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Issues involved: Determination of whether the receipt of Rs. 37,500 on termination of a tenancy agreement was revenue or capital in nature, and whether the assessee had entered into the tenancy agreement in the course of business.
Summary: The High Court of Bombay heard a reference under section 256(1) of the Income-tax Act, 1961, regarding the nature of a receipt of Rs. 37,500 by an advocate on termination of a tenancy agreement with Indian National Press (Bombay) Pvt. Ltd. The assessee claimed the amount was exempt as a capital receipt, while the Income-tax Officer viewed it as a revenue receipt due to the business nature of the agreement. The Appellate Assistant Commissioner disagreed, but the Income-tax Appellate Tribunal ruled in favor of the Revenue, considering the agreement as part of the assessee's business activities. The Tribunal found that the assessee's actions indicated a business interest in the tenancy, leading to the conclusion that the agreement was made in the course of business. The assessee argued that the tenancy was a capital asset acquired to carry on business, citing relevant case law to support the capital nature of the compensation received. The Revenue contended that the receipt was a revenue receipt, emphasizing the potential profits from the tenancy if obtained. The Court held that the tenancy was intended as part of the profit-making apparatus and a capital asset, not for trading purposes. Therefore, the compensation received was deemed capital in nature. The questions were answered affirmatively regarding the capital nature of the receipt and negatively regarding the Tribunal's decision. The Revenue was directed to pay the costs of the reference.
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