Surrender of tenancy rights is a capital receipt when the transaction transfers a leasehold interest, not business profits.

Compensation received for surrender of tenancy rights in immovable property was held to be a capital receipt where the substance of the transaction showed transfer of a capital asset rather than business profits. The court applied the real nature test, finding that the assessee parted with leasehold interest with the landlord's consent, delivered vacant possession to enable expansion of another business, and transferred no stock-in-trade. Continued business elsewhere did not alter the character of the receipt. The wording used in the receipt was not conclusive in view of the surrounding circumstances and the Bombay Rent Act context, so the amount was not taxable as revenue income.

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Issues: Whether the sum received by the assessee for parting with possession of the shop and surrendering the tenancy rights was a revenue receipt taxable as business income or a capital receipt.

Analysis: The decisive test was the real nature of the transaction, not the description used in the receipt. The surrounding circumstances showed that the assessee transferred its leasehold interest in the premises with the landlord's consent, delivered vacant possession to enable the other party to expand its business premises, and did not transfer any stock-in-trade. The assessee's continuance of business in another shop did not alter the character of the payment because the receipt related to surrender of a capital asset, namely tenancy rights in immovable property. The statutory context under the Bombay Rent Act also made the wording of the receipt less conclusive, since parties may describe consideration in guarded language.

Conclusion: The amount was a capital receipt and not liable to be taxed as revenue income; the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: Compensation received for surrender of tenancy rights or other leasehold interest in immovable property is a capital receipt where the substance of the transaction shows transfer of a capital asset rather than receipt of profits or earnings from business.

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