Tenancy surrender receipt treated as capital receipt, with no capital gains or business income tax exposure.

A payment received by a tenant on surrender of tenancy rights was treated as consideration for relinquishment of a capital asset, not as compensation for business loss or interruption. Although tenancy rights can constitute a capital asset, capital gains taxation could not apply because no identifiable cost of acquisition for those rights existed, so the computation provisions under the Income-tax Act could not be invoked. The receipt also did not qualify as business income because it was unrelated to business operations or loss. The amount was therefore a capital receipt and not taxable as capital gains or revenue income.

---

---

Issues: Whether the amount received by a tenant on surrender of tenancy rights and vacating the premises was a capital receipt and, if so, whether it was chargeable to tax as capital gains or as business income.

Analysis: The receipt was paid in consideration of relinquishment of tenancy rights and not as compensation for loss of business or earnings. A tenancy right is capable of being a capital asset, but where no cost of acquisition can be identified for acquiring that right, the computation provisions for capital gains cannot be applied. In such a situation, section 45 of the Income-tax Act, 1961 cannot be invoked to levy capital gains tax. The payment also did not fall within business income under section 28, since it was not made for any business loss or interruption.

Conclusion: The receipt was a capital receipt in the hands of the assessee and was not taxable as capital gains or as revenue income.

---