By TIOL News Service

KOLKATA, JUNE 06, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether mere fact that the assessee instead of receiving sale consideration had opted to receive new premises in exchange of tenancy right, would not alter the nature of transaction. YES is the answer.

Facts of the case:

The assessee filed its return disclosing total income of Rs.3,88,68,115/- and the same was processed u/s 143(1). Later on, the assessee’s case was selected for scrutiny u/s.143(3) and the AO had completed the assessment by making addition on account of short term capital gain at Rs.65,81,000/-. The AO observed that the assessee’s claim in respect of surrender of tenancy rights was not accepted because as per Section 43(6), written down value of a particular block of assets includes only the ‘actual cost’ of the asset acquired during the previous year. The AO observed that the actual cost of asset in the hand of the assessee was only Rs.3,92,069/- which comprises of Rates & Taxes and Stamp Duty actually incurred by the assessee for acquisition of the asset. Therefore, the consideration value of the property Rs.65,81,000/- could not be regarded as the actual cost of asset in the hand of assessee since outgoing of assesee’s resource for acquisition of the asset was only the tenancy right, value of which is Rs.Nil. As a matter of fact assessee actually paid nothing other than Rates & Taxes and Stamp Duty to bring the asset into existence in its books of accounts. For the purpose of Capital Gain only the actual capital outgoing was to be considered but in assessee’s case this actual capital outgoing was zero except expenditures related to the acquisition of the assets. Accordingly, assessee’s claim of addition to the fixed assets following in the block building is disallowed to the extent of Rs.65,81,000/- and accordingly the AO treated short term capital gain u/s 50 at Rs. 65,81,000/-. On appeal, the CIT(A) deleted the addition made by AO after observing that the assessee sold a depreciable asset of Rs.1,36,00,000/- which was offered as short term capital gain u/s 50. The AO found that an amount of Rs.69,73,069/- was added as opening WDV of the block being market value of a property which was provided by the promoter in lieu of assessee's surrender of tenancy right in 'Homi house' at Nagpur.

On appeal, the ITAT held that,

++ we are of the view that the AO failed to appreciate that the asset acquired by the assessee in Subhedhar apartment was not transferred free of cost by the developer but in lieu of surrender value of tenancy right held by the assessee in 'Homi House'. The AO failed to appreciate that the new premises at 'Subhedhar Apartment' was acquired at a fair market value of Rs. 65,81,000/- in lieu of the amount that the assessee was supposed to receive as sale consideration on surrender of tenancy rights. The mere fact that the assessee instead of receiving the amount of sale consideration of Rs. 65,81,000/-, opted to receive the new premises at 'Subhedar Apartment' in exchange of tenancy right should not change the nature of transaction. The assessee computed a long term capital gain of Rs. 65,81,000/- on surrender of tenancy right wherein it duly considered the market value of flat acquired of Rs. 65,81,000/- as surrender value of tenancy rights and the cost as Nil as per the provisions of Section 55(2)(a)(ii). The said market value of flat acquired becomes the cost of acquisition of flat acquired in exchange of surrender of tenancy right. It may be noted that sub section 1 of Section 43 of the I.T. Act defines actual cost to mean actual cost of the asset reduced by that portion of cost thereof, if any, as has been met directly or indirectly by any other person. In the instant case, the assessee surrendered tenancy right against which it was supposed to receive consideration of Rs.65,81,000/-. The assessee in lieu of said consideration which is to be received by him, has received new premises at 'Subhedhar Apartment'. Hence the cost of acquisition of the said apartment was nothing but what was receivable on surrender of tenancy right. Therefore, considering the factual position, we are of the view that the order passed by the CIT(A) is a reasoned order and does not require any modification.

(See 2017-TIOL-798-ITAT-KOL)