2011 (11) TMI 399 - HC - Income Tax

Amount received for surrender of tenancy rights applicability of section 10(3) A.Y. 1993-94 Held that - The issue is no longer res integra. In the present case the Revenue has not made out a case and it was not their contention that the cost of acquisition of the tenancy was capable of ascertainment. This is not the case made out in the assessment order or in the order passed by the CIT(A) and this was also not the contention of the Revenue before the tribunal. Therefore, in an appeal u/s 260A, this question or issue does not arise for consideration and decision. In similar circumstances, in CIT vs D.P. Sandu Bros. Chembur (P) Ltd. (2005 (1) TMI 13 - SUPREME Court), it has been held that the cost of acquisition of tenancy was capable of ascertainment but the Revenue had taken a contrary stand that the cost of acquisition was incapable of being ascertained. This is also the case of the Revenue in the present case. Therefore, decided against the Revenue

Summary

Issues:
Taxability of amount received for surrender of tenancy rights under Income Tax Act, 1961.

Analysis:
1. The case involved the taxation of an amount received by the respondent-assessee for surrendering tenancy rights in a property. The Assessing Officer initially held that the amount was taxable under Section 10(3) of the Income Tax Act, 1961, as a casual and non-recurring receipt exceeding a certain threshold. The assessee contended that tenancy rights were capital in nature and should not be taxed as casual income. The Assessing Officer disagreed, considering the surrender of tenancy rights as income assessable under Section 10(3) and not under the head of capital gains.

2. Upon appeal, the Commissioner of Income Tax (Appeals) exempted a small portion of the amount but held the majority as taxable casual income under Section 10(3). However, the assessee succeeded before the tribunal, which ruled that Section 10(3) was not applicable in this case, following a precedent set by a Special Bench.

3. The High Court referred to a Supreme Court judgment which established that tenancy rights are capital assets, and the surrender of such rights constitutes a transfer with consideration received being a capital receipt. The Court emphasized that if the income cannot be taxed under the capital gains head, it cannot be taxed at all. The Court also highlighted the exclusivity of income heads under the Income Tax Act, emphasizing that income falling under a specific head must be charged accordingly.

4. The Court further discussed that since the cost of acquisition of the tenancy was deemed unascertainable by the Revenue, the question of its taxability under Section 45 did not arise. It was noted that the Revenue had consistently taken the position that the cost of acquisition was indeterminable. Consequently, the Court ruled in favor of the assessee, dismissing the appeal brought by the Revenue.

5. In conclusion, the Court held that the amount received for surrendering tenancy rights, being a capital receipt, could not be taxed under Section 10(3) or any other provision outside the capital gains head. The judgment underscored the importance of correctly categorizing income under the appropriate heads for taxation purposes and rejected the Revenue's argument to tax the amount as casual income.