COMMISSIONER OF INCOME TAX Vs. MERCHANDISERS PRIVATE LIMITED

JUDGEMENT

(1.) At the instance of the Revenue, the Income tax appellate Tribunal has referred the following two questions of law for the decision of this Court:

(2.) The respondent assessee is a private limited company. We are concerned with the assessment year 1978-79. During the relevant previous year, the assessee stopped its business and vacated the business premises which it had taken on rent in 1966. It received a sum of Rs. 38,300/- from the vendee of the landlord as consideration for vacating the premises. The Income Tax Officer brought the said amount to tax as a trading receipt. In appeal, the Commissioner of Income tax (Appeals) held the receipt to be a capital one and ordered a remit. He also observed that in making the assessment the Income tax Officer shall bear in mind the decision of the Supreme Court in C.I. T. v. Srinivasa Setty (128 I.T.R. 294). The Revenue took up the matter in appeal before the Income tax Appellate Tribunal and contended that the CIT (A) was in error in holding that the amount received by the assessee was a capital receipt. The assessee also filed an appeal from the order of the CIT (A) questioning the correctness of the restoration of the matter to the Income tax Officer for making the assessment of possible capital gains. These two appeals were considered together and a common order was passed by the Income tax Appellate Tribunal dated 24-11-1984. The Tribunal held that the premises taken on lease for the business by the assessee was surrendered to the vendee of the landlord and not to the landlord and so the amount received is not relatable to the business activity carried on by the assessee. The finding of CIT (A) that the amount received constituted a capital receipt was upheld. Following the decision of the Delhi High Court in Bawa Shiv Charan Singh v. C.I.T. (149 I.T.R. 29), the Appellate Tribunal held that no tax on capital gains can be levied, since there was no cost of acquisition for the transfer of a tenancy right in the instant case. It is, thereafter, at the instance of the Revenue, the Income tax Appellate Tribunal has referred the questions of law, formulated herein above, for the decision of this Court.

(3.) We heard counsel. Mr. N.R.K. Nair, counsel for the Revenue, very vehemently contended that the Tribunal was in error in holding that the decision of the Delhi High Court in Bawa Shiv Charan Singh v. C.I.T. (149 I.T.R. 29) is applicable and so no tax on capital gains can be levied in the present case. Counsel for the assessee submitted that the ratio of the decision of the Delhi High Court in the said case is clearly applicable and that the decision of the Appellate Tribunal holding, that no capital gains tax is exigible in the instant case, is justified.