Commissioner of Income Tax vs R.V. Briggs and Co. (P.) Ltd.

Ajit Kumar Sengupta, J.—In this reference u/s 256(1) of the income tax Act, 1961, (''the Act''), the following question of law has been referred to this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that extinguishment of tenancy right is not exigible to capital gain?

This reference relates to the assessment year 1966-67 for which the previous year ended on 30-9-1965. During the previous year the assessee-company relinquished its tenancy right at Old Court House Street, Calcutta, for a consideration of Rs. 85,000. This was not, however, brought to tax in the original assessment made on 11-1-1967. The ITO subsequently took the view that the relinquishment of tenancy right was transfer of capital asset and the gain derived from such transaction results in taxable income under the head ''Capital gains''. The reassessment proceeding was initiated u/s 147(a) on the ground that the income to that extent escaped assessment on account of failure on the part of the assessee to disclose fully and truly all material necessary for assessment.

In the reassessment proceeding the assessee contested the chargeability of the said sum of Rs. 85,000 received by it. The assessee''s contention was that the surrender of tenancy rights could not result in such gains as could be exigible to tax as capital gains, and in support relied on the decision of the Supreme Court in the case of Commissioner of Income Tax, Bangalore Vs. B.C. Srinivasa Setty, The ITO held that in view of the decision of this Court in A. Gasper Vs. Commissioner of Income Tax, the consideration received for surrender of the tenancy right was exigible to tax as capital gains. The ITO, however, determined the cost of acquisition of the tenancy rights at Rs. 25,000 and deducted the same from the total consideration and the balance, i.e., Rs. 60,000, was brought to tax as capital gains. The assessee''s appeal before the Commissioner (Appeals) failed. The assessee brought the matter in appeal before the Tribunal.

Apart from assailing the assessment on the merits the assessee also raised a preliminary contention challenging the validity of the action of the officer in assuming jurisdiction u/s 147. On the merits the assessee contended before the Tribunal that the ratio of this Court in A. Gasper''s case (supra) was wrongly applied. According to the assessee, the decision lost its relevance in the light of the later decision of the Supreme Court in B.C. Srinivasa Setty''s case (supra). The assessee''s case was that since the tenancy right had no cost of acquisition, the ratio in the decision of the Supreme Court should apply. The relinquishment of an asset without any cost of acquisition as in goodwill may be for consideration to attract capital gain but the computation machinery, i.e., section 48 of the Act cannot be set in motion as it predicates the existence of cost of acquisition. The assessee further relied on the decision of the Delhi High Court in Bawa Shiv Charan Singh Vs. Commissioner of Income Tax, Delhi, wherein in identical circumstances the Delhi High Court following the said decision of the Supreme Court held that the transfer of the tenancy right or lease right cannot attract the capital gains tax. The Tribunal accepted the assessee''s contention and following the decision of the Delhi High Court in Bawa Shiv Charan Singh''s case (supra) deleted the addition made on account of capital gains.

We have heard the rival submissions. The issue is, however, concluded by the decision of this Court in Commissioner of Income Tax Vs. Mangtu Ram Jaipuria, There it has been held that where there is no cost of acquisition on the tenancy right, there could be no chargeability in respect of the consideration received for transfer or surrender of tenancy rights, to tax as capital gains. In the said decision this Court apart from the decision of the Supreme Court in B.C. Srinivasa Setty''s case (supra), noticed similar decisions of the Andhra Pradesh High Court in Commissioner of Income Tax Vs. Markapakula Agamma, and of Kerala High Court in Commissioner of Income Tax Vs. Merchandisers (P.) Ltd.,

It may be mentioned in this connection that the Supreme Court impliedly disapproved the earlier Calcutta view in A Gasper''s case (supra) in its decision on the appeal therefrom, in A. Gasper Vs. Commissioner of Income Tax, Calcutta, The appellant in its appeal to the Supreme Court from the said decision of this Court raised the contention that its monthly lease of the property was not acquired at any cost and, therefore, even assuming that it was a capital asset, it was of such a nature that its actual cost of acquisition could not be ascertained. The Supreme Court did not allow the assessee to raise that contention because the question as framed did not raise that particular issue but at the same time the Supreme Court observed that the contention raised is sound, but technically could not be the subject-matter of pronouncement by the Supreme Court. In any case, following the decision of this Court in Mangtu Ram Jaipuria''s case (supra), we answer the question in the affirmative and against the revenue. There will be no order as to costs.

Sen, J. -

I agree.