INCOME TAX ACT, 1961

Section 45

Capital gains - Chargeability - Consideration for possesing rights -

One 'S' occupied certain flat at 2nd floor of building known as Gangasagar on licence basis. After demise of said 'S'her son 'V' occupied said flat with his family. The said building was purchased by M/s. H.M. Enterprises. For vacating the premises, M/s. H.M./ Enterprises filed suit against occupier of Gangasagar building. An out of court settlement was made so that occupier could not interfere with possession of M/s. H.M. Enterprises. Assessee being daughter-in-law of said 'S' received Rs. 25,00,000 for not interfering possessions of M/s. H.M. Enterprises. AO held that said amount was nothing but consideration in respect of giving up claim, vacating the premises and handing over possession of said premises and, thus capital gains accrued to assessee in lieu of relinquishment of rights in said premises. Held: In case of person having substantial rights in property as tenant (sub-tenant) and not being merely a licence holder, amount received on surrender of such tenancy/sub-tenancy rights would be taxable as capital gains. In the instant case legal possession therefore, continued to be with owner of property, and licensee, i.e., assessee was permitted to make use of premises for a particular purpose but for the permission, her occupation was unlawful. It did not create in his favour any estate or interest in the property and agreement was to be construed not as mere licence and not a lease. Accordingly, amounts received by assessee as consideration for transfer of possessory rights was not chargeable to tax as capital gains and could not be termed as transfer of tenancy rights.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2013-14

INCOME TAX ACT, 1961

Rule 34(5)

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