Leasehold right transfer taxability turns on substance: receipt for assignment of tenancy rights is taxable capital gains, not surrender income.

Consideration received for relinquishing leasehold or tenancy-related rights is taxable as long-term capital gains where the substance of the arrangement shows an assignment or transfer of those rights to another tenant for value. The text distinguishes a simple surrender of tenancy rights from a transfer of a capital asset, emphasising that the operative character of the transaction depends on its real substance rather than the wording used in the documents. On the stated facts, the receipt was treated as part of a transfer arrangement and not as a non-taxable surrender receipt.

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Issues: Whether the amount of Rs. 99 lakhs received by the assessee was a capital receipt on surrender of tenancy rights or was consideration for assignment/transfer of tenancy rights giving rise to taxable long-term capital gains.

Analysis: The receipt arose from an arrangement in which the assessee cooperated in enabling the transfer of tenancy-related rights to a third tenant, and the consideration was split between the assessee and the first lessee as part of the same transaction. The substance of the arrangement, rather than the terminology used in the documents, showed that the assessee did not merely surrender tenancy to the owner. The assessee's rights in the leasehold property were relinquished in favour of another tenant for consideration, which fell within the definition of transfer of a capital asset. A leasehold interest is a capital asset, and transfer of such rights by assignment for consideration results in taxable capital gains. The reliance placed on authorities dealing with simple surrender of tenancy rights was not applicable on the facts.

Conclusion: The amount of Rs. 99 lakhs was not a non-taxable surrender receipt. It was consideration for transfer of a capital asset and was taxable as long-term capital gains, against the assessee.

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