Tenancy rights on surrender can constitute a capital asset, making the receipt taxable as capital gains.

Tenancy rights in premises were treated as a capital asset where long-standing possession, recognised occupation, and rent documents showed the assessee's interest was not a mere permissive use. A person in occupation on the relevant date could become a deemed tenant under section 15A read with section 5(11)(bb) of the Bombay Rent, Hotel and Lodging House Rates Control Act, 1947, and such tenancy rights fell within the wide meaning of property of any kind under the Income-tax Act. Accordingly, consideration received on surrender of those tenancy rights was taxable as capital gains rather than income from other sources.

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Issues: Whether the consideration received on surrender of the assessee's rights in the premises was assessable as capital gains or as income from other sources.

Analysis: The agreement dated 13 June 1972 gave the assessee permissive use of a portion of the shed incidental to the licence of looms and machinery, but the assessee was in long-standing possession and its right to occupy the premises was recognised over time. By virtue of section 15A read with section 5(11)(bb) of the Bombay Rent, Hotel and Lodging House Rates Control Act, 1947, a licensee in occupation on the relevant date became a deemed tenant. The rent receipts and subsequent documents also reflected that the parties treated the assessee's interest as tenancy rights. Such tenancy rights fall within the wide meaning of property of any kind and are recognised as capital asset under the Income-tax Act, and their surrender gives rise to capital gains.

Conclusion: The amount received by the assessee on surrender of its tenancy rights was taxable under the head capital gains and not as income from other sources.

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