COMMISSIONER OF INCOME TAX Vs. DELHI PUBLIC COLLEGE

JUDGEMENT

(1.) BOTH the IT reference and IT appeal are interlinked and are therefore, taken up together for disposal and these will be governed by this common judgment. In the IT reference pursuant to the direction given by this Court under S. 256(2) of the IT Act, 1961 (in short, the Act), following questions have been referred for opinion of this Court by the Tribunal, Delhi Bench 'B' Delhi (in short the Tribunal) :

(2.) FACTUAL position, in a nutshell, is as under : Assessee, a registered firm, was running a coaching institute under the name and style of Delhi Public College for more than two decades. There were two wings of coaching one at 5 B, Pusa Road, New Delhi for boys and the other at 12/24, Saraswati Marg, Karol Bagh, New Delhi for girls. Both the premises were taken on rent. There was a dispute between the assessee and the landlord in regard to the premises at Karol Bagh. It was pending before the Rent Controller, Delhi. The dispute was settled between the parties amicably. An application was filed before the Rent Controller. Delhi for eviction of the property in terms of the compromises arrived at, and assessee accordingly vacated the premises. On 28th July, 1999, search operation were carried out in the premises of the firm and its partners. Statement of Shri A.K. Manchanda, partner was recorded. In his statement, he admitted that a sum of Rs. 5,10,000 was lying in the bank locker. Out of this, a sum of Rs. 2,55,000 was received as the share for vacating the premises at 12/24, Saraswati Marg Karol Bagh, New Delhi. However, on 29th July, 1999, he resiled from his statement and took the stand that amount was generated through writing, horse racing and card playing. It was further stated that a total sum of Rs. 33,00,000 was settled for vacating the premises. Rs. 2,00,000 were received in the shape of bank drafts. The first instalment of Rs. 5,10,000 was received in cash. The AO included Rs. 35,00,000 in the income of the assessee. The amount so received was made exigible to tax as business receipt for giving up a source of income. Assessee preferred an appeal before the Commissioner of Income tax (Appeals) (in short, the 'CIT(A)'). The addition was reduced to Rs. 33,00,000 by said authority. Against the said order, assessee preferred an appeal before the Tribunal. Tribunal deleted the entire amount treating the same as amount for vacating the premises on the ground that it was received for surrender of tenancy rights and, therefore, the amount was not taxable. It was also held that when amount received by draft was so treated, there was no reason to treat amount received by cash differently. Revenue filed an application for reference, which was rejected and subsequently, as noted above, pursuant to the direction given by this Court, reference has been made.

(3.) WE have heard learned counsel for the parties. Learned counsel for the Revenue submitted that in all cases amounts received for surrender of tenancy rights cannot be held to be capital receipts. It was further submitted on the facts of the case, the Tribunal, without looking into the materials on record in their proper perspective, has observed that the amount was received for surrender of tenancy rights and it attached undue importance to the fact that Revenue wanted to treat amounts received by draft and by cash differently, whereas it was really not so. The stand of Revenue was that there was surrender of a source of income and, therefore, the amount was taxable. Learned counsel for the assessee on the other hand, submitted that there was no definite material placed on record by Revenue to show that the amount related to surrender of a source of income. On the contrary, the materials placed by the assessee clearly indicated that the amount was received for surrender of tenancy.