Kewal Silk Mills v. ACIT [2013] 21 ITR 121 (Mum.) (Trib.)

S.45: Capital gains-Capital asset-licensee of looms-Transfer of land-Amount paid to assessee for surrender of

rights in land. Assessee deemed tenant by virtue of amendment of Rent Control Act. Right of assessee a capital

asset within the meaning of section 2(14).Amount received assessable as capital gains and not as income from

other sources. (S.2(14), 54EC, 55, 56)

The assessee in the return for the assessment year 2009-10, it declared long-term capital gains on surrender of subtenancy rights and claimed exemption under section 54EC, by making investment in NHAI bonds. The Assessing

Officer found that possession of a portion of the shed was incidental to the licence granted to it for the use of

machinery. Therefore, the Assessing Officer came to the conclusion that the amount received by the assessee was merely gratuitous. He held that the assessee could not be said to have had sub-tenancy rights particularly with regard to land for which the compensation had been received by the assessee and, therefore, the amount received by the assessee was not assessable under the head “Capital gains”. He taxed it under “Other sources”. This order was confirmed by the Commissioner (Appeals). On appeal to the Tribunal, the Tribunal held that the assessee had entered into an agreement for licence to use looms and machinery. It was entitled to use the shed in which the looms were situated by way of permissible use on licence basis only as incidental to the use of the looms and machinery. Incidental right to use the premises was provided by the agreement itself. The fact also remained that the assessee had been referred to as a licensee in the agreement. The Bombay Rent Hotel and Lodging and House Rates Control Act, 1947 (Rent Control Act), which was amended by the Amendment Act of 1973, had converted the status of the assessee from “licensee” to “deemed tenant” under section 5(11) (bb). Under section 15A, which was inserted by the Maharashtra Act 17 of 1973, certain licensees in occupation on February 1, 1973 would become tenants. By the provisions of section 55(2) of the Income-tax Act, tenancy rights have been considered to be a capital asset. Moreover, the definition of capital asset under section 2(14) of the Act is wide enough to cover “property of any kind” and the type of right acquired by the assessee in the property used by it could not in any manner be said to be less than “any kind of property” held by the assessee. The assessee in fact was enjoying possession of the property and for peaceful vacation thereof it had received the amount which was described by the parties as amount paid for surrender of tenancy rights. The right of the assessee was undisputed and the nature thereof was “property of any kind” which was held by the assessee and was a capital asset within the meaning of section 2(14). The amount received by the assessee was assessable under the head “Capital gains”and eligible for exemption under section 543EC. (A. Y. 2009-2010 )