Law:

Section:

Section 4 of the Income-tax Act, 1961 - Capital or revenue receipt - Assessee-firm carried on its business in two shops which were in its occupation as tenants - After having wound up its business in one of its shops, assessee transferred vacant posses-sion of that shop to a company against payment of certain amount of consideration with landlord's consent - Whether consideration amount received could be termed as capital receipt as transfer of shop involved parting with a capital asset - Held, yes Facts The assessee, a partnership firm, was carrying on its business in two shops which were in its occupation as tenants. It was enjoying protection from eviction under the Bombay Rent Act. One of the shops was immediately adjacent to a shop occupied by a company. The accommodation in the possession of the company was not sufficient for its needs and, therefore, it negotiated with the assessee to secure possession of the shop. The assessee, after securing the consent of the landlord agreed to deliver possession of one shop to the said company against payment of certain amount of consideration. The assessee had not sold or delivered any part of its stock-in-trade to that company and continued to carry on the same business in the same name and style in the other shop situated in the same locality. The receipt issued by the assessee termed the amount received as 'compensation for loss of business', while the same was entered in the assessee's account books as loss of goodwill of business carried in that shop. The ITO brought to tax the said amount as a trading receipt. On appeal, the AAC and the Tribunal held that the compensation received was for loss of earnings and, therefore, was a revenue receipt. On reference: Held Before considering whether a payment is by way of revenue receipt or towards the transfer of a capital asset, one must look to the substance of the transaction and not to the mere form. A lease creates an interest in immovable property and transfer of leasehold rights which are protected by the provisions of rent restriction statutes is nothing but. a transfer of a capital asset. The price paid to acquire such leasehold rights can only be held to be…

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