Tenancy rights relinquishment sum taxable as capital receipt; cost of acquisition based on differential interest.

The Tribunal upheld the CIT(A)'s decision that the sum of Rs. 15 lacs received for relinquishing tenancy rights was taxable as a capital receipt. The Tribunal rejected the assessee's argument that there was no cost of acquisition for the tenancy rights and confirmed that the differential interest paid over the years should be considered as the cost of acquisition. The appeal was dismissed, directing the Assessing Officer to determine the cost of acquisition based on the discounted value of the differential interest.

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Issues Involved:
1. Taxability of Rs. 15 lacs received for relinquishment of tenancy rights.
2. Determination of cost of acquisition of tenancy rights.

Detailed Analysis:

Taxability of Rs. 15 lacs Received for Relinquishment of Tenancy Rights:
The primary issue in this case was whether the sum of Rs. 15 lacs received by the assessee-company for relinquishing its tenancy rights in the Suraj Plaza-I Building should be treated as a capital receipt liable to income tax under the head "Long Term Capital Gains." The assessee contended that this amount was a capital receipt not liable to income tax, citing the Supreme Court ruling in CIT v. B.C. Srinivasa Setty, which held that if there is no cost of acquisition of an asset, capital gains tax cannot be levied.

However, both the Assessing Officer and the CIT(A) rejected this argument. They held that the ruling in B.C. Srinivasa Setty was not applicable as it pertained to the transfer of goodwill, a self-generating asset with no cost of acquisition. In contrast, the tenancy rights acquired by the assessee had a determinable cost of acquisition.

Determination of Cost of Acquisition of Tenancy Rights:
The assessee had acquired tenancy rights through a lease agreement dated 1-7-1978, which included paying an advance of Rs. 8,50,000 at an interest rate of 6% per annum. The CIT(A) concluded that this advance payment, along with the differential interest rate (15% paid to the bank vs. 6% charged to the HUF), constituted the cost of acquisition of the tenancy rights.

The CIT(A) directed the Assessing Officer to recalculate the cost of acquisition by considering the discounted value of the differential interest over the years. This approach was in line with the Supreme Court's decision in A.R. Krishnamurthy v. CIT, which held that the cost of acquisition of leasehold rights could be determined and apportioned.

Arguments and Counterarguments:
The assessee argued that the CIT(A) had erred in applying the A.R. Krishnamurthy ruling and maintained that the tenancy rights had no cost of acquisition, thus making the Rs. 15 lacs a non-taxable capital receipt. The assessee also cited various judgments, including Rajabali Nazarali & Sons v. CIT and Bawa Shiv Charan Singh v. CIT, to support their position.

On the other hand, the Revenue argued that the Supreme Court's decision in A.R. Krishnamurthy was directly applicable, as it established that the cost of acquisition of leasehold rights could be determined. The Revenue also cited the Special Bench decision in Cadell Weaving Mill Co. (P.) Ltd. v. Asstt. CIT, which held that such receipts could be taxable.

Tribunal's Conclusion:
The Tribunal upheld the CIT(A)'s decision, stating that the facts of the case were indeed governed by the Supreme Court's ruling in A.R. Krishnamurthy. The Tribunal rejected the assessee's argument that there was no cost of acquisition for the tenancy rights and confirmed that the differential interest paid over the years should be considered as the cost of acquisition.

The appeal filed by the assessee was dismissed, and the CIT(A)'s order was upheld, directing the Assessing Officer to determine the cost of acquisition based on the discounted value of the differential interest.

Minor Issues:
The remaining paragraphs (10, 10.1, and 11) involved minor issues and were not reproduced in the summary.

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