Allahabad High Court
Commissioner Of Income-Tax vs Gulab Chand on 4 March, 1991
Equivalent citations: [1991]192ITR495(ALL)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
JUDGMENT B.P. Jeevan Reddy, C.J.
1. Under Section 256(1) of the Income-tax Act, 1961, the Tribunal has stated the following question :
"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the receipt of Rs. 15,000 by the assessee for the surrender of its tenancy of the godown in question was a capital gain and not a causal receipt and tax was computable thereon under the Income-tax Act, 1961, accordingly ?"
2. The assessee is an individual. It carries on the business of pawning and dealing in shares. The assessment year concerned is 1976-77. During the relevant previous year, the assessee received an amount of Rs. 15,000 by way of consideration for surrendering the tenancy of a godown occupied by him as a tenant. The godown belonged to Badri Prasad Agrawal who sold the same to one Smt. Navnita Chatterji. Smt. Navnita Chatterji paid the said amount to the assessee to get the premises vacated. In the return filed by him, the assessee disclosed the said amount as a capital gain. Later, however, he contended before the Income-tax Officer that it was not at all taxable not being a revenue receipt. The Income-tax Officer rejected this contention and held it to be a casual receipt within the meaning of Section 10(3) of the Act. Accordingly, he exempted a sum of Rs. 1,000 and brought the remaining Rs. 14,000 to tax. On appeal, the Appellate Assistant Commissioner agreed with the Income-tax Officer. On further appeal, however, the Tribunal took the view that the said amount represented a capital gain. It disposed of the appeal with the following directions :
"The result is that even though the interpretation put on behalf of the assessee on the provisions of Section 10(3) is not accepted, the position under Section 45 remains and to this extent the order of the lower authorities is not justified, and the Income-tax Officer will treat this receipt as a capital gain and compute the tax ..."
3. Thereupon, the Revenue applied for and obtained this reference. Of course, no reference has been asked for by the assessee. The assessee's counsel explains that he did not ask for a reference for the reason that the Tribunal merely directed the Income-tax Officer "to compute the tax in accordance with law" and that as and when the Income-tax Officer takes up the matter, he would contend that the said amount cannot be brought to tax under Section 45 read with Section 48 for the reason that there is no cost of acquisition of the said asset, i.e., tenancy. Be that as it may, we would proceed now to answer the question referred to us. Section 10 occurs in Chapter III which deals with "incomes which do not form part of total income". Section 10 carries the heading "Incomes not included in total income". In so far as it is relevant, Section 10 reads thus :
"10. Incomes not included in total income.--In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-
(1) agricultural income ;
(2) subject to the provisions of Sub-section (2) of Section 64, any sum received by an individual as a member of a Hindu undivided family, where such sum has been paid out of the income of the family, or, in the case of any impartible estate where such sum has been paid out of the income of the estate belonging to the family ; (2A) omitted ;
(3) any receipts which are of a casual and non-recurring nature, to the extent such receipts do not exceed five thousand rupees in the aggregate :
Provided that this clause shall not apply to-
(i) capital gains chargeable under the provisions of Section 45 ; or
(ii) receipts arising from business or the exercise of a profession or occupation ; or
(iii) receipts by way of addition to the remuneration of an employee ;"
4. The words "five thousand rupees" in Clause (3) were substituted for the words "one thousand rupees" with effect from the assessment year 1986-87. In other words, during the assessment year concerned in this reference, the exemption limit was only rupees one thousand and any receipt of a casual and non-recurring nature over and above rupees one thousand was includible in the total income.
5. It may be noted that Section 10 deals with exemption of particular types of income from being included in the total income of an assessee. Clause (3), in particular, uses the expression "any receipts". We shall, however, read the expression "receipts" as synonymous with "income" since that is the dominant theme and purpose of Section 10. It is argued for the assessee that the receipt must first be income, i.e., it must be a revenue receipt, and should not be a capital receipt If it is a capital receipt, it will not be a receipt within the meaning of Clause (3), it is argued. We find it difficult to agree with learned counsel for the assessee that the expression "receipts" occurring in Clause (3) must necessarily be revenue receipts and not capital receipts. The word "receipt" must be understood as synonymous with "income". The expression "income" has been defined in Clause (24) of Section 2 to include capital gains. It is precisely for this reason that proviso (i) to Clause (3) of Section 10 expressly excludes "capital gains chargeable under the provisions of Section 45" from the ambit of the said clause.
6. An analysis of the clause yields the following features : (i) the receipt must be of a casual and non-recurring nature ; (ii) the receipt should not be a capital gain chargeable under the provisions of Section 45 ; (iii) it should not be a receipt arising from business or the exercise of a profession or occupation; and (iv) the receipt should not be by way of addition to the remuneration of an employee. Now, the question is whether the receipt in question can be characterised as a casual and non-recurring one and if it can be, whether it is exempted under any of three sub-clauses ? On the first aspect of the question, there can hardly be any doubt; it is certainly a receipt of a casual and non-recurring nature. Coming to the second aspect of the question, Sub-clauses (ii) and (iii) are, admittedly, not relevant. The question boils down to whether the receipt in question is exempted under Sub-clause (i). For this sub-clause to be attracted, it is not enough that it is a capital receipt, but it must be a capital receipt chargeable under Section 45, Capital gains are charged to tax under Section 45. The mode of computation of a capital gain is prescribed by Section 48. The Supreme Court has held that where the cost of acquisition of an asset is nil, the capital gain is not chargeable to tax (vide CIT v. B. C. Srinipasa Setty [1981] 128 ITR 294 (SC)). On this reasoning, even if the said receipt is a capital gain, it is not a capital gain chargeable under the provisions of Section 45 for the simple reason that there was no cost of acquisition for the tenancy right (vide CIT v. Markapakula Agamma [1987] 165 ITR 386 (AP). Accordingly, it must be held to be a receipt of a casual and nonrecurring nature within the meaning of Clause (3) of Section 10. The Appellate Tribunal was in error in holding that the said receipt was a capital gain and in further directing the Income-tax Officer to compute the tax treating it as a capital gain.
7. For the above reasons, the question referred is answered in the negative, that is, in favour of the Revenue and against the assessee. There shall be no order as to costs.