Law: Income Tax Act, 1961

Section: 45

(a) Income-tax-----Capital or revenue receipt---Business of assessee under process of winding up---Sum received by assessee from landlord for surrender of leasehold rights---Is not a revenue receipt---Indian Income Tax Act, 1961, S.28. (b) Income-tax--- ----Capital gains---Cost of acquisition---Sum received for surrender of leasehold rights---Cost of acquisition of leasehold rights riot capable of valuation---Sum cannot be taxed as capital gain---Indian Income Tax Act, 1961, S.45. The assessee-firm dealt in retail sale and purchase of cloth. In the year preceding the assessment year 1985-86, the business of the assessee was in the process of winding up and the assessee was, therefore, engaged only in the sale of the left over stock. The Assessing Officer noticed that the capital account of the two partners showed an addition of a sum of Rs.95,000 in cash which was described as "Salami". The sum was received by the assessee as consideration for relinquishing its tenancy rights and for handing over to the landlord vacant possession of the premises tenanted by it. The question was whether the sum in question was a revenue receipt or a capital gain liable to tax: Held, (i) that the sum received for surrender of tenancy rights was not a revenue receipt; CIT v. Joy Ice Creams (Bangalore) (Pvt.) Ltd. (1993) 201 ITR 894 (Kar.) fol. (ii) that the cost of acquisition of the leasehold right was incapable of valuation and consequently tax could not be imposed on the sum in question as a capital gain. Krishnamurthy (A.R.) v. CIT (1989) 176 ITR 417 (SC) distinguished. CIT v. Joy Ice Creams (Bangalore) (Pvt.) Ltd. (1993) 201 ITR 894 (Kar.) fol. Bawa Shiv Charan Singh v. CIT (1984) 149 ITR 29 (Delhi); CIT v. Manna Ramji & Co. (1972) 86 ITR 29 (SC); CIT v. Ram Saran Chopra (1986) 158 ITR 1 (Pat.); CIT/CEPT v. Shamsher Printing Press (1960) 39 ITR 90 (SC) and CIT v. Srinivasa Setty (BC) (1981) 128 ITR 294 (SC) ref. JUDGMENT The following questions of law arising from the assessment year 1985-86, have come to this Court at the instance of the Revenue on a reference under section 256(2) of the Income Tax Act, 1961: "(i) Whether, on the facts and in the circumstances of the…

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