(a) Income-tax---

----Capital gains---Cost of acquisition---Amount received as compensation for vacating leasehold premises---No cost of acquisition for tenancy right-- Compensation not chargeable to tax on capital gains---Indian Income Tax Act, 1961, S.45.

(b) Income-tax---

----Reference---High Court---Jurisdiction is advisory while hearing a reference---High Court to confine itself to questions arising out of order of Tribunal and referred as such to High Court---Reference of question whether compensation for vacating leasehold premises chargeable as capital gains-- Alternative contention that sum may be charged as casual income---Not raised by Revenue at any stage of assessment proceedings and also on appeals against order or assessment---Cannot be raised for first time while hearing reference---Indian Income Tax Act, 1961, Ss. 10(3) & 256.

The assessee received Rs.50,000 as compensation for surrendering possession of a house. The assessee contended before the Income-tax Officer that the tenancy right was not an enforceable right and the compensation was a casual receipt of a capital nature and it was also for the maintenance and upkeep of the house. The Income-tax Officer held that the assessee had a right of occupation under the rent control law and there were negotiations prior to receiving the payment which made it a business deal but since the right to tenancy was a capital asset, it had to he treated as a capital gain, under section 45 of the Income Tax Act, 1961. The Income-tax Officer assessed the sum of Rs.50,000 as long-term capital gains as there was no cost involved in acquiring the property by the assessee. On appeal, the Appellate Assistant Commissioner upheld the order of the Income-tax Officer. On further appeal, the Tribunal held that the transfer resulting in payment of Rs.50,000 would fall under the definition of transfer of capital asset. However, the Tribunal further held that since there was no cost of acquisition of the tenancy by the assessee, the compensation received by the assessee was not liable to tax on capital gains. On a reference, the Revenue contended before the High Court, that though the amount received as compensation for the surrender of the tenancy was not chargeable to tax on capital gains under section 45 for the reason that there was no cost of acquisition for the tenancy right, the receipt was of a casual and non-recurring nature within the meaning of section 10(3) of the Act:

Held, (i) affirming the order of the Tribunal, that the assessee was not liable to tax on capital gains of Rs.50,000 received as compensation for vacating the leasehold premises;

(ii) That the High Court while hearing a reference under section 256 of the Act, could not direct the amount to be taxed as casual income in view of the advisory nature of its jurisdiction. The High Court has to confine itself to the questions arising out of the order of the Tribunal and referred as such to the High Court. The contention that in the event of the receipt being held not liable to capital gains tax, the same would be liable to be taxed as casual income was not raised on behalf of the Revenue at any stage during the assessment proceedings and the hearing of the appeals preferred against the order of assessment. Such a contention could not be raised for the first time while hearing a reference before the High Court.

(The question whether the receipt of compensation was liable to tax as casual income was left open for consideration in an appropriate case).

Bawa Shiv Charan Singh v. CIT (1984) 149 ITR 29 (Delhi); CIT v. Merchandisers (P.) Ltd. (1990) 182 ITR 107 (Ker.) and CIT v. Neba Ram Hansraj (1997) 223 ITR 854 (Pat.) fol.

CIT v. Gulab Chand (1991) 192 ITR 495 (All.); CIT v. Rathnam Nadar (K.) (1969) 71 ITR 433 (Mad.) and Jagdev Singh Mumick v. CIT (1971) 81 ITR 500 (Delhi) ref.

Sanjeev Khanna with Ajay Jha and Ms. Prem Lata Barisal for the Commissioner.

Nemo for the Assessee.

JUDGMENT

R. C. LAHOTI, J.---This is a reference under section 256(1) of the Income Tax Act, 1961; arising out of the assessment year 1973-74, seeking, opinion of the High Court on the following three questions of law, out of which the first question is stated at the instance of the Department while the remaining two questions are stated at the instance of assessee:

"(1)Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee was, not liable to tax on capital gains of Rs.50,000 received as compensation for vacating the leasehold premises?

(2)Whether, on the facts and in the circumstances of the case, the tenancy right of the assessee in 13, Narindra Place, New Delhi, was a capital asset?

(3)Whether, on the facts and in the circumstances of the case there was relinquishment of the capital asset under section 2(47) on the assessee vacating the said premises?"

The assessee had received Rs.50,000 on January 7, 1973, from Northern Enterprises (P.) Ltd, as compensation for surrendering possession of house No. 13, Narindra Place, New Delhi. The house was rented by the father of the assessee and on his death, the tenancy rights had devolved on the assessee. The case of the assessee was that the tenancy was not an enforceable right and the sum of Rs.50,000 was a casual receipt of capital nature, It was also urged that this amount was a compensation for the maintenance and upkeep of the house. The Income-tax Officer held that the assessee had a right of occupation under the rent control law and there were negotiations prior to receiving the payment, which made it a business deal but since the right to tenancy was a capital asset, it had to be treated as a capital gain. As there was no cost involved in acquiring this property by the assessee, the Income tax Officer brought to tax the sum of Rs.50,000 as long-term capital gains. The order of the Income-tax Officer was upheld in appeal by the Appellate Assistant Commissioner.

The assessee went in appeal to the Tribunal. The Tribunal held that the transfer resulting in payment of Rs.50,000 would fall under the definition of transfer of capital asset. Under section 2(47), transfer in relation to a capital asset included relinquishment of the asset. Relinquishment by the assessee of the right to transfer, in the house clearly fell within the definition of transfer under section 2(47), in the opinion of the Tribunal. The Tribunal rejected the contention advanced on behalf of the assessee that it was a voluntary payment by the landlord without any consideration. However, the Tribunal further formed an opinion that there being no cost of acquisition of the tenancy by the assessee, in the same manner as goodwill could not be taxed on account of there being no cost of acquisition thereof, the compensation received by the assessee was also not taxable. In forming this opinion, the Tribunal relied on the Delhi High Court decision in Jagdev Singh Mumick v. CIT (1971) 81 ITR 500, and the Madras High Court decision in CIT v. K. Rathnam Nadar (1969) 71 ITR 433.

Subsequent to the passing of the order of the Tribunal, we have available before us yet another Division Bench decision of the Delhi High Court in Bawa Shiv Charan Singh v. CIT (1984) 149 ITR 29, wherein on an analysis of the relevant provisions of the Income-tax Act, the view of the law taken by the Delhi High Court is that the cost of the assessee in the acquisition of the asset is clearly contemplated in the scheme as sections 4, 5, 45, 48, 49 and 55 of the Act. The charging section and the computation provisions together constituted and integrated code for the purpose of ascertaining whether the transfer of tenancy right which is a capital asset gives rise to a capital gain for the purposes of the Act. If the computation provisions cannot apply. to a given case, then such a case could not be intended by the Legislature to fall within the charging section.

The Delhi view as stated hereinabove has been followed by the Patna High Court in CIT v. Neba Ram Hansraj (1997) 223 ITR 854 and the Kerala High Court in CIT v. Merchandisers (P.) Ltd. (1990) 182 ITR 107. We also find ourselves in entire agreement with the view so taken.

Learned senior standing counsel has invited our attention to the Division Bench decision of the Allahabad High Court in CIT v. Gulab Chand (1991) 192 ITR 495, wherein the view taken is that though the amount received for surrender of the tenancy was a capital gain, not chargeable under section 45 for the reason that there was no cost of acquisition for the tenancy rights, the receipt was a casual and non-recurring nature within the meaning of section 10(3). Learned counsel submitted that the receipt should have been held liable to tax as casual income: There may be substance in the submission of learned counsel. However, while hearing a reference under section 256(1) of the Act, we cannot direct the amount to be taxed as such in view of the nature of our jurisdiction--advisory. in nature. We have to confine ourselves to the questions arising out of the order of the Tribunal and referred as such to the High Court. The contention that in the event of the receipt being held not liable to capital gains tax, the same would be liable to be taxed as casual income was not raised on behalf of the Revenue at any stage during the assessment proceedings and the hearing of the appeals preferred. against the order of assessment. We cannot entertain the contention for the first time while hearing the present reference as the same is not found reflected in the order of the Tribunal and hence cannot be treated as one arising from the order of the Tribunal.

For the foregoing reasons, question No. l framed and referred at the instance of .the Revenue is answered in the affirmative, i.e. in favour of the assessee and against the Revenue. So far as questions Nos. 2 and 3 framed and referred at the instance of the assessee are concerned, the same are rendered academic merely and hence are refused to be answered.

By way of abundant caution, we would like to state that the question whether such receipt though held not liable to tax as capital gains would be liable to tax as casual income is being left open to be taken up for consideration in an appropriate case.

The reference is answered accordingly. No. order as to costs.

M.B.A./3209/FCReference answered