2001 (6) TMI 197 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of Rs. 99 lakhs received by the assessee.
2. Nature of the transaction: surrender of tenancy rights vs. transfer of tenancy rights.
3. Tax implications: capital receipt vs. long-term capital gains.

Detailed Analysis:

1. Treatment of Rs. 99 Lakhs Received by the Assessee:
The primary grievance of the assessee was the direction by the Commissioner of Income-tax (CIT) to treat Rs. 99 lakhs received as income. The assessee claimed this amount was received for the surrender of tenancy rights and should be considered a capital receipt, not liable to tax under the Income-tax Act, 1961.

2. Nature of the Transaction: Surrender of Tenancy Rights vs. Transfer of Tenancy Rights:
The facts indicate that the assessee had a lease agreement for a godown, which was sub-leased to a third party. The first lessee requested the assessee to surrender the premises, promising alternative accommodation or Rs. 99 lakhs in lieu thereof. The arrangement involved the first lessee, the assessee, and the third lessee, culminating in the third lessee paying Rs. 99 lakhs to the assessee.

The Tribunal analyzed whether this constituted a surrender or transfer of tenancy rights. The agreement used terms like "assignor," "assign," and "confirming party." The Tribunal referred to the Cambridge International Dictionary, which defines "assign" as a legal process of giving property, money, or rights. The first lessee assigned his rights to the third lessee, requiring the assessee's cooperation, which was compensated with Rs. 99 lakhs. This was deemed an assignment of interest rather than a surrender of tenancy rights. The Tribunal concluded that the transaction involved the transfer of a capital asset, as defined under section 2(14) of the Act, resulting in long-term capital gains.

3. Tax Implications: Capital Receipt vs. Long-Term Capital Gains:
The Tribunal held that the transaction was a transfer of tenancy rights, a capital asset, under section 2(14) of the Act. The term "transfer" includes sale, exchange, or relinquishment of the asset or extinguishment of any rights therein. The assessee's cooperation in the assignment resulted in the extinguishment of its rights, thus constituting a transfer. The Tribunal rejected the assessee's claim of surrender of tenancy rights, emphasizing the substance over the form of the transaction.

The Tribunal noted that the CIT relied on a Special Bench decision, which was later reversed by the Bombay High Court. Despite this, the Tribunal maintained that the receipt of Rs. 99 lakhs was taxable as long-term capital gains, as it resulted from the transfer of a capital asset.

Conclusion:
The Tribunal concluded that the amount of Rs. 99 lakhs received by the assessee was taxable as long-term capital gains, dismissing the assessee's appeal. The order of the CIT was modified to reflect this finding, and the provisions concerning sections 45 to 55 of the Income-tax Act were deemed applicable to the case.