COMMISSIONER OF INCOME TAX Vs. FRICK INDIA LTD.

JUDGEMENT

(1.) THIS appeal by the Revenue under Section 260A of the Income Tax Act, 1961 ('Act', for short) relates to assessment year 1997 -98 and was admitted for hearing vide order dated 28th November, 2002, on the following substantial question of law: -

(2.) THE respondent -assessee, a company, in their return for the assessment year in question had declared long -term capital gains of Rs.6.78 crores on account of surrender of tenancy rights, which were acquired during the financial year 1972 -73 in Jeevan Vihar Building, Parliament Street, New Delhi. The said tenancy right was acquired by way of a written lease executed by the landlord -Life Insurance Corporation of India (LIC) for a period of 3 years commencing from 15th March, 1973. After the end of the said term of 3 years, the respondent assessee continued to occupy the premises as a tenant, but no fresh written document was executed. On 24th January, 1997, the respondent -assessee entered into a Memorandum of Understanding ('MoU') with Bank of Tokyo, Mitsubishi and received Rs.6.78 crores upon fulfilling the following conditions, (a) they shall deliver to the LIC a letter, draft of which was enclosed with the MOU, informing their decision to vacate the tenanted area; (b) they shall surrender the tenancy of the tenanted area on or before 18th February, 1997; and, (c) they shall provide to the bank a duly certified copy of the resolution adopted by them as stipulated in draft enclosed as Annexure -B to the MOU. There were certain other stipulations also. On fulfilling the said stipulations, the respondent assessee vacated the tenanted premises and received the aforesaid payment. As noticed above, the payment was offered to be taxed as long -term capital gain.

(3.) THE Commissioner of Income Tax (Appeals) dismissed the appeal of the respondent -assessee agreeing with the reasons of the Assessing Officer that at the beginning of every month, a new tenancy was created and thus a new capital asset had come into existence on 1st February, 1997. This new tenancy was relinquished on 18th February, 1997, which meant that the period of holding was less than 36 months. The Commissioner of Income Tax (Appeals) further observed that unless the respondent -assessee had paid rent for each month, possession of the property would not have continued.