{"id":13351,"date":"2020-10-28T09:58:56","date_gmt":"2020-10-28T09:58:56","guid":{"rendered":"https:\/\/itatonline.org\/digest\/cit-v-d-p-sandhu-bros-chembur-p-ltd-2005-273-itr-1-142-taxman-713-193-ctr-578-185-taxation-471-sc\/"},"modified":"2020-10-28T09:58:56","modified_gmt":"2020-10-28T09:58:56","slug":"cit-v-d-p-sandhu-bros-chembur-p-ltd-2005-273-itr-1-142-taxman-713-193-ctr-578-185-taxation-471-sc","status":"publish","type":"post","link":"https:\/\/itatonline.org\/digest\/cit-v-d-p-sandhu-bros-chembur-p-ltd-2005-273-itr-1-142-taxman-713-193-ctr-578-185-taxation-471-sc\/","title":{"rendered":"CIT v. D. P. Sandhu Bros. Chembur (P.) Ltd. (2005) 273 ITR 1\/142 Taxman 713\/193 CTR 578\/185 Taxation 471 (SC)"},"content":{"rendered":"

Facts<\/h3>\n

The assessment year in question is 1987-88. The lease agreement was entered in 1959 for 50 years under which an annual rent was paid by the lessee\/assessee to\u00a0 the lessor. The lease would have continued till 2009. During the relevant previous year, in March 1986, the assessee surrendered its tenancy right to its lessor prematurely. In consideration for such premature termination, the lessor paid the assessee\/lessee a sum of Rs.35 lakhs. In the assessee\u2019s return the sum of Rs.35\u00a0\u00a0 lakhs had been credited to its reserve and surplus account. This was disallowed\u00a0\u00a0\u00a0 by the Assessing Officer who held that the amount of Rs.35 lakhs was taxable as \u201cincome from other sources\u201d under Section 10(3) read with Section 56 of the \u2018Act\u2019.\u00a0 The assessee appealed to the Commissioner of Income Tax (Appeals) who came\u00a0 to the conclusion that the assessee was liable to pay capital gains on the amount of Rs.35 lakh after deducting an amount of Rs.7 lakhs as the cost of acquisition. The Commissioner had determined the cost of acquisition at Rs.7 lakhs on the basis\u00a0\u00a0\u00a0\u00a0 of the market value of the property as on 1.4.1974. Both the Department and the assessee challenged the decision of the Commissioner before the Tribunal. The Tribunal relied upon the decision of this Court in CIT v. Srinivasa Setty (1981)\u00a0 128 ITR 294\/(1981) 2 SCC 460 <\/em><\/strong>as\u00a0 well as\u00a0 the\u00a0 amendment to Section 55(2)\u00a0 of the Act in 1995 and held that the assessee did not incur any cost to acquire the leasehold rights and that if at all any cost had been incurred it was incapable of being ascertained. It was therefore held that since the capital gains could not be computed as envisaged in Section 48 of the\u2019Act\u2019, therefore capital gains earned by the assessee if any was not exigible to tax. The Department preferred an appeal before the High Court. The\u00a0 High Court dismissed the appeal. Being aggrieved\u00a0 by the decision of the High Court, this further appeal has been preferred by the Department.<\/p>\n

\u00a0<\/p>\n

Issue<\/h3>\n

The primary question involved in this appeal is whether the amount received by the respondent-assessee on surrender of tenancy rights is liable to capital gains\u00a0\u00a0\u00a0 tax under Section 45 of the Income tax Act, 1961.<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

Views<\/h3>\n

In 1981 the Court in CIT v.\u00a0 B. C. Srinivasa Setty (1981) 128 ITR 294\/(1981) 2\u00a0\u00a0 SCC 460 <\/em><\/strong>held that the transactions encompassed by Section 45 must fall within\u00a0 the computation provisions of Section 48. If the computation as provided under Section 48 could not be applied to a particular transaction, it must be regarded as \u201cnever intended by Section 45 to be the subject of the charge\u201d. In that case, the Court was considering whether a firm was liable to pay capital gains on the sale\u00a0\u00a0\u00a0 of its goodwill to another firm. The Court found that the consideration received\u00a0\u00a0\u00a0 for the sale of goodwill could not be subjected to capital gains because the cost\u00a0\u00a0\u00a0\u00a0\u00a0 of its acquisition was inherently incapable of being determined. Pathak J. as his Lordship then was, speaking for the Court said:<\/p>\n

\u201cWhat is contemplated is an asset in the acquisition of which it is possible\u00a0\u00a0\u00a0 to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class it may, on the facts ofcertain case, be acquired without the payment of money.\u201d<\/em><\/p>\n

\u00a0<\/em><\/p>\n

Held<\/h3>\n

Dismissing the revenue\u2019s appeal, the court held that, the tenancy rights is a capital asset, the surrender of the tenancy rights is a \u201ctransfer\u201d and the consideration received therefore is a capital receipt within the meaning of Section 45 has not\u00a0 been questioned before us and must in any event be taken to be concluded by\u00a0\u00a0\u00a0\u00a0\u00a0 the decision of this Court in A. Gasper v.\u00a0 CIT (1991)\u00a0 192 ITR 382 (SC). <\/em><\/strong>Normally the consideration would therefore be subjected to capital gains under Section<\/p>\n

    \n
  1. Futher court held that, an asset which is capable of acquisition at a cost would be included within the provisions pertaining to the head \u2018capital gains\u2019 as opposed to assets in the acquisition of which no cost at all can be conceived. Then the court considered the Circular issued by the Central Board of Direct Taxes Circular No.684 dated 10th June 1994 wherefrom it was observed by the court that, to meet the situation created by the decision in Srinivasa Setty and \u00a0the subsequent decisions of the High Court that the Finance Act 1994 amended Section 55(2) to provide that the cost of acquisition of inter alia <\/em>a tenancy right would be taken as nil. By this amendment, the judicial interpretation put on capital assets for the purposes of the provisions relating to capital gains was met. Inother words the cost of acquisition would be taken as determinable\u00a0 \u00a0but the rate would be nil. Further the court considered the aspect of effective period of stated amendment by Finance Act, 1994 to which court noted that, amendment took effect from 1st April, 1995 and accordingly applied in relation\u00a0\u00a0\u00a0\u00a0 to the assessment year 1995-96 and subsequent years. But till that amendment\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 in 1995 therefore covering the Assessment Year in question, the law as perceived\u00a0 by the Department was that if the cost of acquisitionof a capital asset could not<\/li>\n<\/ol>\n

    \u00a0<\/p>\n

    \u00a0<\/p>\n

    in fact be determined, the transfer of such capital asset would not attract capital gains. Next the court considered the aspect of possibility of taxability under any other provision like section 56 of the Act, to which it held that, once applicable Section 45 cannot be applied, it is not\u00a0 open to the\u00a0 Department to\u00a0 impose tax\u00a0 on such capital receipt by the assessee under any other Section. That is after considering various heads of taxation specified under section 14 of the \u2018Act\u2019,\u00a0 it\u00a0 held that, if the income is included under any one of the heads, it cannot be brought to tax under the residuary provisions of Section 56. In other words it\u00a0 held that, it would be illogical and against the language of Section 56\u00a0 to\u00a0 hold that everything that is exempted from capital gains by statute could be taxed as\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 a casual or non recurring receipt under Section 10(3) read with Section 56 of the \u2018Act\u2019. (AY. 1987-88) (CA No. 2335 of 2003 dt. 31-1-2005)<\/p>\n

    Editorial : Cadell Weaving Mill Co. (P) Ltd. v. CIT (2001) 249 ITR 670 (Bom.) <\/em><\/strong>approved. Decision of Special Bench in Cadel Wvg. Mills Co Pvt Ltd v. ACIT (1995) 55 ITD 137\/(1996) 217 ITR 51 (SB)(Mum) (Trib.) <\/em><\/strong>was reversed.<\/p>\n

    Above decision has been applied by Delhi high court in Girish Bansal v. UOI (2016) 384 ITR 161 (Delhi) (HC) <\/em><\/strong>in context of non taxable capital receipt argument of assessee for amount received on account of cancellation of sale certificate\/deed which was accepted and it was held that said amount can not be taxed as casual and non recurring receipt under section 10(3) read with section\u00a0\u00a0\u00a0\u00a0 56 of the \u2018Act\u2019. Bombay High Court in the case of CIT v. Sambhaji Nagar Co-op. Hsg. Society Ltd [2015] 370 ITR 325 (Bom) (HC) <\/em><\/strong>held that the asset i.e. Floor Space Index (FSI)\/Transferable Development Rights (TDR). is generated by change\u00a0 in the development control regulations. A specific insertion would therefore be necessary so as to ascertain its cost for computing the capital gains. The Court, referring to the decision of the Apex Court in CIT v.\u00a0 D. P.\u00a0 Sandu Bros Chembur\u00a0\u00a0\u00a0\u00a0 P Ltd [2005] 273 ITR I (SC), <\/em><\/strong>held that all which is capable of acquisition at a\u00a0\u00a0\u00a0\u00a0\u00a0 cost would be included within the provisions pertaining to the head capital gains\u00a0 as opposed to assets in the acquisition of which no cost at all can be conceived. Thus, the Bombay High Court held that since the cost of acquisition of the rights being transferred cannot be determined, the amount is not liable to capital gains tax. To the same effect is Mumbai bench ITAT decision in case of Anil Gulab\u00a0 Shah in ITA 5134\/Mum\/2017 order dated 09\/08\/2019 held that \u201cthere could not be\u00a0 any transfer of a \u201cright to sue\u201d under Indian Law and any capital receipt arising from a right to sue cannot thus be considered capital gains under Section 45. Additionally, the cost of the said right being indeterminable, the charging Section would failas per the cited decision of Hon\u2019ble Supreme Court rendered in CIT<\/em><\/strong><\/p>\n

      \n
    1. B. C. Srinivasa Shetty [supra]. <\/em><\/strong>Therefore, no infirmity could be found on the<\/li>\n<\/ol>\n

      issue in adjudication done by learned CIT(A). The same is further fortified by<\/p>\n

      \u00a0<\/p>\n

      \u00a0<\/p>\n

      the decision of this Tribunal rendered in Sushmita Sen v.\u00a0 ACIT [2019] 174 ITD\u00a0\u00a0\u00a0\u00a0 8\u00a0 (Mum) (Trib)\u00a0 <\/em><\/strong>wherein it has been held that compensation received for loss\u00a0\u00a0\u00a0 of reputation and not to initiate civil or criminal proceedings would be capital\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 in nature. Similar is the decision in ACIT v. Jackie Shroff [2018] 172 ITD 425 (Mum) (Trib) <\/em><\/strong>wherein it has been held that compensation\/damages received for withdrawal of criminal complaint would be capital receipt and could not be treated as income u\/s 2(24). This decision places reliance on the decision of Hon\u2019ble Bombay High Court rendered in CIT v. Amar Dye Chem Ltd. (1994)74 Taxman 254 (Bom) (HC)<\/em><\/strong><\/p>\n

      \u00a0<\/p>\n

      \u201cEarth provides enough to satisfy every man\u2019s needs, but not every man\u2019s greed.\u201d<\/em><\/p>\n

      – Mahatma Gandhi<\/p>\n","protected":false},"excerpt":{"rendered":"

      S.45 : Capital gains- Income from other Sources – A receipt that is capital in nature cannot be assessed under the head income from other source- Tenancy right is a capital asset the surrender of which would attract capital gains – Amount is not taxable under capital gains as cost of acquisition of tenancy right is indeterminate [ S 10(3) 14, 48 ,56 ]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-13351","post","type-post","status-publish","format-standard","hentry","category-income-tax-act"],"acf":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9S2Rw-3tl","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13351","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/comments?post=13351"}],"version-history":[{"count":1,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13351\/revisions"}],"predecessor-version":[{"id":13352,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/posts\/13351\/revisions\/13352"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/media?parent=13351"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/categories?post=13351"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/digest\/wp-json\/wp\/v2\/tags?post=13351"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}