2001 (11) TMI 1048 - AT - Income Tax

Summary

Issues Involved:
1. Determination of Book Profit under section 115J of the Income-tax Act.
2. Taxability of compensation received on surrender of tenancy rights.
3. Classification of compensation as casual and non-recurring income under section 10(3).
4. Definition of "transfer" under section 2(47) concerning tenancy rights.
5. Capital gains computation for statutory tenants.
6. Distinction between statutory and contractual tenants.
7. Ignoring relevant judicial precedents.
8. Inclusion of capital receipts in "book profit" under section 115J.

Issue-wise Detailed Analysis:

1. Determination of Book Profit under section 115J of the Income-tax Act:
The Tribunal was directed by the Hon'ble Bombay High Court to decide the ground relating to the determination of Book profit under section 115J of the Income-tax Act. The Tribunal had previously not considered this question, and thus it was remanded for fresh consideration.

2. Taxability of compensation received on surrender of tenancy rights:
The assessee received Rs. 1,40,00,000 for surrendering its tenancy rights. The Hon'ble High Court held that the tenancy right is a capital asset, and the surrender thereof for consideration gives rise to a capital receipt. Since the tenancy right has no cost of acquisition, the consideration cannot be taxed under capital gains nor as casual or non-recurring income under section 10(3).

3. Classification of compensation as casual and non-recurring income under section 10(3):
The Tribunal had initially assessed the sum as casual and non-recurring income under section 10(3). However, the Hon'ble High Court concluded that the compensation received by the statutory tenant towards the surrender of tenancy rights was not casual and non-recurring income within the meaning of section 10(3).

4. Definition of "transfer" under section 2(47) concerning tenancy rights:
The Tribunal had held that the surrender of tenancy rights did not amount to a "transfer" within the meaning of section 2(47). The Hon'ble High Court agreed, stating that the surrender of tenancy rights by the statutory tenant to the landlord does not constitute a transfer under section 2(47).

5. Capital gains computation for statutory tenants:
The Tribunal had held that a statutory tenant had no right or interest that could be considered as property for computing capital gains. The Hon'ble High Court supported this view, indicating that the compensation received for surrendering tenancy rights could not be taxed as capital gains.

6. Distinction between statutory and contractual tenants:
The Tribunal had made a distinction between the rights of a contractual tenant and a statutory tenant. The Hon'ble High Court found this distinction unjustified for determining the taxability of the compensation received on surrender of tenancy rights.

7. Ignoring relevant judicial precedents:
The Tribunal was criticized for ignoring several decisions of the Bombay High Court directly on the issue, such as CIT v. Shirinbai P. Pundole, CIT v. Gehmi Jal Cooper, and Nila Products Ltd. v. CIT. The Hon'ble High Court emphasized that these precedents should have been considered.

8. Inclusion of capital receipts in "book profit" under section 115J:
The Tribunal was directed to consider whether the amount received for surrender of tenancy rights should be included as part of the "book profit" under section 115J. The Hon'ble High Court had held that the amount received was a capital receipt not chargeable to capital gains since there was no cost of acquisition. The Tribunal was instructed to examine if this capital receipt could be considered as "book profit" despite its classification in the accounts.

Conclusion:
The Tribunal concluded that the amount received for surrender of tenancy rights is a capital receipt and not exigible to capital gains tax under section 45. It was also held that there is no distinction between a statutory tenant and a contractual tenant for tax purposes, and the compensation cannot be taxed as casual or non-recurring income under section 10(3). The matter of including this amount in "book profit" under section 115J was remanded to the Assessing Officer for fresh consideration. The assessee's appeal was partly allowed.