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1978 (3) TMI 4 - HC - Income TaxTransfer / extinguishment of leasehold / tenancy rights Section 45(1) of the Act is wholly silent as to the person from whom the consideration money for transferring a capital asset is to be received by the assessee. Moreover, it, inter alia, provides that any profits or gains arising from the transfer of a capital asset shall be chargeable to income-tax under the head Capital gains . Transfering the right of the assessee in the monthly tenancy under the landlords or his leasehold interest was extinguished and, therefore, it does not matter in the least that the aforesaid amount was not received from the landlords for the extinguishment of his aforesaid rights in the aforesaid capital asset, for, as already stated, s. 45(1) of the Act does not say from whom the consideration money is to be received for transfer of a capital asset and, further, s. 2(47) of the Act says that the word transfer , in relation to a capital asset, includes the extinguishment of any rights therein
Issues Involved:
1. Whether the assessee's right of tenancy under the landlords constituted a capital asset within the meaning of section 2(14) of the Income-tax Act. 2. Whether there was a transfer of the assessee's right of tenancy under the landlords within the meaning of section 2(47) of the Income-tax Act. 3. Whether the sum of Rs. 1,83,201 represented capital gains assessable under section 45(1) of the Income-tax Act for the assessment year 1967-68. Detailed Analysis: Issue 1: Capital Asset The Tribunal held that the assessee's right of tenancy under the landlords was a capital asset within the meaning of section 2(14) of the Income-tax Act, 1961. The assessee, a monthly tenant since 1940, received Rs. 2,25,000 from M/s. Associated Battery Makers (Eastern) Ltd. (Associated Batteries) for relinquishing his tenancy rights. The Income Tax Officer (ITO) determined that the tenancy right was a capital asset, as it involved the extinguishment of rights in the property, thereby making it taxable under section 45(1) read with section 2(47) of the Act. The Tribunal found that the tenancy was transferable and constituted a capital asset, rejecting the assessee's contention that it was not a capital asset under the West Bengal Premises Tenancy Act, 1956. Issue 2: Transfer of Tenancy Rights The Tribunal concluded that there was a transfer of the assessee's right of tenancy under the landlords within the meaning of section 2(47) of the Income-tax Act. The assessee transferred his monthly tenancy and leasehold interests to Associated Batteries on 15th March 1967, receiving Rs. 2,25,000 as part of the total consideration of Rs. 4,50,000. The Tribunal rejected the argument that the tenancy was not transferable under the West Bengal Premises Tenancy Act, 1956, finding that the Act did not prohibit such transfers outright but imposed conditions. The Tribunal also noted that the transfer was made with the landlords' consent, thus extinguishing the assessee's tenancy rights. Issue 3: Capital Gains Assessment The Tribunal upheld the ITO's decision that the sum of Rs. 1,83,201 represented capital gains assessable under section 45(1) of the Income-tax Act for the assessment year 1967-68. The assessee's argument that the receipt was a solatium or windfall and not taxable was rejected. The Tribunal found that the amount received was for the extinguishment of the assessee's rights in the capital asset, making it taxable. The Tribunal dismissed the appeal, sustaining the ITO's order that included the capital gains in the assessee's total income. Conclusion The High Court affirmed the Tribunal's findings, holding that the assessee's tenancy rights were a capital asset, the transfer of these rights constituted a transfer under section 2(47), and the sum received was assessable as capital gains under section 45(1). The court rejected the argument that the tenancy was not transferable under the West Bengal Premises Tenancy Act and dismissed the new plea regarding the necessity of a registered document for the transfer. All questions were answered in the affirmative and in favor of the revenue. The parties were ordered to bear their own costs.
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