2015 (2) TMI 901 - HC - Income Tax

Surrender of sub-tenancy right - capital gain v/s casual income - Held that - As decided in CIT v. D. P. Sandu Bros., Chembur P. Ltd. 2005 (1) TMI 13 - SUPREME Court a tenancy right is a capital asset and its surrender would attract section 45 and the gains derived would be assessable, if at all, only under the head 'Capital gains'. That being so, it cannot be treated as a casual and nonrecurring receipt under section 10(3) and subject to tax under section 56 of the Act. If the income cannot be taxed under section 45, it cannot be taxed at all. Thus it becomes clear that the appellant- Revenue could have taxed the amount of ₹ 5,00,000 under the head of Capital gains , which was received towards surrendering of tenancy right from the lessor and not under any other head. - ITAT correctly decided matter - Decided in favour of assessee.

Summary

Issues:
- Challenge to the order of the Income-tax Appellate Tribunal regarding the taxability of income received from surrender of sub-tenancy right.

Analysis:
1. The appellant-Revenue challenged the order of the Income-tax Appellate Tribunal, which questioned whether the income of Rs. 5 lakhs received by the assessee from the surrender of sub-tenancy right should be considered a capital gain or casual income under the Income-tax Act. The respondent-assessee had declared its total income for the relevant year but faced an addition of Rs. 5,00,000 as miscellaneous income from the relinquishment of sub-tenancy rights by the Assessing Officer. The Commissioner of Income-tax (Appeals) partly allowed the appeal but confirmed the addition. The Income-tax Appellate Tribunal set aside the order to the extent it taxed the amount under section 10(3) of the Act, leading to the present appeal.

2. The court referred to a Supreme Court decision where a similar situation arose regarding the surrender of tenancy rights. The apex court held that such capital receipts should be assessed under the appropriate section, in this case, 'Capital gains,' and not as casual income. The court emphasized that if the income could not be taxed under the specific section for capital gains, it should not be taxed at all. Therefore, the appellant-Revenue should have taxed the amount of Rs. 5,00,000 under the head of "Capital gains" and not under any other category. Consequently, the court found no jurisdictional error in the Income-tax Appellate Tribunal's decision.

3. The judgment concluded that the appeal by the appellant-Revenue failed and was dismissed. The court upheld the Income-tax Appellate Tribunal's decision that the amount received for surrendering the tenancy right should be treated as capital gains and not assessed under any other head. This comprehensive analysis clarifies the legal interpretation and application of the relevant provisions in determining the taxability of income from the surrender of sub-tenancy rights under the Income-tax Act.