TMI Blog1995 (9) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... ted property, we can hereinafter call it as tenanted premises for the sake of brevity. The period of tenancy agreed upon under the terms of the above two indentures was for 15 years. As per the terms of the lease the assessee had to pay a monthly rent of Rs. 575 to the landlord. The contractual terms of lease were not extended and so the terms of the above two indentures expired on 25-10-1978. However, from that date onwards the assessee was continuing in possession of the tenanted premises as a statutory tenant under section 12 of the Bombay Rents, Hotel Lodging House Rates Control Act, 1947 which is going to be referred to as "Bombay Rent Act" for the sake of brevity throughout this order. Sections 12(1) and 12(2) of the Bombay Rent Act arc as follows : "Section 12 : No ejectment ordinarily to be made if tenant pays or is ready and willing to pay standard rent and permitted increases. (1) A landlord shall not be entitled to the recovery of possession of any premises so long as the tenant pays, or is ready and willing to pay, the amount of the standard rent and permitted increases, if any, and observes and performs the other conditions of the tenancy, in so far as they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 1,40,00,000 in order to enable to secure a reasonable and alternative accommodation of their choice as and when available in lieu of the suit premises. 6. The defendant had accepted the plain tiffs offer and acknowledge having received from the plaintiff the aforesaid amount of Rs. 1,40,00,000 by a bank draft bearing No. 952191 dated 5-12 1989 on the Canara Bank, Mahalaxmi Branch, Bombay. 7. In view of the receipt of the said amount by the defendant, it is agreed that no hardship would be caused to the defendant, if a decree of ejectment is passed against them. 9. It is recorded that the defendant had handed over to the plaintiff and the plaintiff had received from the defendant quite, vacant and peaceful possession of the premises described in clause (8) above, i.e., the premises on which the defendants were the lessees/tenants of the plaintiff which were in the occupation of the defendants." 5. Thus it can be seen that in lieu of surrendering the possession of the tenanted premises, the assessee-tenant had obtained Rs. 1,40,00,000 on 5-12-1989 which falls in the accounting year relevant to the assessment year 1990-91. The profit and loss account maintained by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a Privy Council decision in CIT v. Shaw Wallace Co. AIR 1932 PC 138. The Assessing Officer held that income signifies all those incomes comprehended within its natural meaning and also the casual and non recurring income which comes within the meaning of section 2(24) of the IT Act. He found that the 'receipt' as per the meaning given to the word in English Dictionary is the amount of money received. He held that there was no doubt that the assessee had received the money, and every receipt including a non-recurring receipt can also in fact be taxed under the scheme of the income-tax Act. He relied upon the decision of the Hon'ble Supreme Court in Raghuvanshi Mills Ltd. v. CIT [1952] 22 ITR 484 for this purpose. The Assessing Officer held that as per the authority of the Hon'ble Privy Council in Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 at 242 (P.C.) the word 'income' is not limited by the words 'profits and gains" and any receipt which can be properly described as 'income' is taxable under the Act unless expressly exempted. The Assessing Officer conceded that there is no capital gains involved in the transaction. However, he was of the view that the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terveners will be decided by the respective Division Benches before which they come, following the ratio of this Full Bench. 14. Shri Y.P. Trivedi learned Advocate for the assessee and all other learned counsels appearing for the interveners also contended that the receipt is not liable to tax since it is in the nature of capital gains. They contend that the compensation received by statutory tenant towards the surrender of the statutory tenancy rights to the landlord is a capital asset or receipt. It is also the contention that the statutory tenant has a transferable right to the tenanted premises and by surrender of that fight to the landlord, he derives capital receipt and, therefore, the sum of Rs. 1.40 crores received by the assessee-tenant in this case is in the nature of capital receipt and hence not taxable under section 10(3) of the IT Act, 1961. 15. In order to test the efficacy of the said argument of the learned counsel for the assessee and also the interveners, we will have to find out what sort of interest a statutory tenant enjoys while he is continuing in possession of the tenanted premises. Further we will have to explore and find out whether the right enjoye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in possession so long as he pays or is willing to pay the standard rent and permitted increases and perform the other conditions of the tenancy, but not the tight to enforce the terms and conditions of the original tenancy after it is determined." 17. In that case, their Lordships were considering the question whether a statutory tenant had a right to sub-let the premises and holding that no such right existed in him in para 30 of his judgment, the learned Judge held the following : "As a statutory tenant he had no estate or interest capable of being assigned or transferred, and his statutory right to occupy could not be in law be sublet, because a lawful subletting postulates a right to enjoy the property and a right to transfer the same to another. There can be no subletting when there is no right in the premises especially when the statutory tenancy cases when the tenant parts with possession." 18. In para 33, his Lordships held that a statutory tenant had no interest in the premises occupied by him and he has no estate to assign or transfer. In para 35 at page 426, he laid down the following: "A statutory tenant is, as we have already observed a person who on determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansferability of contractual tenancy and/or statutory tenancy. 12. Under section 108(j) of the T.P. Act in the absence of a contract to the contrary, the lessee has a right to transfer his tenancy rights absolutely or by way of sub-lease, etc. This right would continue to exist in favour of a statutory tenant but all this would be subject to the provisions of the Bombay Rent Act. Section 15 of the Bombay Rent Act provides that notwithstanding anything contained in any law but subject to a contract to the contrary it shall not be lawful for the tenant to sublet his interest. Thus, it would be necessary to read this provision and section 108(j) of the T.P. Act together. So read, it would be clear that a tenant under the T.P. Act can sublet his interest if there is no contract to the contrary. However, section 15 [now section 15(1)], of the Rent Act prohibits any sub-lease assignment or transfer by a tenant of his interest if there is no contract to the contrary; a breach thereof renders the tenant liable to eviction under section 13(1)(e). Thus under the Rent Act, sub-tenancy will be permissible not when the contract is silent but when the contract specifically permits a sub lease. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court clearly held that in the appeal before them, the controversy was considered on question No. 3 referred to by the Bombay Full Bench which is as follows: 'Whether a statutory tenant governed by the Bombay Rent Act could be created a valid licence before 1973 ?" 23. However, the Hon'ble Supreme Court had noted the decision of the Bombay Full Bench on each of the four questions considered by the Full Bench. In para 35 of its judgment, the Hon'ble Supreme Court extracted the exact question which came up for their consideration as follows: 'The question that falls for consideration in this appeal is as to who is the licensee mentioned in section 15A of the Act. What kind of licence is contemplated by sub-section (1), can a licence of statutory tenant whose contractual tenancy has come to an end contemplate under the provisions of this Act ? The Full Bench of the Bombay High Court has held that a statutory tenant whose contractual tenancy did not specifically authorise him to sublet or grant lease cannot create a licence which can be sought recognised by section 15A of the Act. Is that view right is the question that we have to answer. During the course of his ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt such a specific right to create a sub-lease or to grant a sub-lease of the tenanted premises, he continues to enjoy the right even after the contractual tenancy was over and when the tenant remains in possession only as a statutory tenant under the provisions of the Bombay Rent Act. The lease deeds are dated 23-9-1963 and they are filed at pages 19 to 26 and 28 to 33 of the assessee's paper book. In the first of the lease deeds clause (h) contains the following specific terms: "Not to sublet or part with the possession of the premises or any part thereof without the consent in writing of the lessor." In para 2(h) of the second lease deed (indenture) also contained a similar stipulation which is as under : "Not to sublet, assign or part with the premises or any part thereof without the consent in writing of the lessor." 25. Therefore, it is clear that no specific right to sub-let the demised premises was ever given to the tenant under the terms of the tenancy agreements dated 23-9-1963. It was never the case of the assessee that any consent was obtained from the landlord during the subsistence of tenancy, either contractual or statutory. 26. In the cases of all the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iprasad's case they should be held not to have lost the rights which they obtained under the original tenancy even though they continued to remain in possession as statutory tenants. They retained the right of transfer and, therefore, they should be held eligible to transfer their tenancy right and all of them fall into category No. 'B'. 28. All tenants falling under category 'A' cannot be considered to be tenants at all. They have no asset or interest in the premises occupied by them. Their right to remain in possession after the determination of their contractual tenancy is personal and it is not capable of being transferred or assigned. Section 2(47) of the IT Act defines transfer in relation to a capital asset and it is as follows: "Section 2(47): In this Act, unless the context otherwise requires, --- (47) 'transfer' in relation to a capital asset, includes : (i) the sale, exchange or relinquishment of the asset; or (ii) the extinguishment of any rights therein; or (iii) the compulsory acquisition thereof under any law; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly a deed of surrender simpliciter cannot effect any transfer of title of releasor in favour of the releasee --- (Mst. Samarathi Devi v. Parasuram Pandey AIR 1975 Pat. 140). 30. The word 'surrender' is defined and the word 'surrender by operation of law' is also defined in Black's Law Dictionary, 5th Edition at page 1295 as follows : "Surrender : To give back; yield, render up; restore; and in law, the giving up of any estate to the person who has it in reversion or remainder, so as to merge it in the larger estate. A yielding up of an estate for life or years to him who has an immediate estate in reversion or reminder wherein the estate for life or years may drawn by mutual agreement between them. Roberts Inv. Co. v. Hardie Mfg. Co. 142 or 179, 19 p. 2d 429 431; Kimberlin v. Hicks, 150 Kan. 449, 94 p. 2d 335, 339. The giving up of a lease before its expiration. In old English Law, yielding up a tenancy in a copy hold estate to the lord of the manor for a specified purpose. The giving up by a bankrupt of his property to his creditors for their assignees; also his due appearance in the bankruptcy court for examination as formerly required by the Bankruptcy Acts. Surrende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered to be a capital asset, that the transfer of such capital asset yields capital receipt and because such a statutory tenancy bears no purchase value, the ratio of the Hon'ble Supreme Court decision in B.C. Srinivasa Setty's case comes to the aid of the assessee and for that reason, the surrender of tenancy right does not give rise to capital gains and, therefore, no part of Rs. 1.40 crores received by the assessee constitute capital gains, does not appear to be either acceptable or convincing argument. As already stated above, in the facts of this case, there is nothing for the statutory tenant to transfer. He can only relinquish what he had under law. But when there was no right at all to relinquish, there is no question of transfer or relinquishment or surrender of that right. 31. Now let us see whether the receipt in question is income and whether it is taxable under the Income-tax Act or not. The assessee contends that the receipt in question does not bear the income nature at all. In our opinion, this contention is to be rejected for the reasons given by the Assessing Officer in his assessment order dated 22-3-1993 which are quite convincing and are fully acceptable to u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust, it was held to be a word 'of broadest connotation' which could not be understood in 'restricted or technical sense'. The wide meaning of the word was explained by this Court in Raghuvanshi Mills Ltd. v. CIT [1952] 22 ITR 484 and it was emphasised that the expression 'from whatever source derived' widened the net." It is contended by the learned Sr. Departmental Representative that even if a receipt did not fall within the ambit of any of the clauses enumerated under section 2(24) of the IT Act, it may still be 'income' comprehended by the natural meaning of that word. This argument finds support in the Hon'ble Supreme Court judgment in CIT v. G.R. Karthikeyan [1993] 201 ITR 866 the following is what is stated : "Further, even if a receipt does not fall within sub-clause (it) or for that matter any of the sub-clauses in section 2(24), it may yet constitute income. To say otherwise, could mean reading the sub-clauses in section 2(24) as exhaustive of the meaning 'income' when statute expressly states that it is inclusive. It would be a wrong approach to place a receipt under one or other sub-clauses under section 2(24) and if it does not fall under any of the sub-clauses, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'income' unless and until those voluntary payments were connected with the office, profession, vocation or occupation of the recipients. It is held that what is taxed under the Indian Income-tax Act, is income from every source including the voluntary payment which can be regarded as having an origin which a practical man regard as a real source of income. 34. Now in this case, the statutory tenant who surrenders his possession has no legal right to enforce payment. It cannot also be said that no practical man can regard the payment in question as depending merely on the whim of the landlord. Therefore, for all the above reasons, we hold, rejecting the argument of the assessee that the receipt in question is not income, that it is definitely be considered as income in the hands of the assessee. 35. Now let us consider how for the income received by the assessee is taxable in his hands. According to the Assessing Officer, section 2(45) of the IT Act defines 'total income' as meaning the total amount of income referred to in section 5, computed in the manner laid down in the Act. The assessee being a resident Indian, its total income could, therefore, mean receipts which would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows : "Section 55(2) For the purposes of section 48 and 49, cost of acquisition (a) in relation to a capital asset, being goodwill of a business, tenancy tights, stage carriage permits or loom hours: (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; (ii) in any other case (not being a case falling under sub-section (i) to (iv) of sub-section (1) of section 49 shall be taken to be nil." 36. When the Finance Act of 1994 was in the stage of a bill, the reasons for its introduction and the purpose and aim of the provision was explained to the Legislature as follows: "Capital gain on transfer of assets where there is no cost of acquisition. By virtue of the provisions of section 45 of the Income-tax Act, capital gains arising on transfer of a capital asset is subjected to Income-tax. Section 48 lays down the method of computing capital gains. The cost of acquisition and expenditure relating to the transfer are deducted from the full value of consideration to arrive at capital gains. Section 2(14) defines 'capital asset' to include all kinds of property except a few specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt decision in B.C. Srinivasa Setty's case. From the above, the intention of the Legislature can be clearly gathered. It was never the intention of the Legislature to tax capital gains on surrender of tenancy rights before 1-4-1995. Had it been the intention of the Legislature to tax capital gains on surrender of tenancy rights before 1-4-1995, nothing prevented the Legislature to introduce the amendment with retrospective effect. Further, it was argued if the capital gains yielded by surrender of tenancy rights are taxable even without the aid of amendment under section 55(2)(a) by treating the receipts as revenue and bringing them to tax under section 10(3) as casual and non-recurring, there is no necessity at all to bring in the amendment as already extracted above. Therefore, according to the learned counsels of the assessee, the legislative action by bringing in amendment in section 55(2)(a) would clearly show that the receipts obtained on transfer of tenancy rights were never intended to be taxed prior to 1-4-1995. 37. It is again the contention of the assessee that if any particular receipt is ultimately found to be not chargeable to tax under any other provision of law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x in the hands of the assessee under section 10(3) of the IT Act. In Universal Radiator's case at page 805, it is held that what is essential to be proved before a particular receipt is to be taken as casual and non-recurring. After quoting section 10(3), of the IT Act, 1961, their Lordships held at page 805 the following: "In the substantive clause, an income which was casual and non recurring in nature was excluded from being charged as income of the assessee. Due to the use of the word 'and' existence of both the conditions was mandatory. Absence of any one of them disentitled the assessee from claiming any benefit under the clause, 'casual' according to the dictionary, means 'accidental or irregular'. This meaning was approved by this Court in Ramanathan Chettiar (RM AR. AR. RM AR.) v. CIT [1967] 63 ITR 458. Non-recurring is one which is not likely to occur again in a year." We are inclined to think that the receipts in question are to be considered as casual and non-recurring. They cannot be considered to be capital receipts since no distinction is to be drawn between revenue receipts and capital receipts so long as they are governed by the provisions of section 10(3). In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount received for the surrender of tenancy rights was a capital gain, in view of the decision of the Hon'ble Supreme Court in B.C. Srinivasa Setty 's case it was not a capital gain chargeable under section 45 of the IT Act for the reason that there was no cost of acquisition for the tenancy rights. Therefore, the receipt was of a casual and non-recurring nature within the meaning of section 10(3). Ultimately, the Hon'ble Allahabad High Court held that the Tribunal was in error in holding that the receipt was a capital gain and in directing the ITO to compute the tax accordingly. 39. After going through the judgment, we cannot agree with the contention of the learned D.R. that the facts of that case are quite similar to the facts on hand. First, we do not know whether the tenancy in the cited case was a contractual tenancy or a statutory tenancy. If it is a statutory tenancy, what is the statute, the provisions of which were considered by the learned Bench of the Allahabad High Court. We have already considered the right of a statutory tenant under the Bombay Rent Act to sublet the premises or to further transfer his interest to a third party. Following the Full Bench decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et, section 45 could not be taken to have intended to charge capital gains, from the transfer of that asset. Similarly, there is no cost price for the surrender of tenancy rights. Even in cases where the right of transfer of tenancy exist in favour of the tenant under the terms of the original agreement, which right continues to exist even while the tenant is continuing as a statutory tenant; if the ratio of B. C. Srinivasa Setty is applied, the receipts realised by surrender of tenancy rights to the landlord cannot give rise to any capital asset and those receipts cannot be charged for capital gains under section 45 of the IT Act. If they cannot be held chargeable under section 45, no capital gains can be charged. However, as per the interpretation given in Gulab Chand's case all receipts which are not chargeable to capital gains under section 45 of the IT Act would still be considered as casual and non-recurring income under section 10(3) of the IT Act. They cannot be absolved from the charge of tax. Section 10(3) alongwith its two provisions are as under: 'Any receipts which are of a casual and non-recurring nature, the extent such receipts do not exceed five thousand rupees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eipt or capital gains. They can be considered merely as receipts which are synonymous with income as per Gulab Chand's case. 43. It is only in the case of 'B' category tenants described in our orders above, we will have to consider whether the ratio of Gulab Chand's case holds good or not. The other counsels for the interveners as well as the counsels for the assessee contended that Gulab Chand's case was wrongly decided. Section 10(3) is not a charging section but only a section granting exemption from tax. Gulab Chand's case has not taken into consideration the Supreme Court decision in A. Gasper v. CIT [1991] 192 ITR 382 which arose out of A. Gasper v. CIT [1979] 117 ITR 581 (Cal.). The facts of the case are that the assessee was a tenant in premises No. 240E, Acharya Jagdish Bose Road, Calcutta. He was a monthly tenant in the property since 1940 under certain earlier landlords. On March 27, 1967, the then landlord entered into an agreement for leasing out the property to Associated Battery Makers, (Eastern Ltd.), permitting them to construct a building on the said premises. The assessee was also a party to the said agreement. As party of the said agreement, the assessee rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, submitted that B.C. Srinivasa Setty's case squarely applies and no capital gains was chargeable to tax in respect of the amounts received by the assessee from the Associated Battery. The Hon'ble Supreme Court found that this plea cannot be entertained by them in view of the fact that the following question was sought to be referred before the Appellate Tribunal was rejected: "Whether, the Tribunal was justified in law in computing capital gains at Rs. 1,83,201 to the meaning of section 48 of the IT Act, 1961?" Consequently, the question which is sought to be raised before the Supreme Court was never argued before the High Court since it is a question of which reference was sought but declined by the Tribunal. Therefore, the Hon'ble Supreme Court refused to permit the assessee to raise the question before them. In those circumstances, the Supreme Court made the following observations : "As we have stated earlier, it does appear that on merits, the assessee has a good case in view of the decision of the Supreme Court earlier referred to which we are unable to consider for the 'technical' reasons given above. If so advised, it will be open to the assessee to apply to the Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known and anticipated, provided for under an agreement cannot be regarded as casual was criticised by the learned author Shri Palkhiwala in his Income-tax Law, 7th Edition at page 234 being too broad a proposition to be accepted. The commentary of the learned author in this regard is at page 234 which is as follows : "Neither the word 'casual' nor the word 'non-recurring' has been defined in the Act and these words Must, therefore, be construed in their plain and ordinary meaning. In the Oxford Universal Dictionary, the word 'casual' is defined as meaning (i) subject to or produced by chance; accidental, fortuitous; (ii) coming at uncertain times; not to be calculated on unsettled...." In some cases it has been observed that a receipt which is foreseen, known, anticipated and provided for by an agreement cannot be regarded as casual, even if it is not likely to recur ever or at least for a considerable time. But this proposition is; it is submitted, too broad and sweeping. A bet or other isolated speculation not amounting to business, or a capital sale (apart from the question of liability to capital gains tax) may result in a receipt which was foreseen, known, anticipated and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment between the assessee and the two foreigners but the receipt in itself was entirely fortuitous and exceptional. The Delhi High Court in a part of its headnote on page 126 held the following : "For a receipt to be casual it must be the production of a chance or accident or fortuitous and that means that it is neither calculated nor settled, nor is there any likelihood of its coming at a certain time. It is too broad and sweeping a proposition to say that a receipt which is foreseen, known, anticipated and provided for by an agreement cannot be regarded as casual. A man may make a bet in the hope that it will bring in a receipt but in that case there has to be an agreement between him and the bookmaker. There is also his anticipation that if that bet succeeds, it will bring in a calculated sum of money. It is, however, the incidental and fortuitous nature of the result that makes the receipt casual." 48. Now we are remained with two important arguments advanced by Shri D.M. Harish, learned Advocate for one of the interveners. They are that not only the tenancy rights but also the possessory rights in a property could be considered to be capital asset and, therefore, the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Full Bench of the Bombay High Court as well as by the Hon'ble Supreme Court clearly held that the right of a tenant who continued to be in possession of the property after the tenancy term is over has possessed only a personal right to continue in possession and he has no estate as such which he can transfer to any third party. Thus the decisions which we have considered were decisions which have dealt with a special enactment called the Bombay Rent Act, whereas the decisions cited on behalf of the interveners is a decision rendered under the General Law namely the Transfer of Property Act. It is a trite law that the general law would be abrogated by the Special Law. Therefore, the Allahabad decision does not apply. 50. In B.G. Shah's case is equally distinguishable from the facts of the present case. In the facts of that case, the assessee entered into an agreement with a company for obtaining a monthly tenancy of certain premises. The assessee filed a suit for specific performance. While the suit was pending, the assessee came to know that a bank was interested in the premises. The assessee approached the company and requested it to negotiate with the bank to their mutual ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilton Co. Ltd. v. CIT [1992] 194 ITR 391 (Cal.) 8. CIT v. Trustees of H.E.H. the Nizam's Miscellaneous Trust [1986] 160 ITR 253 (AP) 9. Parekh Traders v. CIT [1984] 150 ITR 310 (Bom.) 10. Smt. TR Sidhwa 's case 11. S.G. Mercantile Corpn. P. Ltd. v. CIT [1972] 83 ITR 700 (SC) They contended ultimately that as capital gains is chargeable under sections 45 to 55 of the I.T. Act only the chargeability can be considered only under those sections but not under section 10(3) of the IT Act. 52. We have already considered in the prior paras of our judgment that what is conveyed under the compromise on the petition is not tenancy right in the tenanted premises. In fact we hold that the tenant after his term of tenancy was over enjoys only a personal right to remain in possession under the Bombay Rent Act and he will not have any transferable right or estate as such and, therefore, all the above decisions cannot be of any avail to the assessee. The above decisions do not apply to the facts of the present case and they are easily distinguishable also and hence the ratio of those decisions cannot be applied to the case on hand. 53. For the above reasons, we agree with the lower a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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