Tenancy rights as long-term capital asset: holding period runs from original acquisition, not a notional monthly renewal.

Tenancy rights surrendered for capital gains were treated as a long-term capital asset because the relevant test under section 2(42A) was the period for which the assessee had held and enjoyed those rights, not the notion that a fresh month-to-month tenancy arose each month after expiry of the original term. Leasehold and tenancy interests qualify as capital assets, and "held" includes possession and enjoyment of such rights. As the assessee acquired the tenancy in 1973 and remained in possession with rent accepted until surrender in 1997, the holding period ran from the original acquisition. The surrender consideration was therefore taxable as long-term capital gain.

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Issues: Whether the tenancy rights surrendered by the assessee constituted a long-term capital asset or a short-term capital asset for the purpose of capital gains tax.

Analysis: The relevant inquiry was the period for which the assessee had held the tenancy rights, not whether a fresh month-to-month tenancy notionally arose each month after expiry of the original term. Leasehold and tenancy interests are capital assets, and the word "held" in section 2(42A) of the Income-tax Act, 1961 has to be understood broadly to include possession and enjoyment of such rights. The assessee had acquired tenancy rights in 1973 and continued in possession with rent accepted by the landlord until surrender in 1997. On the facts, the tenancy was not a new asset created in February 1997. The period of holding therefore ran from the original acquisition of the tenancy right.

Conclusion: The tenancy rights were held for more than 36 months and the surrender consideration was rightly treated as long-term capital gain. The question of law was answered in favour of the assessee and against the Revenue.

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