2011 (4) TMI 412 - HC - Income Tax

Reassessment - Income for relinquishment of tenancy rights - The four partnership firms on the one hand, and the Samiti, on the other, had entered into the agreement dated 15-10-1988, whereby the four partnership firms agreed to hand over vacant possession of the property in question to the Samiti in lieu of having received 28 lakhs rupees in total - In the case of CIT v. Neba Ram Hansraj (1996 -TMI - 18162 - PATNA High Court) - Held that such an income is capital receipt and, therefore, cannot be subjected to payment of Income-tax Regarding reassessment - the petitioner of CWJC No. 7515 of 1997 was also a partnership firm at the relevant point of time, is also a party to the aforesaid agreement of 25-10-1988, for relinquishment of tenancy rights - Decided in favour of the assessee

Summary

Issues involved:
Validity of the order of assessment for income from relinquishment of tenancy rights under the Income-tax Act, 1961 for the assessment year 1989-1990.

Analysis:
1. The petitioner, a partnership firm engaged in manufacturing, had relinquished its tenancy rights in a premises in Patna and received income for the same. The issue arose when the Assessing Officer taxed this income under the Income-tax Act, 1961. The petitioner contended that the income was a capital receipt and not liable for taxation, citing judgments such as CIT v. Neba Ram Hansraj and CIT v. D.P. Sandu Bros. Chembur (P.) Ltd. The petitioner had disclosed this income in the original return of income, which was accepted by all authorities in previous appeals.

2. The Supreme Court had framed specific issues regarding the validity of the notice under section 148 of the Act and the appropriate orders to be passed. The Senior Standing Counsel for the Department argued that the petitioner's declaration in the return was vague and the Settlement Commission's order did not bind all parties. The Counsel also contended that the decisions cited by the petitioner were inapplicable to the writ proceeding, which was filed without exhausting alternative remedies.

3. The High Court analyzed the agreement between the petitioner and other firms for relinquishment of tenancy rights, where each firm received a sum of Rs. 7 lakhs. Referring to the judgments in Neba Ram Hansraj and D.B. Sandu Bros. Chembur (P.) Ltd., the Court concluded that the income from relinquishment of tenancy rights was a capital receipt and not subject to Income-tax. As a result, the impugned order of assessment was set aside, and the notices under section 148 were deemed infructuous and quashed for all petitioners.

4. In the final judgment, the Court allowed all writ petitions, answering substantial questions of law in favor of the petitioners and against the Revenue. The Court held that the income from tenancy rights relinquishment was exempt from taxation, based on the legal principles established by the cited judgments. The petitioners were not liable to pay Income-tax on the said income, and the impugned orders and notices were set aside.