COMMISSIONER OF INCOME TAX Vs. HITASHI ESTATES LTD.

JUDGEMENT

(1.) REFERRED to as the "Tribunal") in ITA No. 1359/Del/2006 pertaining to the asst. yr. 2002 -03 inasmuch as the Tribunal has directed the AO to assess the profit/loss arising from the surrender of tenancy rights under the head "Capital gains" as claimed by the assessee.

(2.) PROPERTY No. 7, KG Marg, New Delhi was taken on rent by the assessee. Thereafter, the assessee made improvements in the said rented premises and retained the same for more than five years. The assessee had shown the said property said property to the owner for a consideration. In the year in question, the assessee showed the said property as a capital asset and the loss incurred on surrender of the tenancy right in the said property was claimed at Rs. 14,10,737 after claiming the benefit of indexation. The AO did not allow this claim. The Commissioner of Income -tax (Appeals) [hereinafter referred to as "CIT(A)"] also confirmed the stand taken by the AO.

(3.) BEFORE the Tribunal, the assessee contended that the tenancy right was a capital asset, particularly, in view of the Supreme Court decision in the case of CIT vs. D.P. Sandu Bros. Chembur (P) Ltd. (2005) 193 CTR (SC) 578 : (2005) 273 ITR 1 (SC) and that the profit on transfer of the said asset would be chargeable to tax under the head "Capital gains". It was contended that the cost of acquisition of the said capital asset (the tenancy right) in the hands of the assessee was nil. However, substantial improvements to the extent of Rs. 33,37,847 were made in respect of the said capital asset in different years. Upon indexation, the same came to Rs. 56,10,337. On behalf of the assessee it was contended that the cost of improvement incurred by the assessee had been wrongly shown as stock -in -trade in its books of accounts and it is on the basis of such wrong treatment that the tenancy right was held to be stock -in -trade by the AO. It was contended that since the accounting treatment given by the assessee was patently wrong, AO as well as the CIT(A) were not justified in deciding the nature of the tenancy right as being stock -in -trade of the assessee's business relying on such wrong treatment. The assessee contended that its business was purchase and sale of properties and not to acquire tenancy rights and sell the same so as to construe tenancy rights as its stock -in -trade.