Commissioner of Income Tax vs Mahendra R. Divecha

D.A. Mehta, J.—The following questions has been referred by the Tribunal, Ahmedabad Bench "A", under s. 256(2) of the IT Act, 1961 (the Act), at the instance of the CIT:

Whether, the Tribunal is right in law and on facts" in holding that the provisions of Section 10(3) have been wrongly invoked by the ITO in bringing to tax the consideration received by the assessee in lieu of surrender of tenancy rights ?

The assessment year is 1982-83 and the relevant accounting period is 31st March, 1982. The assessee, an individual, was a statutory tenant. On surrender of his tenancy rights, he got residential premises in another housing society at a cost of Rs. 60,000, and such cost was paid by the purchaser of the tenancy rights, on behalf of the assessee. The AO adopted the market value of property at a sum of Rs. 80,000 and after allowing statutory deduction of Rs. 1,000, taxed the assessee on an income of Rs. 79,000 u/s 10(3) of the Act.

On appeal, the Dy. CIT(A) held that provisions of Section 10(3) of the Act could not be invoked since the present transaction had resulted in capital receipt which could be brought to tax only u/s 45 of the Act.

The Revenue carried the matter in appeal before the Tribunal and placed reliance on decision of the Allahabad High Court in case of Commissioner of Income Tax Vs. Gulab Chand, . The Tribunal, however, did not accept the contention raised on behalf of Revenue, and following the apex Court decision in case of A. Gasper Vs. Commissioner of Income Tax, Calcutta, , confirmed the order of Dy. CIT(A).

Mr. K.M. Parikh, the learned standing counsel for the applicant-Revenue, has been heard. Though served, there is no appearance on behalf of respondent.

Mr. Parikh has very fairly invited attention to the decision of the apex Court in case of Commissioner of Income Tax, Mumbai Vs. D.P. Sandu Bros. Chembur (P) Ltd., , to point out that the issue raised stands concluded in favour of the assessee by the judgment of the Supreme Court. In this fact situation, it is not necessary to set out the contentions in detail.

Applying the ratio of the apex Court decision in case of CIT v. D.P. Sandu Bros, (supra), it is clear that tenancy rights is a capital asset and surrender thereof would attract Section 45 of the Act so that the consideration received on transfer would be a capital receipt assessable under the head "Capital gains" only. Such consideration cannot be treated as a casual and non-recurring receipt u/s 10(3) so as to bring it to tax u/s 56 of the Act.

In the result, the question is answered in the affirmative i.e., in favour of the assessee and against the Revenue. There shall be no order as to costs.