Law:

Section:

Section 4 of the Income-tax Act, 1961 - Income - Chargeable as - 'M' was a tenant in premises owned by assessee - Rent payable by 'M' was reimbursed to him as he was representing assessee - Said premises was sold by assessee to 'S' Ltd., however, right of 'M' to continue as a tenant was protected - Subsequently, 'M' vacated premises and compensation receivable by 'M' from 'S' Ltd. was credited to account of assessee - Assessee claimed that amount as capital receipt - Whether assessee was never tenant and when it transferred property by way of sale to 'S' Ltd., it was left with no right, title or interest therein - Held, yes - Whether, therefore, amount received by assessee could not be considered to be a capital receipt but would be a revenue receipt which would be taxable in accordance with law - Held, yes FACTS The assessee had purchased a building in London. 'M' was a tenant in the said building. Rent payable by 'M' was reimbursed to him as he was representing the assessee in London. The assessee transferred said property by way of sale to 'S' Ltd., however, the right of 'M' to continue as a tenant was protected by a deed executed in favour of 'S' Ltd. Subsequently, 'M' agreed to vacate the premises on receipt of certain amount as compensation from 'S' Ltd. However, it appeared that the assessee received that amount and treated it as capital receipt. The Assessing Officer rejecting the claim of the assessee made an addition, which was deleted by the Commissioner (Appeals) in appeal. On further appeal, the Tribunal held that no tax was payable as the amount was received by way of capital receipt. On reference : HELD It was found that 'M' was occupying the premises as a tenant and as he was working with the assessee, he was being reimbursed by the assessee and thus, 'M' continued to be a tenant in the premises in question. However, on becoming the owner of the property, the assessee became the landlord of the property in question and there was no question of paying rent to the assessee by his own employee or of reimbursement of the amount by the employee. Further, the assessee himself could not be the tenant in his own premises. Furthermore, it was important…

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