COMMISSIONER OF INCOME TAX Vs. MIHIR TEXTILES LIMITED

JUDGEMENT

(1.) THE pertinent and relevant facts, in brief, are as under :

(2.) THE present reference thus raises the following questions : At the Revenue's instance :

(3.) WE now come to the question No. 1 at the assessee's instance viz. the treatment to be given to the payment of Rs. 45,000 made by the assessee for the purpose of acquiring tenancy rights in the shop in question, and as to whether the same is an expenditure of a capital nature. Even this aspect is covered by a number of decisions. The Madhya Pradesh High Court in the case of CIT vs. Lucky Bharat Garage (1989) 75 CTR (MP) 73 : (1988) 174 ITR 526 (MP) has held that when the assessee in question made payment which represented the acquiring of tenancy rights, the assessee in fact acquired a right to possession which was of an enduring nature and therefore, such expenditure for the acquisition of such a right was capital in nature. A similar view has been taken by the Calcutta High Court in the case of Chloride India Ltd. vs. CIT (1980) 18 CTR (Cal) 356 : (1981) 130 ITR 61 (Cal). In this decision it has been held that on the facts of the case the amount was paid for acquiring a right to possession, which right was a capital of enduring nature and as such the amount of payment made was to be treated as capital expenditure. This Court in the case of Rajabali Nazarali and Sons vs. CIT (1986) 55 CTR (Guj) 154 : (1987) 163 ITR 7 (Guj) has considered in detail and reiterated the above principle. This decision holds that a lease creates an interest in immovable property and transfer of leasehold rights, which are protected by the provisions of Rent Restriction statutes, is nothing but a transfer of a capital asset. The price paid to acquire such leasehold rights can only be held to be payment on capital account, there being no revenue quality attributable to the same. Therefore, any payment received, whether by way of compensation or under any other nomenclature, for parting with the capital assets, viz. the demised premises, can only be described as a capital receipt. There are a number of other decisions on the point such as the decision of the Madras High Court in Ramakrishna & Co. vs. CIT (1973) 88 ITR 406 (Mad), decision of the Madhya Pradesh High Court in CIT vs. Project Automobiles (1988) 67 CTR (MP) 152 : (1987) 167 ITR 781 (MP) and the decision of the Calcutta High Court in CIT vs. Hemraj Mahabir Prasad (P) Ltd. (1989) 179 ITR 73 (Cal). Thus, this question No. 1 at the instance of assessee must be answered in the affirmative i.e. the amount paid for transfer of tenancy rights in the shop is an expenditure of a capital nature.