Income Tax Appellate Tribunal - Mumbai
Kalyanji Meghji Chheda, Mumbai vs Ito, Ward-25(1)(1), Mumbai on 24 July, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL, "E"
BENCHMUMBAI
BEFORE SHRI PAVAN KUMAR GADALE, JUDICIALMEMBER &
SHRI RATNESH NANDAN SAHAY, ACCOUNTANT MEMBER
ITA No.885/MUM/2024
(A.Y.2014-15)
Kalyanji Meghji Chheda Vs. ITO-Ward 25(1)(1),
115, Chheda Sadan, Room No. 203,
J. Tata Road, Kautilya Bhavan,
Bandra Kurla Complex,
Churchgate, Mumbai-400051.
Mumbai -400020.
PAN/GIR No.AAFPC9911P
(अपीलाथ /Appellent) ( यथ /Respondent)
Assesseeby Shri Sanjay N. Kapadia.AR
Revenue by Shri P.D. Chougule.Sr.DR
सन
ु वाई क तार ख/Date of Hearing 13.06.2024
घोषणा क तार ख/Date of Pronouncement 24.07.2024
ORDER
PER PAVAN KUMAR GADALE, JM:
"
The assessee has filed the appeal against the order of the National Faceless Appeal Centre (NFAC), Delhi / CIT(A) Mumbai passed u/s 143(3) and u/sec 250 of the Act. The assessee has raised the following grounds of appeal:
GROUNDS OF APPEAL
1. On the facts and in law, learned Commissioner of Income-
Tax (Appeals) [in short CIT(A)] erred in confirming the addition made by the Ld Assessing Officer [in short AO] of Rs.3,00,00,000/ under Section 64(1)(vi) of the Act. The CIT(A) failed to appreciate that mandatory condition for Section 2 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda 64(1)(vi) are not met and therefore, impugned addition is unsustainable in law.
2. On the facts and in law, the impugned assessment order is violation of provision of Section 4 and Section 5 of the Act, as same income is taxed twice, in hands of the Appellant and Appellant's Daughter-in-law. It is well settled law that same income cannot be taxed twice. Hence, on this ground alone, the impugned assessment is liable to be quashed and set aside.
3. On the facts and in law, the provisions of Section 64(1)(vi) are not applicable as there is no leakage of revenue, as there is no change of head of income as declared by the Daughter- in-law of the Appellant and the Daughter-in-law of the Appellant in her Income Tax Return (ITR) and paid tax at Maximum Marginal Rate of 20% for Long Term Capital Gain.
4. On the facts and in law, sufficient consideration was paid to the appellant for transfer of Tenancy Right by his Son and daughter-in-law, vide a registered agreement dated 3rd September 2010. Therefore, the Ld. AO has wrongly clubbed the income of Daughter-in-law in the hand of Appellant under Section 64(1)(vi) of the Act.
5. The Appellant craves, leave to add, alter, modify, revise, add/delete ground (s) with the leave of Hon'ble Bench.
2. The brief facts of the case are that, the assessee is an individual and is also a partner in the partnership firm engaged in the business of trading in greeting cards, poster and gift items etc. The assesse has filed the return of income for the A.Y 2014-15 disclosing a total income of Rs. 45,31,390/- and the return of income was processed u/sec 143(1) of the Act. Subsequently the case was selected scrutiny under the CASS and the Assessing Officer (A.O) has issued notice u/sec 143(2) and u/sec142(1) of the Act along with the questionnaire. In compliance to the notice, the Ld.AR of the assessee appeared from time to time and 3 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda submitted the details and the case was discussed. The AO on perusal of the computation of income found that the assessee has disclosed an amount of Rs.1Crore on account of sale of tenancy rights vide registered deed dated 17.12.2013 under the head "Income from other sources". Further the A.O found that the assessee has sold the tenancy rights to m/s Ujwal Enterprises Pvt Ltd for a consideration of Rs.7 Crores and out of the said amount, Rs.6 Crores is received by the assessee's son Mr. Runish Kalyanji Chheda and Smt.Parita Runish Chheda (assessee's son's wife/ assessee s daughter in law) in the capacity of outgoing tenants and Rs. 1 Crore was received by the asssessee as a confirming party and same amount was offered to tax in A.Y 2014-15. In the assessment proceedings, it was explained that the assessee is a owner and sufficiently entitled to building known as "Chheda Sadan" situated Church gate, Mumbai and the assessee is recovering rent and managing affairs of the said property as such the owner is the "Landlord" within the meaning of Maharashtra Rent Control Act. During the F.Y 2010-11, the assessee has received tenancy rights of this property flat No.3/S, 1 st Floor, Plot No. 115, Chheda Sadan vide declaring-cum-indemnity dated 02.07.2010 for a cost/acquisition of Rs. 25 lakhs from the Mr.Mahmood Mahmood Rabi Abdulla and Dr Qadriyya Abdul Chant Known as "Declarants" in out of court settlement. Subsequently within two months, the assessee has 4 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda transferred the tenancy rights to his son Mr. Runish Kalyanji Chheda (assesee son) and Smt.Parita Runish Chheda (son's wife) vide registered tenancy agreement dated 03.09.2010 for a consideration of Rs. 25 lakhs. In the assessment proceedings, the assessee was asked to explain that the assessee has transferred the tenancy rights for a consideration, as the assessee's daughter-in- law has received the tenancy rights without any payment or consideration and hence the provisions of section 64(1)(vii) of the Act are applicable. In reply, the assessee has filed detailed submissions dealt at Page 3 Para 3.3 of the order as under:
"3.3 During the assessment proceedings, the assessee was asked that as the tenancy rights were transferred without any consideration, therefore, as to why the consideration received by daughter in law may not be considered taxable u/s.64(1)(vi) in the hands of the assessee. In response, the AR víde letter dated income whole amount of Rs. 7,00,00,000/- should not be taxed in your hands as per the provisions of section 64 of the Income Tax Act, 1961. In response, the assessee vide letter dated 01.12.2016 submitted that With respect to tenancy rights paid, we would like to state that the assessee had received deposit money of Rs. 25,00,000/- for indefinite period towards joint tenancy rights given to Mr. Runish Chedda and Mrs. Parita Chedda in the AY 2011-12. Being deposit amount received for in-definite period, the assessee has duly offered the same to total income of AY 2011-12. Subsequently, the above mentioned tenancy rights were transferred. Thus, the above mentioned 25,00,000/- have been claimed as deduction in the year of transfer Le. AY 2014-15 against amount received towards surrendering their tenancy rights by Mr. Runish Chheda and Mrs. Parita Chheda. We have already submitted the tenancy right transfer 5 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda agreement during the earlier hearing for your reference and records The assessee further vide letter dated 6.12.2016 submitted that
2. With respect to tenancy rights paid, we would like to state that the assessee had received deposit money of Rs. 25,00,000/- for indefinite period towards joint tenancy rights given to Mr. Runish Chedda and Mrs. Parita Chedda in the AY 2011-12. Being deposit amount recewed for in-definite period, the assessee has duly offered the same to total income as interest in the AY 2011-12 Subsequently, the above mentioned tenancy rights were transferred, thus, the above mentioned 25,00,000 have been claimed as deduction in the year of transfer that is, AY 2014-15. We have already submitted the tenancy rights transfer agreement during the last hearing for your reference and records. We enclose herewith the photocopy of original tenancy rights agreement highlighting the rent deposit of Rs. 25,00,000 received in AY 2011-12 as well as the computation of A.Y. 2011- 12 for your reference and records.
"The assessee further vide letter dated 28.12.2016 submitted that 1, With regard to the adequacy to transactions of purchase and corresponding sale of tenancy rights, we would like to state that the tenancy rights were purchased independently and adequately by Mr. Runish Chedda from his own sources of the funds during the F.Y. relevant to the AY 2011-12. We enclose herewith the sources of funds of tenancy rights purchased during AY 2011-12 by Mr. Runish Chheda for your reference and records,
2. While completing the assessment in the case of Mr. Kalyanji Chheda, this transaction was duly scrutinized by the AO. The name of Mrs. Parita Chedda was added by Mr. Runish Chheda as a security and being the spouse of Mr. Runish Chheda. Since no consideration was paid by Mrs. Parita Chheda and the entire consideration was met by Mr. Runish Chheda, he was the sole owner of the Tenancy rights. Thus, there was no transfer of any property by Mr. Kalyanji Chheda to his Son's 6 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda wife. Hence, the clubbing provisions of S.64(1)(vi) are not applicable to the facts of our case.
3. It is further mentioned that the provisions of S. 56(2)(vii) as applicable in AY 2011-12 were also not applicable in the hands of Runish and Parita Chheda as the transfer tenancy rights was to the Relatives defined in Explanation (e) below S. 56(2)(vii).
4. However, since Mr. Runish Chheda, even after making 100% payment from his own resources, added the name of his spouse as half owner of the Tenancy rights, there was transfer of 50% of the rights from him to wife without adequate consideration and accordingly, the entire capital gain derived on sale of the Tenancy rights was liable to be added in his individual name"
3. Whereas the AO observed that The assessee has transferred the tenancy rights to Mr. Runish Kalyanji Chheda (assesee son) and Smt.Parita Runish Chheda (son's wife) vide registered tenancy agreement dated 03.09.2010 for a consideration of Rs. 25 lakhs and the said amount was paid by the asssessee son only and not the assessee's daughter-in-law for her share of tenancy rights. Therefore the AO considering the facts that no consideration was paid by the assessee's daughter-in-law and therefore the provisions of Sec. 64(1)(vi) of the Act are attracted and Rs.3Crs consideration out of the Rs.7Crs is taxed in the hands of the assessee u/sec 64(1)(vi) of the Act and assessed the total income of Rs.3,45,31,390/- and passed the order u/sec 143(3) of the Act dated 30.12.2016.
4. Aggrieved by the order, the assessee has filed an appeal before the CIT(A), whereas the CIT(A) considered the 7 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda grounds of appeal, statement of facts, submissions of the assessee, remand report and findings of the AO but has upheld the action of the AO and dismissed the assessee appeal. Aggrieved by the order of the CIT(A) the assessee has filed an appeal before the Honble Tribunal.
5. At the time of hearing, the Ld. AR submitted that the CIT(A) has erred in confirming the action of the AO irrespective of the fact that the assessee's daughter in law has filed the income tax return offering income under income from capital gains and paid taxes and again the same amount cannot be taxed in the hands of the assessee. Further the assessee has filed the additional submissions/ evidences before the CIT(A) and were admitted and a remand report was called from the assessing officer. The Ld. AR emphasized that the income cannot be taxed twice, the asssessee has offered Rs.1 crore in his income tax return under the Income from other sources being a proforma/consenting party to the transaction. Similarly Rs. 3 Cr. each was offered by the assessee's son and the assessee daughter-in-law separately in their return of income filed under income from capital gains and was accepted by the revenue. The CIT(A) erred in concluding that provisions of section 64(1)(vi) of the Act are applicable and the CIT(A) over looked the charging section 4 and section 5 of the Income Tax Act. The Ld. AR substantiated the submissions with the factual paper book, synopsis chart and judicial 8 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda decisions and prayed for allowing the appeal. Per Contra, the Ld. DR relied on the order of the CIT(A).
6. We heard the rival submissions and perused the material on record. The sole crux of the disputed issue as envisaged by the Ld.AR that the CIT(A) has erred in confirming the action of the AO in respect of applicability of provisions of Sec. 64(1)(vi) of the Act. The Ld. AR contentions are that the assessee has individually offered his share as consenting party of tenancy rights under Income from other sources. The assessee has sold the tenancy rights to m/s Ujwal Enterprises Pvt Ltd for a consideration of Rs. 7 Crores and out of the said amount of Rs. 6 Cr is received by the assessee's son Mr. Runish Kalyanji Chheda and Smt.Parita Runish Chheda (assessee's son's wife) in the capacity of out going tenants and Rs. 1 Cr was received by the asssessee as a confirming party and was offered to tax in A.Y 2014-15. And the asssessee son and daughter in law individually offered Rs.3 Crore each under "Income From Capital Gains" and filed the income tax returns. Whereas in the F.Y 2010-11, the assessee has received tenancy rights of the property flat No.3/S, 1 st Floor, Plot No. 115, Chheda Sadan vide declaring-cum-indemnity dated 02.07.2010 for a cost/acquisition of Rs. 25 lakhs from the Mr.Mahmood Mahmood Rabi Abdulla and Dr Qadriyya Abdul Chant Known as "Declarants" in out of court settlement. Subsequently within two months, the assessee has 9 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda transferred the tenancy rights to his son Mr. Runish Kalyanji Chheda and Smt.Parita Runish Chheda (son's wife) vide registered tenancy agreement dated 03.09.2010 for a consideration of Rs.25 lakhs placed at page 55 to 66 of the paper book and the said amount was paid through banking channels and was credited to the Bank Of Baroda account of the assessee on 4-9-2010 as per bank pass book placed page 67 to 68 of the paper book. Further the Ld.AR referred to the copy of registered agreement of transferable tenancy dated 17-12-2013 for Rs.7 Crores referred at page 21 to 46 of the paper book. Whereas consideration of Rs 25 lakhs was paid to the asssessee by cheque issued from bank account of the assessee son, in lieu of registered tenancy agreement dated 3-09-2010 executed by the son and daughter in law of the asssessee. Further the rental receipts were issued by the assessee for the F.Y 2010-11 to F.Y.2012-13, which is not disputed by the revenue.
7. Similarly the assessee's son has filed the return of income for A.Y.2014-15 disclosing the long term capital gains on sale of tenancy rights Rs. 2,72,54,669/- after claiming indexation on the cost of acquisition and stamp duty charges paid at the time of registration of agreement and the return of income was processed accepting the returned income and order u/sec 143(1) of the Act was passed on 13.03.2015 placed at page 93 to 97 of the paper book. Whereas, the assessee's daughter in law Smt. Parita 10 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda Runish Chheda has filed the return of income for A.Y.2014-15 disclosing the long term capital gains on sale of tenancy rights Rs. 2,72,54,669/- after claiming indexation on the cost of acquisition and stamp duty charges paid at the time of registration of agreement and the return of income was processed accepting the returned income and order u/sec 143(1) of the Act was passed on 30.01.2015 placed at page 102 to 105 of the paper book. The contentions of the Ld. AR that since the income is already offered by the assessees daughter in law and taxes are paid and the return of income was accepted by the revenue and again making addition in the hands of the asssessee invoking provisions of section 64(1)(vi) of the Act is not in accordance with the provisions of the Act and CIT(A) has over looked the charging section 4 and section 5 of the Income Tax Act and confirmed the action of the A.O. In the Appellate proceedings, the assessee has filed the additional submissions/ evidences before the CIT(A) and were admitted and a remand report was called from the assessing officer and it is a well settled law that the same income cannot be taxed twice and relied on the judicial decisions and submissions made before the CIT(A) vide letter dated 23-05-2018 referred at page 1 to 7 of the paper book read as under:
"1. The appellant is an owner of a building known as "Chheda Sadan"
situated at Kumari Jethi Sipahimalani Marg, Junction of Sir Dinshaw Vachha Road and Jhamshedji Tata Road, Churchgate, Mumbai 400
020. Various units in the said building have been rented to various 11 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda tenants for residential and commercial purposes. The appellant receives the rent from these tenants and this rent income is offered as Income from House Property while filing the Return of Income.
2. Flat No. 3/S on the first floor of Chheda Sadan was held by one Mr. H. M. Abbas since 1933 as a tenant. The said flat was occupied by the legal heirs on the demise of Mr. H. M. Abbas and eventually this flat was occupied and held as tenant by (a) Mahmood Mohamed Rabi Abdulla and (b) Dr. Qadriyya Abdul Ghani by way of inheritance. The appellant had filed a suit for eviction of this flat in Small Causes Court at Bombay and the suit No. was RAE Suit No. 706/1198 of 2001. The matter was in court for many years and thereafter in July, 2010, the occupants of the flat entered into an out of court settlement with the appellant. Accordingly vide Declaration cum indemnity dated 2nd July, 2010, the appellant bought back the tenancy rights in respect of the said flat from Mr. Mahmood Mohamed Rabi Abdulla and Dr. Qadriyya Abdul Ghani for a cost of Rs. 25,00,000/- as agreed upon in the out of court settlement. The appellant paid Rs. 25,00,000/- to the occupants vide Demand Draft No. 793819 dated 2-7-2010 drawn on Bank of Baroda, Reclamation Branch, Churchgate in full and final settlement of all the claims in the said flat. A copy of Declaration cum Indemnity dated 2nd July, 2010 given by Mahmood Mohamed Rabi Abdulla and Dr. Qadriyya Abdul Ghani confirming the receipt of Rs. 25,00,000/- from the appellant for surrender of the tenancy right in respect of Flat No. 3/S, 1 Floor, Chheda Sadan is enclosed herewith (Page Nos. 31 to
38).
3. On 3-9-2010, the appellant transferred the tenancy rights in respect of the above Flat No. 3/S on the 1ª Floor of Chheda Sadan to his son Mr. Runish Chheda. A copy of the tenancy agreement dated 3-9-2010 between the appellant and Shri Runish Chheda is enclosed herewith (Page Nos. 39 to 50). The appellant received a consideration of Rs. 25,00,000/- for the transfer of the tenancy right. The total consideration of Rs. 25,00,000/- was paid by Mr. Runish Chheda. Copy of the bank passbook of the appellant reflecting the receipt of Rs. 25,00,000/- from Mr. Runish Chheda is enclosed herewith (Page Nos. 51 and 52). Copy of the bank passbook of Mr. Runish Chheda reflecting the entire payment of Rs. 25,00,000/- made to the appellant is enclosed herewith (Page Nos. 53 and 54).
4. As mentioned in Paragraph-3 above, the total consideration of Rs. 25,00,000/- was paid by Mr. Runish Chheda from his bank account with Bank of Baroda and as such it is clear that the tenancy right was transferred by the appellant in favour of Mr. Runish Chheda. Though 12 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda the entire payment was made by Mr. Runish Chheda, the name of Smt. Parita Chheda (wife of Runish Chheda) was included in the tenancy agreement merely for the sake of convenience. Mr. Runish Chheda and Mrs. Parita Chheda also incurred stamp duty of Rs. 16,27,367- and Registration Charges of Rs. 30,100/- on the agreement for purchase of tenancy rights and as such the total cost of the tenancy rights in their hands came to Rs. 41,57,467/-.
5. The tenancy in respect of the flat No. 3/S at the building Chheda Sadan was transferred in favour of Runish Chheda only and not in favour of Parita Chheda. This can also be ascertained from the rent receipts issued by the appellant over the period of years. The copies of rent receipts in the name of Runish Chheda for F.Y. 2013-14 are enclosed herewith (Page Nos. 55 and 56). Further, we are also enclosing herewith the copies of the rent receipts for the F.Y. 2010-11 to 2012-13, i.e. the earlier years (Page Nos. 57 to 66). We respectfully submit that the copies of the rent receipts for the earlier years are being filed for the first time before Your Honour as additional evidence. The appellant requests that these shall please be admitted as additional evidences under Rule 46A of the Income-tax Rules, 1962.
6. While filing the Return of Income for A.Y. 2011-12, the appellant offered amount of Rs. 25,00,000/- as Income from other sources on account of money received for transfer of tenancy rights from Mr. Runish Chheda. Against this amount of Rs. 25,00,000/-, the appellant claimed deduction of Rs. 25,00,000/- on account of the payment made to the earlier tenants i.e. Mr. Mahmood Moharned Rabi Abdulla and Dr. Qadriyya Abdul Ghani for buying back the tenancy from them on 2nd July, 2010. Copies of acknowledgement of Return of Income and Computation of Income of the appellant for A.Y. 2011-12 reflecting these transactions are enclosed herewith (Page Nos. 67 to 70).
7. During the F.Y. 2010-11, the appellant had also transferred tenancy rights for Shop No. 1 in the same building i.e. Chheda Sadan to Satyam Chheda Family Trust vide agreement dated 3- 9-2010. The tenancy in respect of this shop was transferred at Rs. 25,00,000/- which was offered as the net income from other sources while filing the Return of Income for A.Υ. 2011- 12. This has been accepted in the scrutiny assessment of the appellant for A.Y. 2011-12 passed u/s. 143(3) of the Act.
8. On 17-12-2013, Mr. Runish Chheda and Mrs. Parita Chheda transferred the tenancy rights in respect of the Flat No. 3/S on the 1st Floor of Chheda Sadan to Ujwal Enterprises (India) Pvt. Ltd. for a total consideration of Rs. 7,00,00,000/-. As per agreement of transfer of 13 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda tenancy rights, the appellant was a confirming party being the landlord of the property. The agreement provided that out of total consideration of Rs. 7,00,00,000/-, the appellant would receive a sum of Rs. 1,00,00,000/- being the landlord and the confirming party. The balance amount of Rs. 6,00,00,000/- was received by both Mr. Runish Chheda and Mrs. Parita Chheda equally i.e. Rs. 3,00,00,000/- received by each of them. A copy of the agreement of Transferable tenancy dated 17-12-2013 is enclosed herewith (Page Nos. 5 to 30).
9. As per Paragraph 3.1 of the assessment order, it is mentioned that the appellant sold the tenancy rights to Ujwal Enterprises (1) Pvt. Ltd. for a consideration of Rs. 7,00,00,000/-. However the appellant wants to clarify that there is a fallacy in the said statement. As mentioned in Paragraph 8 above, the appellant was merely a confirming party to the agreement, being the landlord of the premises. The transfer of tenancy rights was between Mr. Runish and Mrs. Parita Chheda on one part and Ujwal Enterprises (I) Pvt. Ltd. on the other part. The amount of Rs. 1,00,00,000/- received by the appellant was also not as a consideration but it was received as a confirming party being the landlord.
10. While filing the Return of Income for A.Y. 2014-15, the appellant offered amount of Rs. 1,00,00,000/- as Income from other Sources and claimed deduction of Rs. 25,00,000/- against the same. Accordingly the appellant offered net income of Rs. 75,00,000/- as Income from other sources on the above account.
11. During the course of the assessment proceedings, the assessing officer inquired into the receipt of Rs. 1,00,00,000/- and called for the details in respect of the same. The appellant submitted the agreement of transfer of tenancy dated 17-12-13. On perusal of the agreement, the assessing officer observed that out of the total consideration, Mrs. Parita Chheda, the daughter in law of the appellant had received a sum of Rs. 3,00,00,000/-. The assessing officer also observed that in the F.Y. 10-11, the tenancy right was transferred by the appellant to his daughter in law without consideration. The assessing officer failed to appreciate the correct facts on records as mentioned above. The assessing officer accordingly invoked the provisions of section 64(1)(vi) and asked the appellant to clarify as to why the amount of Rs. 3,00,00,000/- received by Mrs. Parita Chheda, the daughter in law of the appellant shall not be included in the income of the appellant under section 64(1)(vi) of the Act.
12. The appellant filed replies to the query of the assessing officer vide his letters dated 1-12- 2016, 6-12-2016 and also 28-12-2016. The replies filed by the appellant have been reproduced at Paragraph 3.3 14 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda of the assessment order. Vide the replies, the appellant inter-alia submitted that the entire consideration for the purchase of the tenancy right in the year 2010- 11 was paid by Mr. Runish Chheda and the name of Mrs. Parita Chheda was included only for the sake of name and as a matter of convenience. As such, the tenancy was not transferred by the appellant to Mrs. Parita Chheda, the daughter in law, but it was transferred to Mr. Runish Chheda the son of the appellant.
13. The appellant also clarified vide the letter dated 28-12-2016 that amount of Rs. 3,00,00,000/- (i.e. 50% of Rs. 6,00,00,000/-) was included as the income of Smt. Parita Chheda at the time of transfer of the tenancy to Ujwal Enterprises Pvt. Ltd. since the new tenant had deducted the TDS u/s. 1941A in the name of both Mr. Runish Chheda and Mrs. Parita Chheda equally. With a view to match the transactions with the AIR information and claim the TDS credit for deduction made, the income was shown in both the names of Runish Chheda and Parita Chheda. The appellant's letter dated 28-12-2016 is enclosed herewith (Page Nos. 90 & 91). The attention of Your Honour is drawn to Paragraph 6 of this letter on Page No. 91.
14. The appellant also wants to clarify that the tenancy rights were not transferred by the appellant otherwise than for adequate consideration. As can be seen from Paragraph - 2 above, the tenancy rights for the Flat No. 3/S was obtained back by the appellant in July, 2010 by payment compensation of Rs. 25,00,000/- as to Mr. Mahmood Mohamed Rabi Abdulla and Dr. Qadriyya Abdul Ghani. The amount of Rs. 25,00,000/- has been decided by the appellant and the earlier tenant by way of a settlement arising out of the suit of eviction filed by the appellant against the earlier tenant. As such, it is clear that the amount of Rs. 25,00,000/- has been fixed between two unrelated parties.
15. As can be seen from this factual data, the appellant purchased the tenancy rights from an outside party for Rs. 25,00,000/- in July 2010 and within about 2 months of the acquisition, the same was sold to the son for the same amount. Accordingly, it is not correct to state that the consideration received by the appellant at the time of transfer of tenancy rights ghts to the son was inadequate in any manner. The transfer of tenancy rights was made as per the fair value of the same prevailing at the relevant time which gets fortified from the fact that the tenancy rights for the same flat were acquired just before 2 months from an unrelated person for the same consideration. The transactions entered into by the appellant during the F.Y. 2010-11 have been accepted in scrutiny assessment of the appellant for A.Y. 2011-12 and 15 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda the department has not made any addition / alteration in respect of the same.
16. It is also pertinent to note that, as mentioned in Paragraph 7 above, on 3-9-2010 the appellant had also transferred tenancy right in respect of a Shop in the same building for a consideration of Rs. 25,00,000/-. It is a matter of common knowledge that the value in respect of any commercial property is normally higher than that of a residential property. Accordingly where the tenancy for a shop was transferred at Rs. 25,00,000/-, which has also been accepted in scrutiny assessment, there is no reason to conclude that tenancy for a residential unit in the same building at the same figure is inadequate by any standard.
17. As mentioned in Paragraph 12 above, the appellant explained to the assessing officer that the entire consideration for the tenancy rights was paid by Mr. Runish Chheda and not Mrs. Parita Chheda. However the assessing officer interpreted this fact to conclude that the transfer of tenancy to Mrs. Parita Chheda by the appellant was without any consideration and accordingly the provisions of section 64(1)(vi) applies in the facts of the case. The assessing officer failed to appreciate the correct fact that the transfer was not without any consideration but the transfer was to the son and the consideration was paid entirely by the son. The name of the daughter in law was included only for name sake and as a matter of convenience.
18. On the basis of a wrong fact assumed as explained in Paragraph 16 above, the assessing officer made an addition of Rs. 3,00,00,000/- in the hands of the appellant by invoking provisions of section 64(1)(vi) of the Act and completed the assessment vide the order dated 30-12- 2016.
19. While making the above addition, the assessing officer failed to appreciate that the Long Term Capital Gains on transfer of tenancy rights in the case of the daughter in law is Rs. 2,72,54,669/- and accordingly if at all the provisions of section 64(1)(vi) are held to be correctly invoked, the addition cannot exceed Rs. 2,72,54,669/- in any case. Similarly while calculating the tax payable by the appellant on completion of regular assessment, the assessing officer failed to appreciate that the amount of Rs. 2,72,54,669/- will be subjected to tax@20% w/s. 112 considering the fact that the same represents Long Term Capital Gains on transfer of a capital asset. The assessing officer considered the entire amount of Rs. 3,00,00,000/- and subjected the same to tax at normal rates and computed the final tax liability in the case of the appellant 16 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda With the above background about the facts of the case, we now proceed to make our submissions in respect of various grounds raised in the appeal memo as under:
Re: Ground I: Objection against invoking provisions of section 64(1)(vi) of the Act The assessing officer has invoked the provisions of section 64(1)(vi) of the Act in respect of the Capital Gains earned by Smt. Parita Chheda, the daughter in law of the appellant, on transfer of tenancy rights. In this connection, the appellant respectfully submits that the provisions of section 64(1)(vi) cannot be applied in his case for various reasons which are explained under without prejudice to the others:
(A) Tenancy is transferred to Son and not Daughter in law The appellant respectfully submits that the tenancy right had been transferred by the appellant in favour of his son Shri Runish Chheda and not in favour of the daughter in law, Smt. Parita Chheda. As explained in Paragraphs 3 to 5 of the Facts of the case above, the tenancy right has been transferred in favour of Shri Runish Chheda.
The payment of Rs. 25,00,000/- for the transfer of tenancy has been received from the bank account of the son and also the rent receipts for all the months from September 2010 to December 2013 has been issued in the name of Shri Runish Chheda.
The name of Smt. Parita Chheda has been included in the tenancy agreement only for the sake of convenience as explained during the assessment proceedings. Further, we would also like to submit that as explained in Paragraph 13 above, the income of Rs. 3,00,00,000/- was reflected in the Return of Parita Chheda only for the purpose of matching the AIR records and claiming the credit for TDS deducted by the deductor.
The assessing officer wrongly analysed the above facts and concluded that the transfer of tenancy right to Parita Chheda is without any consideration. As a matter of fact which can be established from all the documents above, there is no transfer of tenancy right in favour of Parita Chheda. The tenancy right had been transferred in favour of only Mr. Runish Chheda as explained hereinabove. Since the tenancy is transferred in favour of the Son and not in favour of the daughter in law, the provisions of section 64(1)(vi) cannot be applied in the case of the appellant.
(B) Transfer of tenancy is for adequate consideration Without prejudice to the contention at (A) above, we respectfully submit that the transfer of the tenancy right is made by the appellant for 17 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda adequate consideration. As explained in Paragraphs 14 to 16 above, the appellant had acquired the tenancy right for the same flat on 2-7- 2010 from the earlier tenant who is an unrelated party at the cost of Rs. 25,00,000/-. The amount of Rs. 25,00,000/- has been fixed between the appellant and the old tenant by virtue of out of court settlement after a long litigation which was in progress since 2001. It is natural that the old tenant who was in occupation of the property would not surrender the right for a sum which is not the fair amount after litigating in the court for a long time. As such, we respectfully submit that the amount of Rs. 25,00,000/- for which the appellant could get the property vacated is a fair and reasonable amount for the tenancy right of the property. The old tenant was paid the compensation of Rs. 25 Lakhs in July 2010 and the tenancy was transferred in favour of san for the same amount in short span of 2 months i.c. in the month of September, 2010.
Further, as stated in Paragraph 16 above, the appellant had also transferred tenancy right in respect of a shop premises in the same building in September 2010 for the amount of Rs. 25 Lakhs only. It is natural that the value of commercial premises is always more than a residential premises. Accordingly, where the tenancy for the shop premises has also been transferred at Rs. 25 Lakhs, the adequacy of the consideration of Rs. 25 Lakhs for the tenancy of the residential premises is beyond doubt.
The appellant's contention that the provisions of section 64 cannot be applied in cases of adequate consideration is supported by the decision of the Madras High Court in the case of CIT Vs. T. Narsimhalu Chettiar 210 ITR 869 (Mad.) In view of the above, we submit that in any case the consideration was adequate and therefore the provisions of section 64(1)(vi) are not applicable for this reason also.
(C) Purpose of clubbing provisions-no tax advantage Without prejudice to any of the contentions at (A) and (B) above, we also submit that when one looks at the purpose of clubbing provisions, it becomes clear that the appellant is not having any tax advantage in the entire transaction and therefore the provisions of section 64 (1)(vi) is not to be applied on this count as well.
For this purpose, the appellant wishes to submit section 64(1)(vi) of the Act provides that in computing the total income of any individual, there shall be included all such income as arises directly or indirectly to the son's wife of such individual, from assets transferred directly or indirectly to the son's wife by such individual otherwise than for adequate consideration.
18 ITA No. 885/MUM/2024(A.Y.2014-15) Kalyanji Meghji Chheda Further, section 2(45) of the Act defines the term total income to mean the total amount of income referred to in section 5, computed in the manner laid down in this Act.
On reading of the above provisions, it becomes clear that what is to be clubbed is the total income as computed under the provisions of the Act. The computation of Income has to be made applying all the provisions including the indexation provisions and the final outcome has to be clubbed in the hand of the individual. It is a settled position of law that the nature of income in the hands of the individual will be the same as that in the hands of the person whose income is to be clubbed. Accordingly, the income in the case of the appellant will be the Long Term Capital Gains after indexation as applicable and the same will be subjected to tax at special rate of 20% as provided u/s. 112 of the Act.
The amount of Rs. 3,00,00,000/- has been taxed in the hands of Mrs. Parita Chheda at Rs. 2,72,54,669/- and she has already paid tax @ 20% on the same as per section 112 of the Act. As such, there is absolutely no tax advantage whatsoever to the appellant by resorting to such so called arrangements.
The purpose of the clubbing provisions u/s. 64 is to curb the practice whereby an assessee can transfer his income from a property owned by him by transferring the property to the specified relatives with a view to gain advantage of lower tax brackets in the case of the relative. In the facts of the case, the Long Term Capital gains in any case will be taxed @ 20% in both the cases and accordingly there is no such tax advantage which could have been obtained by the appellant by resorting to any such notional transfer. In view of this, the appellant contends that the provisions of section 64(1)(vi) are not required to be applied considering the purpose of the legislation (D) Income has already been taxed in case of Parita Chheda permitted Double taxation not Without prejudice to any of the above contention, we would also like to submit that the Long Term Capital Gains arising on account of transfer of tenancyulghts has already been taxed in the case of Smt. Parita Chheda, the daughter in law of the appellant. It can be seen from the of of Smt. Parita Chheda that the above amount has already been included in her computation and she has also paid the tax on the same.
As per settled position of law, there cannot be double taxation in respect of the same income and accordingly on this ground also there is no justification for including the above income in the hands of the appellant u/s. 64(1)(vi) of the Act.
19 ITA No. 885/MUM/2024(A.Y.2014-15) Kalyanji Meghji Chheda In view of the above submissions, the appellant contends that the provisions of section 64(1)(vi) are not applicable in his case for more than one reasons. The appellant, therefore, prays that the above provisions shall not be applied and the order of the assessing officer shall be amended accordingly.
Re: Ground II: Objection against Addition to the extent of Rs. 3,00,00,000/- and Ground III : Levying Tax at Normal rate instead of Special rate as per Section 112 Without prejudice to any of the above contentions under Ground I above, the appellant respectfully submits that the assessing officer has erred in taxing the amount of Rs. 3,00,00,000/- in his hands and levying tax at normal rate on the same.
The appellant respectfully submits that as explained above, the provisions of section 64(1)(vi) provides for clubbing of the total income as computed in accordance with the provisions of the Act in the hands of the daughter in law. Further as per settled position of law, the nature of the income in the hands of the individual will be the same as that in the hands of the specified relative and accordingly the rate of tax will also be the same as may be applicable to the specified individual.
Considering the above position of law, the appellant submits that even if the clubbing provisions are held to be applicable, the amount of Rs. 3,00,00,000/- cannot be added in his case. If the clubbing provisions are held to be applicable, the addition can be of Rs. 2,72,54,669/- as Long Term Capital Gains and the same can be taxed at special rate of 20% u/s. 112 and not at normal rates of tax.
The appellant, therefore, alternatively prays that the necessary directions may please be given to the assessing officer in this regards. We request you to take the above submissions on the records and consider the same while deciding the appeal of our client. We shall be pleased to furnish any further details / clarifications / explanations on hearing from you in this regards.
Thanking you in anticipation of your kind and favourable action, we remain."
8. Further the Ld.AR has highlighted the facts with supporting bank pass books /statements of both the assesse son and daughter in law, in respect of consideration received vide registered agreement dated 17- 20 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda 12-2013 and Form.no. 26AS reflecting the TDS deducted U/sec194IA of the Act in the F.Y.2013-14. These facts are not disproved by the revenue and has accepted the returned income and Taxes/TDS paid and also order u/sec143(1) of the Act was passed. Further the Ld.AR contentions are that the same income cannot be taxed twice and relied on the ratio of the judicial decisions held as under:
1. Laxmipat singhani Vs. CIT, [1969] 72 ITR 291 (SC) "Where the ITO makes an order against the company in the conditions prescribed in section 23A(1), dividend is deemed to be distributed amongst the shareholders as at the date of the general meeting. The distribution is purely notional, but by the expression provision contained in section 23A the ITO is enjoined to bring the proportionate share of every shareholder to tax in the appropriate year of assessment. The date of the general meeting determines the date on which the dividend is deemed to be distributed amongst the shareholders, and the proportionate share is liable to be included in the total income of each shareholder of the previous year in which the date falls.
By virtue of section 16(2) read with section 4(1)(b) the deemed dividend income is liable to be included in the total income of the shareholders on the date of the general meeting of the company. The Act leaves no option to the ITO; he is enjoined to include the amount in the total income of the shareholder of the previous year in which the date of the general meeting falls.
In the instant case the dividend was deemed to be distributed by the company as on 22-4-1939. The proportionate share of the dividend was liable to be included in the total income of each shareholder of the previous year in which the date 22-4- 1939, fell. But the amount was never included in the assessee's total income of that previous year; it was sought to be brought to tax when a part of the reserve of the company was actually distributed by crediting to the shareholders' accounts their 21 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda proportionate shares on 29-5-1942. It is a fundamental rule of the law of taxation that, unless otherwise expressly provided, income cannot be taxed twice. Again, it is not open to the ITO, if income has accrued to the assessee, and is liable to be included in the total income of a particular year, to ignore the accrual and thereafter to tax it as income of another year on the basis of receipt.
The clause (4) of section 23 does not mean nor does it imply that, if in contravention of the express statutory provision in section 23A the proportionate share of the shareholder in the deemed income is not included in the total income of the appropriate year of assessment, it is liable to be included when the dividend is actually paid, credited or distributed to the shareholder. It does not confer any option on the ITO to tax either the deemed income in the hands of the shareholder on the footing that it has accrued at the date of distribution under section 23A(1), or at the date of actual receipt of the share under section 23A(4). A provision which prevents double taxation in respect of the same income, once at the stage of deemed receipt, and another at the stage of actual receipt, cannot be converted into an enactment enabling taxation at the stage of receipt, if for any reason the income is not taxed in the year in which it was by express injunction of law required to be assessed under the provisions of the statute.
Therefore, the dividend of Rs. 23,328 which was created in the accounts of the assessee during the accounting period of the assessment year 1943-44 could not be subjected to tax under second 16, sub-clause(2), although an order under section 23A of the 1922 Act had already been made on 12-12-1941, for the assessment year 1939-40 in the case of the AWC Ltd.
Note: Decision was in favour of assessee"
2. CIT Vs. Ravinder kumar Arora, [2011] 15 taxmann.com 307 (Delhi) "Section 54F of the Income-tax Act, 1961 - Capital gains -
Exemption of, in case of investment in residential house - Whether section 54F mandates that house should be purchased by assessee and it does not stipulate that house should be purchased in name of assessee only - Held, yes - During 22 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda relevant assessment year, assessee had shown certain long- term capital gain on sale of a plot of land and claimed exemption under section 54F on account of purchase of new residential property Assessing Officer allowed only 50 per cent of exemption claimed on ground that residential house was purchased jointly in names of assessee and his wife - On appeal, Tribunal allowed assessee's claim in full by recording finding of fact that whole of purchase consideration was paid by assessee and property was purchased by assessee in joint name with his wife for 'shagun' purpose and because of fact that assessee was physically handicapped - Whether, on facts, Tribunal was justified in allowing exemption under section 54F for total consideration paid by assessee - Held, yes [In favour of assessee]"
3.. CIT Vs. Kamal Wahal, [2013] 30 taxmann.com 34 (Delhi) In CIT v. Ravinder Kumar Arora [2012] 342 ITR 38/(20111.203 Taxman 289/15 taxmann.com 307 (Delhi), it was held that where the entire purchase consideration was paid only by the assessee and not a single penny was contributed by any other person, preferring a purposive construction against a literal construction, more so when even applying the literal construction, there is nothing in section 54F to show that the house should be purchased in the name of the assessee only. Section 54F in terms does not require that the new residential property shall be purchased in the name of the assessee; it merely says that the assessee should have purchased/constructed 'a residential house' [Para 7] Therefore, the predominant judicial view for the purposes of section 54F is that the new residential house need not be purchased by the assessee in his own name nor is it necessary that it should be purchased exclusively in his name. It is moreover to be noted that the assessee in the present case has not purchased the new house in the name of a stranger or somebody who is unconnected with him. He has purchased it only in the name of his wife. There is also no dispute that the entire investment has come out of the sale proceeds and that there was no contribution from the assessee's wife. [Para 9] 23 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda The substantial question of law is answered in favour of the assessee and against the revenue."
4. Balaji Vs. ITO, [1961] 43 ITR 393 (SC) 240 of 1960'.
5. Mahaveer jain VsCommissioner of Income tax jaipur (SC)4166 of 2006.
6. Dilip Divarkaran Kanath VsITO. ITA.no.2820/Mum/2022 dated17.04.2023.
7.M/s McCain Foods India Pvt Ltd Vs ACIT ITA.No.5597,5598/Del/2018 dated 31.05.2022,
8. M/s Delite properties Pvt Ltd Vs ITO. ITA.No.261/Kol./2016
9. We find the Ld.AR contentions are alternative being the provisions of section 64(1)(vi) of the Act cannot be applicable as the transfer of tenancy rights is vide registered tenancy agreement dated 03.09.2010 for a consideration of Rs. 25 lakhs and there is no question of transfer of tenancy rights without consideration or inadequate consideration and the value adopted as per the guideline value of Sub registrar and the adequate stamp duty was paid as evidence by the registered deed. Further the consideration is not disputed by the revenue and which was paid out of son s bank account as per the matrimonial belief, faith, and understanding between husband and wife i.e the son and daughter in law of the asssesee. The assessee son has paid on behalf of his wife and it may be treated as gift to wife or advance/ loan repayable by the wife in the future years. Further the same income is taxed by the revenue in the hands of the assessee and the assessee daughter in law i.e violating the charging 24 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda provisions under section 4 and section 5 of the Income Tax act. Whereas the Long term capital gains are taxed in the hands of the daughter in law @20% and there is no leakage of revenue. We find that there is no dispute raised by the revenue with respect to the tenancy rights and the assessee has offered Rs.1 crore under the head "income from other sources" and whereas the assessee's son and daughter-in-law has offered the Long Term Capital Gains under head "Income from capital gains" after claiming indexation on the cost of acquisition and stamp duty charges paid at the time of registration of agreement and the remaining amount is subject to tax@20%. Further if the AO wants to add this disputed income in the hands of the assessee, first it should be excluded from the income of the daughter in law and secondly it should be taxed under head "Income from capital gains" and taxed @20% rate and further the assessee should be granted credit for the TDS/ taxes paid by the assessee's daughter-in-law. The conditions necessary for attraction of clubbing provisions u/sec 64(1)(vi) of the Act i.e were the transfer of asset is without adequate consideration. Whereas in the present case, the assessee's daughter-in-law share of Rs. 12,50,000/- in the tenancy rights was paid by the assessee's son from his bank account and there is no dispute with respect to payment and for adequate consideration. Whereas the AO is of the opinion that the transfer of tenancy rights is without payment of money/ 25 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda adequate consideration but the AO has ignored interpretation of facts and the collective transaction of husband and wife in the transfer of the tenancy rights and the same income cannot be taxed twice. We considering the facts, submissions and ratio of the judicial decisions discussed above rely on the fundamental rule of law of taxation that, unless otherwise expressly provided, income cannot be taxed twice. Accordingly, the order of the CIT(A) is set aside and we direct the Assessing officer to deleted the addition and we allow the grounds of appeal in favour of the assessee.
10. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 24.07.2024.
Sd/- SSd/- Sd/- Sd/- Sd/- (RATNESH NANDAN SAHAY) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated:24/07/2024 KRK Copy of the Order forwarded to: 1. The Appellant, 2. The Respondent 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. 26 ITA No. 885/MUM/2024 (A.Y.2014-15) Kalyanji Meghji Chheda //True Copy// BY ORDER, (Dy./Asstt.Registrar)ITAT, Mumbai