9911796707
TMI Blog1986 (9) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... er in the Income-tax Act, a sum of Rs. 1,50,000 is merely a capital receipt not involving any gain or any income. " 2. The assessee was a sub-lessee of a property comprising of four flats which had been leased out to Sueseen Textile Bearings Ltd. By an indenture of lease dated 29-4-1970, Raja Dhanraj Girji Narsingirji leased the four flats constructed by him on the plot taken from the Bombay Port Trust for a lease of 99 years to Star Textile Engg. Works subsequently known as Sueseen Textile Bearings Ltd. From 15-11-1973 Sueseen Textile Bearings Ltd., agreed to assign and transfer to the appellant-firm (the Star Trading Co. (P.) Ltd.) the said four flats on payment of a sum of Rs. 5,09,242 being the balance of advance rent then outstanding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri S.P. Mehta. The assessee claimed before the ITO that the receipt of Rs. 1,50,000 was in the nature of compensation for damages ; it was a capital receipt which did not result in any capital gains because it amounted to surrender of tenancy rights or occupational rights which had no cost. The ITO held that the amount of Rs. 1,50,000 was received for the assessee relinquishing rights over the flats and such extinguishment or relinquishing of the assessee's right amounted to transfer and, therefore, there was capital gain within the meaning of section 45 of the Income-tax Act, 1961 ('the Act'). He also held that Rs. 1,50,000 was a trading receipt, as it was intended to compensate the assessee for loss of profits on account of its continu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner (Appeals), on the other hand, relied on another decision of the Bombay High Court in the case of CIT v. Tata Services Ltd. [1980] 122 ITR 594. The Commissioner (Appeals) further observed that the assessee had not only transferred its rights under the sub-lease agreement with Sueseen Textile Bearings Ltd. but had also transferred the capital asset, furniture, air-conditioning plant, etc. The Commissioner (Appeals) had agreed that the assessee had appropriated Rs. 8,54,237 out of the sale price towards the various assets accounts in the books as discussed by him in the order. The appropriations were as under : (a) Rs. 5,14,411---towards air-conditioning plant (b) Rs. 16,120---office equipments ; (c) Rs. 3,22,357---towards fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us by Shri S.P. Mehta, for the assessee, is that this amount was received as a compensation or damages for surrendering rights of occupation and such rights of occupation did not have any cost just as tenancy rights have no cost. In that sense no capital gains could be calculated in respect of this receipt because this was an amount received in respect of a surrender of an asset for acquiring which the assessee did not have to pay any specific cost. For this proposition, Shri Mehta has relied on the decision of the Bombay High Court in the case of Mrs. Shirinbai P. Pundole, where the Bombay High Court held that the surrender of the tenancy right to the company in exchange for an ownership flat in the building did not attract capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale was Rs. 90,000. All that the assessee had was the right to obtain sale deed. The entire amount of Rs. 5 lakhs, being the difference between the amount of Rs. 5,90,000 received by the assessee and Rs. 90,000 originally paid by the assessee as earnest money, would be capital gains in the hands of the assessee. In the instant case these facts are clearly distinguishable from the facts of the case before us. The assessee before us had not entered into an agreement to purchase a property and the money received by the assessee was not a consequence of an agreement since that agreement was not fulfilled by the vendor. The assessee was a sub-lessee of a property comprising of four flats leased out to its sister concern, Sueseen Textile Bearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bombay High Court in Tata Services Ltd.'s case that the assessee had not transferred the rights under the sub-lease agreement, but had also transferred the capital asset, viz., furniture, air-conditioning plant, etc. However, Shri Mehta is not pressing the taxability of capital gains arising out of the transfer of such assets. As for the receipt of Rs. 1,50,000 the Commissioner (Appeals) has observed that although in the agreement the amount has been described as damages in reality on the facts discussed by us above it was consideration for the assessee not enforcing its rights under the lease to remain in possession for the unexpired period of lease of 99 years. In other words, what was surrendered was a right of occupation and the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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