1989 (2) TMI 135 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 1,20,000 as income from long-term capital gains.
2. Whether the amount received was for goodwill or surrender of tenancy rights.

Analysis:
1. The appeal was against an order of CIT(A)-X, Bombay, regarding the addition of Rs. 1,20,000 as income from long-term capital gains for the assessment year 1981-82. The assessee, an individual, sold his business to M/s Precious Sales Company and received Rs. 1,20,000 claimed to be for the sale of goodwill of the business. The assessee contended that as per the agreement, this amount should not be treated as capital gains. The ITO and CIT(A) disallowed the claim. The assessee argued that even if not goodwill, the amount was for surrender of tenancy rights, citing relevant case laws. The ITAT Bombay-C considered the contentions and relevant case laws presented.

2. The ITAT analyzed the agreement between the assessee and the purchaser, noting that the profits shown by the assessee in the relevant years were nominal, indicating no super-profit or goodwill in the business. The ITAT agreed with CIT(A)'s finding that the amount was not paid for goodwill. Regarding the alternative claim of surrender of tenancy rights, the ITAT referred to decisions of various High Courts holding that amounts received for surrender of tenancy rights are not taxable as capital gains. Citing judgments from Bombay, Delhi, and Andhra Pradesh High Courts, the ITAT concluded that the amount received by the assessee for surrender of tenancy rights should not be taxed as capital gains under section 45 of the IT Act. Consequently, the ITAT allowed the appeal of the assessee, directing the exclusion of the amount from taxable income.

This detailed analysis of the judgment outlines the issues raised, the arguments presented by the parties, and the ITAT's decision based on the interpretation of relevant legal provisions and precedents.