2000 (11) TMI 87 - HC - Income Tax

Summary

Issues:
1. Quashing of show-cause notice under section 263 of the Income-tax Act, 1961.
2. Classification of money received for surrendering tenancy right as capital gains or not.
3. Conflict between the decisions of Allahabad High Court and Calcutta High Court on the treatment of such receipts.

Analysis:
1. The appeal challenged the order quashing the show-cause notice issued under section 263 of the Income-tax Act, 1961. The Commissioner of Income-tax had issued the notice as he found the Assessing Officer's decision regarding the taxability of the sum received for surrendering tenancy prejudicial to Revenue's interests. The High Court upheld the decision to quash the notice, emphasizing the need for judicial hierarchy and comity, stating that Division Bench judgments should be followed unless overruled by the apex court.

2. The main issue revolved around whether the sum received by the assessee for surrendering the tenancy right should be considered as capital gains. The Assessing Officer initially held that the sum could not be taxed as there was no cost of acquisition for the tenancy. However, the Commissioner of Income-tax issued a notice under section 263, leading to a legal challenge. The High Court relied on the decision of Calcutta High Court in a similar case and confirmed that such receipts should be treated as capital gains, especially after the amendment of section 55 by the Finance Act of 1994.

3. The conflict between the decisions of Allahabad High Court and Calcutta High Court on the treatment of such receipts was a crucial point of discussion. The High Court noted the conflicting views but ultimately followed the decision of Calcutta High Court due to the specific mention of such incomes as capital gains in the amended section 55 of the Income-tax Act. The judgment highlighted that the legislative amendment had resolved the controversy, making it unnecessary to determine which judgment to follow. Consequently, the High Court dismissed the appeal, upholding the decision based on the Calcutta High Court's view.

In conclusion, the High Court dismissed the appeal, confirming the decision to quash the show-cause notice and treating the sum received for surrendering the tenancy right as capital gains based on the legislative amendment and the precedent set by the Calcutta High Court.