Capital receipt from surrender of tenancy rights cannot be taxed as casual income under Section 10(3).

Surrender of inherited tenancy rights was treated as a transfer of a capital asset, because the tenancy rights were held to be heritable on the facts and in law. The amount received on surrender was therefore characterised as a capital receipt and could not be taxed as casual and non-recurring income under Section 10(3) of the Income-tax Act, 1961. The court also noted that any inability to compute capital gains did not justify shifting the receipt to the residuary head of income. The question of law was answered against the Revenue and in favour of the assessee.

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Issues: Whether the amount received on surrender of tenancy rights was taxable as a casual and non-recurring receipt under Section 10(3) of the Income-tax Act, 1961.

Analysis: The receipt arose from surrender of inherited tenancy rights. Tenancy rights were held to be heritable on the facts and in law, and the surrender was treated as a transfer of a capital asset. The amount received on such surrender was therefore a capital receipt. Once the receipt was characterised as capital in nature, it could not be brought to tax as casual income under Section 10(3). The inability or failure to compute capital gains was also not a basis to shift the receipt to the residuary head of income.

Conclusion: The amount received for surrender of tenancy rights was not taxable under Section 10(3) of the Income-tax Act, 1961, and the question of law was answered against the Revenue and in favour of the assessee.

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