Income Tax Appellate Tribunal - Madras
Income-Tax Officer vs Associated Pharmaceutical Industries ... on 30 July, 1993
Equivalent citations: [1993]47ITD656(MAD)
ORDER
T.N.C. Rangarajan, Vice President
1. This appeal relates to the assessment of the amount received for surrendering the leasehold rights by the assessee.
2. The assessee is a company. A large piece of land measuring 22 grounds was owned by Mrs. Aruna Devi Jajodia. The assessee had mortgaged the property in favour of M/s. Bharat Nidhi Ltd. The mortgagee filed a suit for the recovery of the principal and interest and obtained a decree from the High Court, Calcutta. The assessee paid the principal and had the decree assigned in its name. Thereafter, the owner of the property granted a lease of the property for 33 years on 25th December, 1968 in consideration of the interest payable on the loan. In the previous year ended 31-5-1982 corresponding to the assessment year 1983-84, the owner sold 8 grounds out of the 22 grounds of land. Since the assessee had leasehold rights for the remaining period of 17 years, the purchaser of the property gave the assessee a sum of Rs. 1,50,000 for surrendering that leasehold right. The assessee claimed that this was a capital receipt and since there was no cost of acquisition, it was not liable to be taxed. The ITO treated the amount paid by the assessee for the assignment of the decree as cost of acquisition of the lease of 22 grounds and capitalised it at 9 per cent for a period of 33 years and took the proportionate cost of acquisition for the 8 grounds at Rs. 22,658. He accordingly brought the difference of Rs. 1,27,342 to tax as long term capital gain.
3. On appeal, the CIT (Appeals) found that the amount paid for assignment of the decree could not be regarded as the cost of acquisition of the leasehold rights. He was of the view that the leasehold right was acquired wit lout any cost and in the light of the decision of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294, the capital gains could not be taxed as it could not be computed.
4. The revenue is in appeal to contend that the decision of the Supreme Court in the case of B.C. Srinivasa Setty (supra) could not be applied to the facts of the case. However, there are several decisions ending with CIT v. Joy Ice-Creams (Bang.) (P.) Ltd. [1993] 201 ITR 894 (Kar.) and referred to in that decision, which hold that B.C. Srinivasa Setty's case (supra) applies to the surrender of leasehold rights and the consideration for surrendering the tenancy is in the nature of a capital receipt not chargeable to tax under Section 45 of the IT Act.
5. In view of this position, the revenue raised an alternate contention based on the decision in the case of CIT v. Gulab Chand [1991] 192 ITR 495 (All.). That was also a case where a tenancy right of a godown had been surrendered and the claim was made that the capital gains cannot be brought to tax. However, the Allahabad High Court held that the amount could be characterised as a casual and non-recurreing receipt and since it is not exempt under Section 10(3), proviso (i) it will be taxable under that Section. It was submitted that since the facts of this case are similar to that case, the capital gains which cannot be taxed under Section 45 must be taxed under Section 10(3). This was resisted by the assessee by pointing out that Section 10(3) is not a charging section but in fact an exempting section. It was submitted that what otherwise would be chargeable would be exempt under Section 10(3) if it were of casual and non-recurring nature. It was pointed out that even the Allahabad High Court had read the expression "receipt" in Section 10(3) as synonymous with "income" and once it is held that the receipt in this case was of a capital nature, it falls outside the purview of the Income-tax Act itself and could not be brought to tax unless it falls under Section 45.
6. Particular reference was made to the decision of the Supreme Court in the case of A. Gasper v. CIT [1991] 192 ITR 382. In that case also, the question that arose was whether an amount received for surrendering leasehold right was exigible to capital gains tax. The Supreme Court refused to entertain that question because it had not been raised at the first instance. But the Supreme Court observed that 'the contention raised on behalf of the assessee had great force and if it were open to it to raise this issue before us we may have had to decide it in its favour. At the end of the case, the Supreme Court further observed :
As we have stated earlier, it does not appear that, on merits, the assessee has a good case in view of the decision of the Supreme Court earlier referred to, which we are unable to consider for the 'technical' reasons given above. If so advised, it will be open to the assessee to apply to the Central Board of Direct Taxes for administrative relief by abstaining from recovering the tax that has been levied on this amount if it has not already been recovered. If such an application is made, the Central Board will no doubt consider the same sympathetically and expeditiously.
It was submitted that if the amounts were otherwise taxable, the Supreme Court would not have made those observations.
7. We have carefully read the decisions of the Supreme Court and the Allahabad High Court. We find that the Allahabad High Court, which decided the case on 4th March, 1991, did not have the benefit of the Supreme Court judgment given on 21st August, 1991. It is not disputed by the revenue that the receipt was a capital receipt and was not of an income nature. A capital receipt can be taxed as deemed income only if it falls under Section 45. This basic fact is probably the reason why' the Supreme Court had in the case of A. Gasper (supra) directed the CBDT to refund the tax collected on a transaction which cannot fall for assessment under Section 45. In the circumstances, we are of the opinion that we are bound to follow the decision of the Supreme Court in the case of A. Gasper (supra) and confirm the order of the CIT (Appeals).
8. In the result, the appeal is dismissed.