1999 (2) TMI 97 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of Rs. 37,00,000 received for surrender of tenancy rights.
2. Nature of tenancy rights as a capital asset.
3. Applicability of section 10(3) of the Income-tax Act, 1961.

Summary:

1. Taxability of Rs. 37,00,000 received for surrender of tenancy rights:
The Tribunal examined whether the amount received by the appellant for surrendering tenancy rights was exigible to tax. The Assessing Officer had treated the receipt as taxable under section 10(3) of the Act, considering it as casual and non-recurring income. However, the Tribunal concluded that the amount received was of the nature of a capital receipt and could only be taxed under the head 'Capital gains'. Due to the decision in B.C. Srinivasa Setty's case, the chargeability failed, and the receipt could not be taxed under section 10(3).

2. Nature of tenancy rights as a capital asset:
The Tribunal held that tenancy rights are a capital asset. The surrender of such rights results in the extinguishment of a right, which amounts to a transfer of a capital asset under section 2(47) of the Act. The Tribunal referred to the amendment in section 55(2)(a) by the Finance Act, 1994, which took the cost of acquisition of tenancy rights as nil, indicating that the legislature considered tenancy rights as a capital asset.

3. Applicability of section 10(3) of the Income-tax Act, 1961:
The Tribunal discussed the scope of section 10(3) and concluded that it does not tax items that are capital per se. The amount received for surrendering tenancy rights could not be brought within the ambit of section 10(3) as it was a capital receipt and not income. The Tribunal emphasized that the taxability of an amount depends on the nature and character of the receipt, and in this case, it was a capital receipt not chargeable under section 10(3).

Conclusion:
The Tribunal allowed the appeal, holding that the sum of Rs. 37,00,000 received by the appellant for surrendering tenancy rights was not exigible to tax.