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TMI Blog2005 (1) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is whether the amount received by the respondent-assessee on surrender of tenancy rights is liable to capital gains tax under section 45 of the Income-tax Act, 1961. The assessment year in question is 1987-88. The lease agreement was entered into in 1959 for 50 years under which an annual rent was paid by the lessee to the lessor. The lease would have continued till 2009. During the relevant previous year, in March 1986, the respondent surrendered its tenancy right to its lessor prematurely. In consideration for such premature termination, the lessor paid the lessee a sum of Rs. 35 lakhs. In the assessee's return the sum of Rs. 35 lakhs had been credited to its reserve and surplus account. This was disallowed by the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45 of the Act. If not, it was liable to be taxed as "Income from other sources" under section 10(3) read with section 56 of the Act. Section 2(24)(vi) defines "income" as including "any capital gains chargeable under section 45". Section 45 provides that any profits or gains arising from the transfer of a capital asset effected in the previous year is chargeable to income-tax under the head "Capital gains" and is deemed to be the income of the previous year in which the transfer took place, subject to certain exceptions which are not material in this case. Section 48 provides for the mode of computation of income chargeable under the head "Capital gains". The method of computation prescribed is by deducting from the full value of the cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost. The intent goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class it may, on the facts of a certain case, be acquired without the payment of money." In other words, an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head "Capital gains" as opposed to assets in the acquisition of which no cost at all can be conceived. The principle propounded in B.C. Srinivasa Setty [1981] 128 ITR 294 (SC) has been followed by several High Courts with reference to the consideration received on surrende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that if the cost of acquisition of a capital asset could not in fact be determined, the transfer of such capital asset would not attract capital gains. The appellant now says that B.C. Srinivasa Setty's case [1981] 128 ITR 294 (SC) would have no application because a tenancy right cannot be equated with goodwill. As far as goodwill is concerned, it is impossible to specify a date on which the acquisition may be said to have taken place. It is built up over a period of time. Diverse factors which cannot be quantified in monetary terms may go into the building of the goodwill, some tangible some intangible. It is contended that a tenancy right is not a capital asset of such a nature that the actual cost on acquisition could not be ascertained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from different sources falling under a specific head has to be computed for the purposes of taxation in the manner provided by the appropriate section and no other. It has been further held by this court in East India Housing and Land Development Trust Ltd. v. CIT [1961] 42 ITR 49 that if the income from a source falls within a specific head, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. (See also CIT v. Chugandas and Co. [1965] 55 ITR 17 (SC)). Section 14 of the Income-tax Act, 1961 as it stood at the relevant time similarly provided that "all income shall for the purposes of charge of income-tax and computation of total income be classified under six heads of income, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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