Leasehold rights transfer taxed as capital gains; assessing authority must determine cost of acquisition on evidence.

Transfer of acquired leasehold rights in a hotel business was treated as capital gains, not self-generated goodwill, and the assessing authority was required to determine the cost of acquisition on the evidence. The court held that the later deeming provision for certain intangible assets did not apply to the assessment year in question, so the authorities erred in refusing to undertake the computation exercise. Because the receipt fell under the capital gains head, it could not be reassessed under income from other sources merely because computation under the capital gains provisions was disputed. The matter was sent back for determination of the cost of acquisition.

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Issues: (i) Whether consideration received on transfer of leasehold rights in the hotel business was assessable as capital gains and whether the cost of acquisition of such rights had to be determined. (ii) Whether, if the receipt was not chargeable as capital gains, it could be assessed under the head income from other sources.

Issue (i): Whether consideration received on transfer of leasehold rights in the hotel business was assessable as capital gains and whether the cost of acquisition of such rights had to be determined.

Analysis: The transfer in question involved acquired leasehold rights and business interests, not self-generated goodwill. The Court held that the principle in the decision dealing with determinability of acquisition cost required the income-tax authority to determine the cost of acquisition on the basis of evidence in every case where capital gains are brought to tax. The later statutory amendment introducing a deeming rule for certain intangible assets was held inapplicable to the assessment year in question. The authorities below erred in holding that the cost of acquisition could not be determined without first undertaking that exercise.

Conclusion: The receipt was capital gains, and there was a statutory obligation to determine the cost of acquisition of the leasehold rights. The issue was answered against the Revenue and in favour of the assessee.

Issue (ii): Whether, if the receipt was not chargeable as capital gains, it could be assessed under the head income from other sources.

Analysis: Once the receipt was held to fall under capital gains, it could not be shifted to another head merely because computation under one provision was disputed. The Court held that the income arising from transfer of leasehold rights fell under capital gains and not under income from other sources unless the Act otherwise provided.

Conclusion: The receipt was not assessable under income from other sources. This issue was answered against the Revenue and in favour of the assessee.

Final Conclusion: The reference was disposed of by holding that the transfer consideration was taxable under the capital gains head, with the matter sent back for determination of the cost of acquisition on evidence.

Ratio Decidendi: Where leasehold rights acquired by transfer are sold, the assessing authority must determine the cost of acquisition on the evidence; if the receipt falls under capital gains, it cannot be assessed under another head merely because computation is disputed.

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