TMI Blog1999 (6) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... five years on monthly rent of Rs. 4,000 p.m. The said agreement was terminated by the lessee vide his letter dt. 25th Jan., 1987, effective from 30th Sept., 1998. This letter further provides that assessee would be entitled to the compensation of Rs. 1,00,000. The agreement specifies the rent at Rs. 4,000 p.m. It appears from the letter dt. 25th Jan., 1987, that assessee was also entitled to the sum of Rs. 1,000 p.m. for use for the servant quarters, Rs. 750 p.m. for the use of garrage and Rs. 1,750 for the use of fixture and fittings. Thus, the total rent was Rs. 7,500 p.m. This agreement was effective from 1st June, 1985. The amount of compensation of Rs. 1,00,000 was received by the assessee during the year under consideration and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, he relied on the Bombay High Court decision in the case of CIT vs. Kantilal Shah Anr. (1979) 118 ITR 647 (Bom). Alternatively, it was contended by him that even assuming that it was a revenue receipt, it would fall under the head "income from house property". According to him, it is only the annual value of the house property which can be taxed under the head "income from house property". Therefore, on this reason also, the compensation received by the assessee cannot be charged to tax. In support of this contention, he relied on the decision of Bombay High Court in the case of CIT vs. Smt. T.P. Sidhwa (1981) 21 CTR (Bom) 146 : (1982) 133 ITR 840 (Bom). 4. On the other hand, the learned Departmental Representative has supported th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is why the question which was normally referred to the Court for its opinion was whether a particular receipt was business income or capital Receipt. It was in this context that Courts had given their opinion. If such opinion's are given by the Courts that does not mean that if a receipt is not a business income, it should always be considered as a capital receipt. The decision of the Court has to be considered in the context in which it was decided. 6. Therefore, now the first question to be considered is whether the compensation received by the assessee was capital receipt or revenue receipt chargeable to lax. Various tests have been laid down by the Courts from time to time to determine whether a receipt is capital or revenue in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not create the relationship of landlord and tenant. It is pertinent to note that there was no clause in the agreement for termination of the agreement or for any compensation in the event of such termination. So, it is implied that neither of the party had any contractual rights of compensation in the event of termination of the agreement. The letter of the tenant shows that agreement was to terminate on 30th Sept., 1988. The period of the agreement was to expire on 31st May, 1990. So by the termination of the agreement, there was loss of future rents for 20 months in the sense that assessee might not be able to let out the building to others. The rent for 20 months amounted to Rs. 1,50,000.The parties agreed to compensation of Rs. 1,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld to be a capital receipt as is apparent from the observations of the High Court at p 656 "it still possess the unusual feature that the assessee is entitled under the same to 25 per cent of the profits earned by the firm of Netsons, which resulted in her securing profits of Rs. 45,243 in the first year as against the application to advance a loan upto the limit of Rs. 1,00,000 only. This arrangement also then could be recorded as one which is extremely beneficial to the assessee and onerous for the firm Netsons Manufacturing Co." But, in the present case, the agreement was a simple agreement of lease incidental to the activity of letting out the property. The source of income in the present case is the building and not the agreement, but ..... X X X X Extracts X X X X X X X X Extracts X X X X
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