1985 (9) TMI 23 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 1,51,000 received by the assessee from Bata Shoe Company Ltd. was a revenue receipt.

Summary:

Issue 1: Nature of the Receipt (Revenue or Capital):

The primary issue was whether the amount of Rs. 1,51,000 received by the assessee from Bata Shoe Company Ltd. could be taxed as a revenue receipt. The authorities below had concluded that the amount was a revenue income and thus liable to tax. However, the High Court disagreed and answered the question in the negative, indicating that the amount was not a revenue receipt.

Facts and Background:

The assessee, a partnership firm, carried on business in two rented shops in Ahmedabad. One of these shops was adjacent to a shop occupied by Bata Shoe Company, which needed more space. Bata Shoe Company negotiated with the assessee to acquire possession of the adjacent shop, resulting in the assessee vacating the shop for a payment of Rs. 1,51,000. The receipt for this payment described it as "compensation for loss of business."

Arguments:

- Assessee's Argument: The assessee argued that the amount was received for the transfer of a capital asset (the tenancy rights) and not as revenue income. The assessee continued its business in the other shop, and the payment was entered in the account books as a loss of goodwill.

- Revenue's Argument: The Revenue contended that the amount was compensation for loss of business, as stated in the receipt, and since the assessee continued its business in another shop, the payment should be considered revenue income.

Legal Analysis:

The court emphasized that the substance of the transaction should be considered over its form. The provisions of section 19 of the Bombay Rent Act, which makes it unlawful for a tenant to receive any sum for relinquishing tenancy, were also taken into account. The court referred to several precedents, including Godrej & Co. v. CIT and CIT v. Panbari Tea Co. Ltd., to highlight that the real nature of the transaction must be ascertained from all circumstances, not just the language used in the receipt.

Conclusion:

The court concluded that the transaction was not a business transaction but a transfer of a capital asset. The amount received was for surrendering the tenancy rights, which is a capital asset, and thus the payment was a capital receipt. The court held that the burden was on the Revenue to prove that the receipt was liable to tax under section 28 of the Income-tax Act, which they failed to do.

Final Judgment:

The High Court answered the question in the negative, in favor of the assessee, indicating that the amount of Rs. 1,51,000 was a capital receipt and not a revenue receipt. There was no order as to costs.