Case Note & Summary
The appeal was filed by the revenue under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT), Bengaluru Bench 'A', dated 10.07.2009. The respondent-assessee, M/s Khivraj Motors, had declared capital gains of Rs. 1,76,88,000/- towards the full value of consideration of a property plus Rs. 20 lakhs received as a non-refundable deposit in lieu of surrendering tenancy rights for the assessment year 2005-06. The Assessing Officer, by order dated 28.12.2007, assessed the capital gains at Rs. 2,30,14,568/- plus Rs. 20 lakhs. The assessee challenged this before the Commissioner of Income Tax (Appeals), who allowed the appeal, holding that the amount of Rs. 20 lakhs received for surrender of tenancy rights was not chargeable to capital gains tax. The revenue appealed to the ITAT, which confirmed the order of the Commissioner. The revenue then filed the present appeal before the High Court. The High Court framed the substantial question of law as to whether the amount of Rs. 20 lakhs received as non-refundable deposit in lieu of surrendering tenancy rights is chargeable to capital gains tax. The court noted that the issue was covered by a previous decision of the same court in the case of the same assessee for an earlier assessment year, where it was held that tenancy rights are not a 'capital asset' under Section 2(14) of the Act, and therefore, the amount received for surrender of tenancy rights is not taxable as capital gains. Following that decision, the High Court dismissed the appeal, answering the question in favor of the assessee and against the revenue.
Headnote
A) Income Tax - Capital Gains - Surrender of Tenancy Rights - Non-refundable deposit received for surrendering tenancy rights is not chargeable to capital gains tax as tenancy rights are not a 'capital asset' under Section 2(14) of the Income Tax Act, 1961. The court held that the amount received is not taxable as capital gains (Paras 2-4).
Issue of Consideration
Whether the amount of Rs. 20 lakhs received by the assessee as non-refundable deposit in lieu of surrendering tenancy rights is chargeable to capital gains tax under the Income Tax Act, 1961.
Final Decision
Appeal dismissed. The amount of Rs. 20 lakhs received as non-refundable deposit in lieu of surrendering tenancy rights is not chargeable to capital gains tax.
Law Points
- Capital gains
- Tenancy rights
- Non-refundable deposit
- Income Tax Act
- 1961
- Section 45
- Section 2(14)
- Section 55(2)
