The Tax Publishers2005 TaxPub(DT) 1286 (SC) : (2005) 002 (I) ITCL 0175 : (2005) 273 ITR 0001 : (2005) 193 CTR 0578 : (2005) 142 TAXMAN 0713

 

CIT v. D.P. Sandu Bros. Chembur (P) Ltd. ()

 

INCOME TAX

--Capital gains----CHARGEABILITYSurrender of tenancy rights--

Catch Note:
Assessee surrendered tenancy right to lessor prematurely in consideration of certain sums of money. The AO held that the same was taxable under section 56 read with section 10(3). The CIT(A) concluded that the amount received was taxable under section 45 after deducting cost of acquisition. The Tribunal held that the amount received on surrender of tenancy right was not taxable under section 45 as cost of acquisition could not be determined. Therefore, it was not chargeable to tax at all. The conclusion of Tribunal was confirmed by the High Court as the stand taken by the revenue was that cost of acquisition was incapable of being ascertained. Held: Was justified. Amount received on surrender of tenancy right was not chargeable to tax under section 45 as cost of acquisition could not be ascertained. Further, same also could not be taxed under section 56 read with section 10(3).
Ratio:
As the cost of acquisition of tenancy rights could not be determined, the consideration received on surrender of same could not be charged to tax as capital gains under section 45 and at the same time nothing can be taxed under section 56 read with section 10(3).
Held:
A tenancy right is acquired with reference to a particular date. It is also possible that it may be acquired at a cost. It is ultimately a question of fact. In A.R. Krishnamurthy v. CIT (1989) 176 ITR 417 this court held that it cannot be said conceptually that there is no cost of acquisition of the grant of the lease. It held that the cost of acquisition of leasehold rights can be determined. In the present case, however, the department's stand before the High Court was that the cost of acquisition of the tenancy was incapable of being ascertained. In view of the stand taken by the department before the High Court, the decision of the High Court on this issue is upheld. Were it not for the inability to compute the cost of acquisition under section 48, there is, as this court has said, no doubt that a monthly tenancy or leasehold right is a capital asset and that the amount received on its surrender was a capital receipt. But because the court has held that section 45 cannot be applied, it is not open to the department to impose tax on such capital receipt by the assessee under any other section. This court, as early as in 1957 had, in United Commercial Bank Ltd. v. CIT (1957) 32 ITR 688 (SC), held that the heads of income provided for in the sections of the Indian Income Tax Act, 1922 are mutually exclusive and where any item of income falls specifically under one head, it has to be charged under that head and no other. In other words, income derived from different sources falling under a specific head has to be computed for the purposes of taxation in the manner provided by the appropriate section and no other. It has been further held by this court in East India Housing & Land Development Trust Ltd. v. CIT (1961) 42 ITR 49 (SC) that if the income from a source falls within a specific head, the fact that it may indirectly be covered by an another head will not make the income taxable under the latter head. (See also CIT v. Chugandas & Co. (1964) 55 ITR 17 (SC). Section 56 provides for the chargeability of income of every kind which has not to be excluded from the total income under the Act, only if it is not chargeable to income-tax under any of the heads specified in section 14 items A to E. Therefore, if the income is included under any one of the heads, it cannot be brought to tax under the residuary provisions of section 56. There is no dispute that a tenancy right is a capital asset the surrender of which would attract section 45 so that the value received would be a capital receipt and assessable if at all only under Item E of section 14. That being so, it cannot be treated as a casual or non-recurring receipt under section 10(3) and be subjected to tax under section 56. The argument of the appellant that even if the income cannot be chargeable under section 45, because of the inapplicability of the computation provided under section 48, it could still impose tax under the residuary head is thus unacceptable. If the income cannot be taxed under section 45, it cannot be taxed at all. (See : S. G. Mercantile Corporation (P) Ltd. v. CIT (1972) 83 ITR 700 (SC). Furthermore, it would be illogical and against the language of section 56 to hold that everything that is exempted from capital gains by statute could be taxed as a casual or non-recurring receipt under section 10(3) read with section 56.
Case Law Analysis:
Followed :CIT v. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC). Relied :A. Gasper v. CIT (1991) 192 ITR 382 (SC), Bawa Shiv Charan Singh v. CIT (1984) 149 ITR 29 (Del), CIT v. Mangtu Ram Jaipuria (1991) 192 ITR 533 (Cal), CIT v. Joy Ice Cream(Bang) (P) Ltd. (1993) 201 ITR 894 (Karn), CIT v. MarkaPakula Agamma (1987) 165 ITR 386 (AP), CIT v. Merchandisers (P) Ltd. (1990) 182 ITR 107 (Ker)Applied :A.R. Krishnamurthy v. CIT (1989) 176 ITR 417 (SC), United Commercial Bank Ltd. v. CIT (1957) 32 ITR 688 (SC), East India Housing & Land Development Trust Ltd. v. CIT (1961) 42 ITR 49 (SC), CIT v. Chugandas & Co. (1964) 55 ITR 17 (SC), S.G. Mercantile Corpn. (P) Ltd. v. CIT (1972) 83 ITR 700 (SC) and Nalinikant Ambalal Mody v. S.A.L. Narayan Row, CT (1966) 61 ITR 428 (SC).
Decision:
In assessee's favour.
Date of Judgment:
31 January 2005
Assessment Year:
1987-88

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