2001 (8) TMI 1403 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the issue of whether the amount received for the transfer of possessory rights of a property should be considered for computation of capital gains under the Income Tax Act.

Facts and Ruling:
The case involved a partnership firm that transferred the possessory right of a shop for Rs. 1,00,000. The firm argued that as the property was self-generated, there was no cost of acquisition for the possessory right. The Assessing Officer (AO) included the amount in capital gains, but the Deputy Commissioner of Income Tax (Appeals) disagreed. The Tribunal upheld the firm's claim, stating that the possessory right existed at the time of acquisition. The Tribunal considered relevant documents, including the agreement for the transfer of possession. The Supreme Court's decision in CIT vs. B.C. Srinivasa Setty was cited, emphasizing that the asset must have a cost of acquisition for capital gains computation.

Precedents and Interpretation:
In A.R. Krishnamurthy & Anr. vs. CIT, the Supreme Court held that the right to exploit land forms part of the cost of acquiring the land. The decision in CIT vs. Merchandisers (P) Ltd. highlighted that consideration received for parting with a tenancy right may not be subject to capital gains if there is no cost of acquisition for the tenancy. Similar views were expressed in other cases such as Bawa Shiv Charan Singh vs. CIT and CIT vs. Octavious Steel & Co. Ltd.

Conclusion:
The Court determined that the possessory right in this case was a self-generated asset, and no cost was incurred for acquiring it. As per legal principles and precedents, the Court ruled in favor of the firm, stating that the consideration for the possessory right transfer should not be included in the computation of capital gains. The question of law was answered in the affirmative and against the Revenue.