1984 (1) TMI 37 - HC - Income Tax

Summary

Issues Involved:
1. Whether tenancy rights constitute a capital asset.
2. Whether the surrender of tenancy rights results in capital gains.
3. Applicability of computation provisions for capital gains in the absence of acquisition cost.

Summary:

1. Tenancy Rights as Capital Asset:
The Tribunal held that tenancy rights represent a capital asset as defined u/s 2(14) of the I.T. Act, 1961, which includes property of any kind held by an assessee. The leasehold rights do not fall under any exclusions of this definition. The term "property" is of the widest import, signifying every possible interest which a person can acquire, hold, and enjoy. The right of a lessee is an estate or interest in the premises and is transferable property, thus constituting a capital asset.

2. Surrender of Tenancy Rights and Capital Gains:
The Tribunal concluded that the surrender of tenancy rights for Rs. 30,000 resulted in capital gains. The term "transfer" u/s 2(47) includes the relinquishment of the asset or the extinguishment of any rights therein. The assessee's receipt of Rs. 30,000 for surrendering the tenancy rights was considered a transfer of a capital asset, thereby attracting capital gains tax u/s 45 of the Act.

3. Computation Provisions and Cost of Acquisition:
The Tribunal directed the AAC to determine the value of the tenancy rights as on January 1, 1954, and deduct it from Rs. 30,000 to compute the capital gains. However, the High Court observed that the computation provisions u/s 48 require the deduction of the cost of acquisition and any improvement costs from the full value of the consideration. Since the tenancy rights did not cost the assessee anything, it was impossible to ascertain the "cost of acquisition" or "cost of improvement." The Supreme Court's decision in CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 was cited, which held that if the computation provisions cannot apply, the case does not fall within the charging section. Thus, the High Court concluded that the transfer of tenancy rights without an ascertainable cost of acquisition does not result in taxable capital gains.

Conclusion:
The High Court answered the question in favor of the assessee, holding that the surrender of tenancy rights did not result in taxable capital gains due to the inability to apply the computation provisions. The Tribunal's direction to determine the value of tenancy rights as on January 1, 1954, was also deemed without basis, as the assessee had not exercised the option to adopt the fair market value. The judgment was delivered with no order as to costs.