Capital gains on composite tenancy and ownership rights require apportionment based on the real character of each interest transferred.

Composite rights in a shop premises must be split for capital gains purposes where the transfer includes both tenancy-related and ownership interests. The consideration is attributable to each distinct right according to its real character, and the taxable gain must be worked out separately for each component. The contention that capital gains provisions were excluded because the cost of acquisition was indeterminable was rejected in principle where at least part of the acquisition cost, including the ownership component, was ascertainable. The cost of the tenancy element required fresh examination, so the apportionment and tax consequences had to be determined again on remand.

---

---

Issues: (i) Whether the consideration received on transfer of the shop premises had to be apportioned between the assessee's tenancy rights and ownership rights for the purpose of computing capital gains. (ii) Whether the capital gains provisions were inapplicable because the cost of acquisition of the assessee's rights was said to be indeterminable.

Issue (i): Whether the consideration received on transfer of the shop premises had to be apportioned between the assessee's tenancy rights and ownership rights for the purpose of computing capital gains.

Analysis: The assessee had originally held tenancy rights and later acquired ownership rights in the premises through the co-operative society arrangement. The transfer consideration could not be treated as referable only to ownership rights, because a substantial part of the price was attributable to the occupancy component derived from the earlier tenancy interest. The fact that the rights may have merged in a technical sense did not justify ignoring the distinct character of the two interests for the purpose of computing the taxable gain.

Conclusion: The sale consideration had to be apportioned between tenancy-related rights and ownership rights, and the gains on each had to be worked out separately.

Issue (ii): Whether the capital gains provisions were inapplicable because the cost of acquisition of the assessee's rights was said to be indeterminable.

Analysis: The payment made to the society was traceable to the acquisition of ownership rights and could not be treated as a mere contribution devoid of cost significance. The contention that no portion of the assessee's rights had any determinable cost was rejected. At the same time, the cost of acquisition of the tenancy element had not been examined and therefore the taxability of the portion relatable to tenancy rights could not be finally decided on the existing record. If the tenancy right was found to have been acquired without cost, the principle excluding indeterminable-cost assets would apply to that portion.

Conclusion: The capital gains provisions were not excluded in principle, but the matter required fresh examination of the cost and apportionment of the respective rights.

Final Conclusion: The matter was sent back for fresh determination of the apportionment and the respective capital gains consequences of the tenancy and ownership components.

Ratio Decidendi: Where an assessee transfers composite rights consisting of distinct tenancy-related and ownership interests, the consideration and capital gains must be apportioned according to the real character of the interests transferred, and the rule excluding indeterminable-cost assets does not bar taxation where at least part of the cost of acquisition is ascertainable.

---