Upfront premium received for grant of perpetual tenancy rights in a property is taxable as capital gain

Facts

a) Assessee-HUF received one time premium for grant of tenancy rights in a property. It offered the amount so received as capital gain and claimed exemption under section 54EC in respect of investment made in Rural Electrification Corporation Bond.

b) Assessing Officer (AO) allowed exemption to assessee. However, Commissioner by invoking section 263 held that said amount was chargeable as income from house property and, thus, passed revisional order directing the AO to disallow exemption under section 54EC.

c) Aggrieved assessee filed the instant appeal before the tribunal.

The tribunal held in favour of assessee as under:

Even investment in name of partners would provide sec. 54EC relief to partnership firm

Facts: a)Partners of assessee-firm introduced land and building as their capital contribution to firm.

b)The firm carried out its operation from such land and building after its formation. Subsequently, firm sold said land and building and earned capital gain.

c)Sale consideration of property was credited directly to bank account of partners of firm and bonds specified under Section 54EC were also purchased in names of those partners.

The issues that arose before the Tribunal were as under:-

I.Whether capital asset introduced by partners could be said to be the property of the firm and, thus, capital gain arising on sale of such building was taxable in hands of firm?

II.Whether a firm could claim exemption under section 54EC where specified bonds were purchased in name of partners?

On the first issue the Tribunal held that:

By relying upon the judgment of Allahabad High court in the case of K. D. Pandey v. CWT [1977] 108 ITR 214, it was held that where partners of firm introduced land and building as their capital contribution to firm, said land and building would become property of firm and, therefore, capital gain arising on sale of said property was taxable in hands of firm.

On the second issue the Tribunal held that:

1)Partnership is not a legal entity in strict sense and in all the movable and immovable assets which are held by the partnership, there is an interest of every partner, though not specifically defined in terms of their shares.

2)It was not disputed that the sale consideration was directly credited to the Bank accounts of the partners and firm was immediately dissolved subsequently. Therefore, whatever amount was invested by the partners in specified bonds in their individual names was, in fact, from the funds of the firm.

3)Hence, benefit of section 54EC could not be denied to the assessee-firm,even though the bonds were purchased in the name of partners- CHAKRABARTY MEDICAL CENTRE V. TRO [2015] 56 taxmann.com 76 (Pune - Trib.)

De-facto ownership of asset to be considered for computing holding period of capital assets, rules HC

Facts:

a)  The assessee, a Chartered Accountant, sold the property on 29.05.2008 for certain consideration. He worked out long-term capital gain and claimed exemption under section 54EC and section 54F;

b)  The assessing authority was of the view that the sale deed executed in favour of the assessee was on 27.02.2008 and he sold the property on 29.05.2008, i.e., within four months from the date of purchase and, therefore, the capital gains arising therefrom could not be construed as long-term capital gain;

c)  Accordingly, he disallowed the exemption claimed under Sections 54EC and 54F. On appeal the CIT(A) upheld the order of AO. Further, the Tribunal set aside said order. Aggrieved revenue filed the instant appeal

The High Court held in favour of assessee as under:

1)  For the purpose of computing 36 months holding period of a capital asset under section 2(42A), there is no requirement in section that holding period should only include the period for which assessee was the owner of the asset with a registered deed of conveyance conferring title on him;

2)  The words "held by the assessee" in section 2(42A) does not mean vesting of legal title in the property to the assessee;

3)  As Bangalore Development Authority allotted plot to assessee in 1988, due to legal disputes between it and the original owners of site, it cancelled the booking and allotted another plot in 2007 and that was also cancelled for same reason and fresh plot was allotted in 2008 and same was registered in assessee's name;

4) The consideration paid in 1988 was to be treated as consideration for the sale deed and capital gains resulting from plot sold in 2008, was long-term capital gains and eligible for benefits under sections 54F and 54EC – CIT v. A. Suresh Rao [2014] 41 taxmann.com 475 (Karnataka)