Tenancy rights surrendered without cost are outside capital gains and not taxable as casual income on these facts.

Receipt on surrender of tenancy rights acquired without cost was treated as not chargeable to capital gains tax, because no cost of acquisition could be attributed to the tenancy right. The same receipt was also held not to be assessable as casual and non-recurring income under section 10(3), following the Special Bench view applied on those facts. The amended section 55(2) was not applied to impose tax liability for the year in question, so the surrender consideration remained outside taxable income in the assessee's hands.

---

---

Issues: Whether the amount received on surrender of tenancy rights was taxable as capital gains or as a casual and non-recurring receipt under section 10(3) of the Income-tax Act, 1961.

Analysis: The tenancy right had been acquired long before without any cost. On that footing, the receipt could not be subjected to capital gains tax. The issue of taxability under section 10(3) was also decided in favour of the assessee by following the Special Bench view that such a receipt, on these facts, was not chargeable as casual income. The amended provision in section 55(2) was not applied to fasten tax liability on the receipt for the year in question.

Conclusion: The receipt of Rs. 15 lakhs on surrender of tenancy rights was not taxable in the assessee's hands.

Ratio Decidendi: A receipt for surrender of tenancy rights acquired without cost is not taxable as capital gains, and on the facts of the case it is also not assessable as casual and non-recurring income under section 10(3).

---