1989 (9) TMI 46 - HC - Income Tax

High Court affirms Tribunal's decision on capital receipt tax exemption

The High Court ruled in favor of the assessee, affirming the Tribunal's decision that the amount received for vacating business premises was a capital ... Capital Gains Issues involved: The judgment addresses the questions of law referred by the Income tax Appellate Tribunal regarding the tax treatment of an amount received by the assessee for vacating business premises and the applicability of capital gains tax in the case.Issue 1 - Tax Treatment of Amount Received for Vacating Business Premises:The respondent-assessee, a private limited company, received Rs. 38,300 as consideration for vacating business premises it had rented. The Income-tax Officer treated this amount as a trading receipt, while the Commissioner of Income-tax (Appeals) considered it a capital receipt. The Income-tax Appellate Tribunal upheld the view that the amount was not relatable to the business activity and constituted a capital receipt. The Tribunal's decision was based on the premise that the premises were surrendered to the vendee of the landlord, not the landlord directly, indicating a capital nature of the receipt.Issue 2 - Applicability of Capital Gains Tax:The Tribunal further deliberated on whether capital gains tax could be levied in this case. Citing the decision in Bawa Shiv Charan Singh v. CIT, the Tribunal concluded that no tax on capital gains could be imposed as there was no identifiable cost of acquisition for the transfer of the tenancy right. The Tribunal reasoned that the intangible nature of the tenancy right made it impossible to ascertain the cost of acquisition or improvement, aligning with the decision of the Delhi High Court and the Supreme Court's precedent in CIT v. B. C. Srinivasa Setty.The High Court, after considering the arguments presented, affirmed the Tribunal's findings. It concurred with the view that the amount received was a capital receipt not linked to the business activity. The Court also agreed with the Tribunal's interpretation of the capital gains tax implications, emphasizing the intangible and self-created nature of the tenancy right, which precluded the application of computation provisions for quantifying capital gains. The Court referenced previous decisions supporting the stance that consideration for parting with a tenancy right is not subject to capital gains tax when the cost of acquisition cannot be determined.In conclusion, the High Court ruled in favor of the assessee on both issues. It upheld the Tribunal's decision that the amount received was a capital receipt and that no tax on capital gains could be levied due to the unascertainable cost of acquisition for the tenancy right. The judgment was forwarded to the Income-tax Appellate Tribunal for further action.