1993 (7) TMI 140 - AT - Income Tax

Capital Receipt Cost Of Acquisition High Court Interest Payable Long-term Capital Gains Previous Year

Summary

Issues:
Assessment of amount received for surrendering leasehold rights by the assessee, taxability of the amount as capital gains, applicability of Supreme Court decision in CIT v. B.C. Srinivasa Setty, consideration of surrender of leasehold rights as a capital receipt, alternative contention based on CIT v. Gulab Chand, interpretation of section 10(3) of the IT Act, relevance of the decision in A. Gasper v. CIT, and the binding nature of the Supreme Court decision in A. Gasper.

Analysis:
The appeal before the Appellate Tribunal ITAT Madras-A concerned the assessment of an amount received by the assessee for surrendering leasehold rights. The assessee, a company, had acquired leasehold rights for a piece of land and received a sum for surrendering a portion of those rights. The primary issue was the taxability of this amount as capital gains. The Income Tax Officer (ITO) treated the amount as long-term capital gain, considering it as the cost of acquisition of the lease and capitalizing it at 9% for the remaining lease period. However, the CIT (Appeals) disagreed, citing the Supreme Court decision in CIT v. B.C. Srinivasa Setty, which held that capital gains could not be taxed if they could not be computed.

The revenue contended that the B.C. Srinivasa Setty decision did not apply to the case, but various decisions, including CIT v. Joy Ice-Creams (Bang.) (P.) Ltd., supported the view that surrendering leasehold rights resulted in a capital receipt not chargeable to tax under section 45 of the IT Act. The revenue raised an alternate contention based on CIT v. Gulab Chand, arguing that if not taxable under section 45, the amount should be taxed under section 10(3) as a casual and non-recurring receipt. The assessee, however, maintained that section 10(3) was an exempting section and that a capital receipt fell outside the purview of the Income-tax Act unless falling under section 45.

The Tribunal referred to the Supreme Court decision in A. Gasper v. CIT, where the Court declined to entertain the question of taxing amounts received for surrendering leasehold rights. The Tribunal noted that a capital receipt could only be taxed as deemed income under section 45 and observed that the CBDT had been directed to refund tax collected on a transaction not falling under section 45 in A. Gasper. Consequently, the Tribunal upheld the CIT (Appeals) order, following the decision in A. Gasper and confirming that the receipt in question was a capital receipt not chargeable to tax under section 45.

In conclusion, the appeal was dismissed, affirming that the amount received by the assessee for surrendering leasehold rights was not taxable as capital gains, in line with the Supreme Court's decision in A. Gasper and the principles governing the taxability of capital receipts under the IT Act.