COMMISSIONER OF INCOME TAX Vs. ARUN KUMAR SEN

JUDGEMENT

(1.) This is a reference under Section 256(1) of the Income Tax Act, 1961 , arising out of the assessment year 1973-74, seeking opinion of the High Court on the following three questions of law, out of which the first question is stated at the instance of the Department while the remaining two questions are stated at the instance of assessed :

(2.) The assessed had received Rs. 50,000 on January 7, 1973, from Northern Enterprises (P.) Ltd., as compensation for surrendering possession of house No. 13, Narendra Place, New Delhi. The house was rented by the father of the assessed and on his death, the tenancy rights had devolved on the assessee. The case of the assessed was that the tenancy was not an enforceable right and the sum of Rs. 50,000 was a casual receipt of capital nature. It was also urged that this amount was a compensation for the maintenance and upkeep of the house. The Income Tax Officer held that the assessed had a right of occupation under the rent control law and there were negotiations prior to receiving the payment, which made it a business deal but since the right to tenancy was a capital asset, it had to be treated as a capital gain. As there was no cost involved in acquiring this property by the assessee, the Income Tax Officer brought to tax the sum of Rs. 50,000 as long-term capital gains. The order of the Income Tax Officer was upheld in appeal by the Appellate Assistant Commissioner.

(3.) The assessed went in appeal to the Tribunal. The Tribunal held that the transfer resulting in payment of Rs. 50,000 would fall under the definition of transfer of capital asset. Under Section 2(47), transfer in relation to a capital asset included relinquishment of the asset. Relinquishment by the assessed of the right to transfer, in the house clearly fell within the definition of transfer under Section 2(47), in the opinion of the Tribunal. The Tribunal rejected the contention advanced on behalf of the assessed that it was a voluntary payment by the landlord without any consideration. However, the Tribunal further formed an opinion that there being no cost of acquisition of the tenancy by the assessee, in the same manner as goodwill could not be taxed on account of there being no cost of acquisition thereof, the compensation received by the assessed was also not taxable. In forming this opinion, the Tribunal relied on the Delhi High Court decision in Jagdev Singh Munick V/s. CIT, 1971 81 ITR 500, and the Madras High Court decision in CIT V/s. K. Rathnam Nadar, 1969 71 ITR 433.