration. These facts are not at all in dispute. The director of assessee company had made a statement under Section 132(4) regarding having received a sum of Rs. 30 lacs on surrender of above mentioned lease rights which is the main basis of making addition of Rs. 30 lacs and otherwise there is no document on record that assessee had earned such amount out of any other sources. Probably non-mention of consideration in the release deed has created suspicion in the mind of Assessing Officer for treating the same sum of Rs. 30 lacs as a sum not relating to transfer of leasehold rights and thus the addition has been made under Section 69 of the Act.
6. The Id. DR argued that even if Section 69 was not applicable, the amount otherwise was taxable as capital gain under the provisions of Section 45 of the Act as the leasehold rights itself is an asset, the sale/transfer of which is liable for capital gain tax. According to the Id. DR agricultural land though may not be capital asset as such but leasehold right thereunder constitute capital asset and thus sale/transfer is liable for capital gain tax. For this purpose he placed reliance on the decision of Hon. Andhra Pradesh High Court in the case of Rajendra Mining Syndicate v. CIT 43 ITR 460. Thus it was pleaded that Id. CIT(A) has wrongly deleted the addition and his order should be set aside and that of Assessing Officer be restored.
7. As against this argument of Id. DR the Id. Counsel of assessee submitted that there was no question of adding the said amount under the provisions of Section 69 of the Act as the same relates to unexplained investment. He submitted that there was no evidence available on record to come to the conclusion that said sum of Rs. 30 lacs was relating to any other document/evidence apart from surrender of the leasehold right of subject agricultural land as admitted by the Director of assessee company during the statement recorded under Section 132(4) of the Act. Thus he pleaded that Id. CIT(A) was right in holding that no addition should have been made under Section 69 of the Act. He further pleaded that the land in question is not a capital asset within the meaning of Section 2(14) of the Act as the concerned land is beyond 8 kms from any municipality as submitted before Assessing Officer and the CIT(A). He further contended that CIT(A) has rightly concluded that the amount related to surrender of leasehold rights of agricultural land thus was not eligible for capital gain tax and his decision is in accordance with the decision of Hon. Supreme Court in the case of CIT v. D.P. Sandu Bros. Chembur (P) Ltd. 273 ITR 1(SC) wherein it has been held that consideration for surrender of tenancy rights is not chargeable under Section 45 prior to amendment of Section 55(2) in 1995 as its cost on acquisition could not be determined; and receipts are not chargeable under Section 45 of the Act because of inapplicability of computation provision and the consideration cannot be treated as casual and non-recurring receipt under Section 10(3) and be subject to tax under Section 56. Thus he pleaded that order of CIT(A) should be confirmed.
8. We have carefully considered the rival submissions in the light of material placed before us. The facts which are undisputed have been stated in the above part of this order. The amount has been taxed on the basis of statement of the director recorded under Section 132(4) of the Act and there is no evidence on record to show that this amount relates to any other source. Therefore, the said amount has rightly been treated by CIT(A) being related to surrender of leasehold rights of subject agricultural land. If it is so addition could not be made under Section 69 of the Act because subject sum is not an unexplained investment as rightly held by CIT(A). Thus we find no force in the contention of revenue that addition can be sustained to be rightly made under Section 69 of the Act.
9. Now coming to the second argument of Id. DR that though agricultural land may not be a capital asset within the meaning of Section 2(14) of the Act but leasehold right therein constitute capital asset and thus the said sum if liable for capital gain. There cannot be any dispute on the argument that leasehold right constitute capital asset as also has been held by Hon. Supreme Court in the aforementioned case of CIT v. DP. Sandu Bros. Chembur (P) Ltd.(supra), wherein they have observed as under:
5. That the tenancy right is a capital asset, the surrender of the tenancy right is a "transfer" and the consideration received therefore a capital receipt within the meaning of Section 45 has not been question before us and must in any event be taken to be concluded by the decision of this Court in A. Gasper v. CIT (1992) . Normally the consideration would, therefore, be subjected to capital gains under Section 45.
The contention of assessee in this regard is that there being no cost for acquisition of tenancy right, the gain arising there-from cannot be taxed as capital gain as per decision of Hon. Supreme Court in the case of CIT v. B.C. Srinivasa Setty 128 ITR 294 (SC). Following the said case the Special Bench in the case of Cadell Weaving Mills Co. (P) Ltd. v. ACIT (supra) has held that amount received as surrender of tenancy right is not liable for capital gain tax prior to amendment brought into the statute in the provisions of Section 55(2) w.e.f. 1.4.1995.
10. We have considered the submissions of the assessee and found that there is no material on record which can suggest that assessee has incurred any cost for acquiring this tenancy right and if it is so, gain arising out of tenancy right cannot be taxed for the period prior to aforementioned amendment brought into the statute w.e.f. 1.4.1995 in the provisions of Section 55(2) of the Act. This aspect has been examined by Hon. Supreme Court and it has been held that such gain is not liable to tax under Section 45 of the Act as well as Section 10(3) and 56 of the Act. Relevant observations are reproduced below for the sake of convenience:
6. In 1981, this Court in CIT v. B.C. Srinivasu Setty (supra) held that all transactions encompassed by Section 45 must fall within the computation provisions of Section 48. If the computation as provided under Section 48 could not_ he applied to a particular transaction, it must he regarded as "never intended by Section 45 to be the subject of the charge". In that case, the Court was considering whether a firm was liable to pay capital gains on the sale of its goodwill to another firm. The Court found that the consideration received for the sale of goodwill could not be subjected to capital gains because the cost of its acquisition was inherently incapable of being determined. Pathak J., as his Lordship then was, speaking for the Court said:
What is contemplated is an asset in the acquisition of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that, although the asset belongs to such a class, it may, on the facts of a certain case, be acquired without the payment of money.
In other words, an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head 'capital gains' as opposed to assets in the acquisition of which no cost at all can be conceived. The principle propounded in Srinivasa Setty (supra) has been followed by several High Courts with reference to the consideration received on surrender of tenancy rights. [See: Among others Bawa Shiv Charan Singh v. CIT ; CIT v. Mangtu Ram Jaipuria ; CIT v. Joy-Ice Creams (Bang) (P) Ltd. ; CIT v. Markapakula Agamma and CIT v. Merchandisers (P) Ltd. ]. In all these decisions, the several High Courts held that if the cost of acquisition of tenancy rights cannot be determined, the consideration received by reason of surrender of such tenancy rights could not be subjected to capital gains.
7. According to a circular issued by the CBDT, Circular No. 684, dt. 10th June, 1994 f(1994) 119 CTR (St) 25], it was to meet the situation created by the decision in Srinivasa Setty (supra) and the subsequent decisions of the High Court that the Finance Act, 1994, amended Section 55(2) to provide that the cost of acquisition of inter alia, a tenancy right would be taken as nil. By this amendment, the judicial interpretation put on capital assets for the purposes of the provisions relating to capital gains was met. In other words, the cost of acquisition would be taken as determinable but the rate would be nil.
8. The amendment took effect from 1st April, 1995, and accordingly applied in relation to the asst. yr. 1995-96 and subsequent years. But till that amendment in 1995, and, therefore, covering the assessment year in question, the law as perceived by the Department was that if the cost of acquisition of a capital asset could not, in fact, be determined, the transfer of such capital asset would not attract capital gains. The appellant now says that Srinivasa Setty's case (supra) would have no application because a tenancy right cannot be equated with goodwill. As far as goodwill is concerned, it is impossible to specify a date on which the acquisition may be said to have taken place. It is built up over a period of time. Diverse factors which cannot be quantified in monetary terms may go into the building of the goodwill, some tangible some intangible. It is contended that a tenancy right is not a capital asset of such a nature that the actual cost on acquisition could not be ascertained as a natural legal corollary.
9. We agree. A tenancy right is acquired with reference to a particular date. It is also possible that it may be acquired at a cost. It is ultimately a question of fact. In A.R. Krishnamurthy and Anr. v. CIT , this Court held that it cannot be said conceptually that there is no cost of acquisition of the grant of the lease. It held that the cost of acquisition of leasehold rights can be determined. In the present case however, the Department's stand before the High Court was that the cost of acquisition of the tenancy was incapable of being ascertained. In view of the stand taken by the Department before the High Court, we uphold the decision of the High Court on this issue.
10. Were it not for the inability to compute the cost of acquisition under Section 48, there is, as we have said, no doubt that a monthly tenancy or leasehold right is a capital asset and that the amount receipt on its surrender was a capital receipt. But because we have held that Section 45 cannot be applied, it is not open to the Department to impose tax on such capital receipt by the assessee under any other section. this Court , as early as in 1957 had, in United Commercial Bank Ltd. v. CAT , held that the heads of income provided for in the sections of the IT Act, 1922 are mutually exclusive and where any item of income falls specifically under one head, it has to be charged under that head and no other. In other words, income derived from different sources falling under a specific head has to be computed for the purposes of taxation in the manner provided by the appropriate section and no other. It has been further held by this Court in East India Housing & Land Development Trust Ltd. v. CIT that if the income from a source falls within a specific head, the fact that it may indirectly be covered by an another head will not make the income taxable under the latter head. [See also: CIT v. Chugandas & Co. (1964) 55 ITR 17 (SC)].
11. Section 14 of the IT Act, 1961, as it stood at the relevant time similarly provided that "all income shall for the purposes of charge of income-tax and computation of total income be classified under six heads of income," namely:
(A) Salaries;
(B) Interest on securities;
(C) Income from house property;
(D)Profits and gains and business or profession;
(E) Capital gains;
(F) Income from other sources unless otherwise, provided in the Act.
12. Section 56 provides for the chargeability of income of every kind which has not to be excluded from the total income under the Act, only if it is not chargeable to income-tax under any of the heads specified in Section 14 items A to E. Therefore, if the income is included under any one of the heads, it cannot be brought to tax under the residuary provisions of Section 56.
13. There is no dispute that a tenancy right is a capital asset the surrender of which would attract Section 45 so that the value received would be a capital receipt and. assessable if at all only under item E of Section 14. That being so, it cannot be treated as a casual or nonrecurring receipt under Section 10(3) and be subjected to tax under Section 56. The argument of the appellant that even if the income cannot be chargeable under Section 45, because of the inapplicability of the computation provided under Section 48, it could still impose tax under the residuary head is thus unacceptable. If the income cannot be taxed under Section 45, it cannot be taxed at all. [See: S.G. Mercantile Corporation (P) Ltd. v. CIT ].
14. Furthermore, it would be illogical and against the language of Section 56 to hold that everything that is exempted from capital gains by statute could be taxed as a casual or non-recurring receipt under Section 10(3) r/w Section 56. We are fortified in our view by a similar argument being rejected in Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CIT (.
ITA No.908/Ahd/2002Asst. Year 1992-93 Heena Agriculture Pvt. Ltd.
11. In view of above mentioned factual and legal aspect, respectfully following the aforementioned decision of Hon. Supreme Court, we find that Id. CIT(A) has rightly held that the amount of Rs. 30 lacs could not be brought to tax. We uphold his order and departmental appeal is dismissed.
12. In the result, appeal filed by the revenue and the CO. filed by the assessee both are dismissed.
This order was pronounced on 08/09/2006