Commissioner Of Incom-Tax vs Delhi Public College
2001 Latest Caselaw 1133 Del

JUDGMENT

Arijit Pasayat, C.J.

1. Both the income-tax reference and the income-tax appeal are interlinked and are, therefore, taken up together for disposal and these will be governed by this common judgment. In the income-tax reference, pursuant to the direction given by this court under Section 256(2) of the Income-tax Act, 1961 (in short "the Act"), the following questions have been referred for the opinion of this court by the Income-tax Appellate Tribunal, Delhi Bench "B", Delhi (in short "the Tribunal") :

"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that there was no evidence on record to establish or to draw a reasonable inference that the amount of Rs. 35 lakhs was received by the assessed ?

2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that only the amount which is submitted to have been actually received by the assessed during the year can be considered without doubting that the amount actually agreed to be paid to the assessed was Rs. 35 lakhs ?

3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the sum of Rs. 35 lakhs was not taxable ?"

The dispute relates to the assessment year 1990-91. The figure "Rs. 5 lakhs" has to be read in place of "Rs. 35 lakhs" in view of the order of rectification passed by the Tribunal.

2. The factual position, in a nutshell, is as under :

The assessed, a registered firm, was running a coaching institute under the name and style of Delhi Public College for more than two decades. There were two wings of coaching--one at 5-B, Pusa Road, New Delhi, for boys and the other at 12/24, Saraswati Marg, Karol Bagh, New Delhi, for girls. Both the premises were taken on rent. There was a dispute between the assessed and the landlord in regard to the premises at Karol Bagh. It was pending before the Rent Controller, Delhi. The dispute was settled between the parties amicably. An application was filed before the Rent Controller, Delhi, for eviction of the property in terms of the compromise arrived at, and the assessed accordingly vacated the premises. On July 28, 1999, search operations were carried out in the premises of the firm and its partners. The statement of Shri A. K. Manchanda, partner, was recorded. In his statement, he admitted that a sum of Rs. 5,10,000 was lying in the bank locker. Out of this, a sum of Rs. 2,55,000 was received as the share for vacating the premises at 12/24, Saraswati Marg, Karol Bagh, New Delhi. However, on July 29, 1999, he resoled from his statement and took the stand that the amount was generated through writing horse racing and card playing. It was further stated that a total sum of Rs. 33,00,000 was settled for vacating the premises. Rs. 2,00,000 were received in the shape of bank drafts. The first Installment of Rs. 5,10,000 was received in cash. The Assessing Officer included Rs. 35,00,000 in the income of the assessed. The amount so received was made exigible to tax as business receipt for giving up a source of income. The assessed preferred an appeal before the Commissioner of Income-tax (Appeals) (in short "the CIT(A)"). The addition was reduced to Rs. 33,00,000 by the said authority. Against the said order, the assessed preferred an appeal before the Tribunal. The Tribunal deleted the entire amount treating the same as amount for vacating the premises on the ground that it was received for surrender of tenancy rights and, therefore, the amount was not taxable. It was also held that when the amount received by draft was so treated, there was no reason to treat the amount received by cash differently. The Revenue filed an application for reference, which was rejected and, subsequently, as noted above, pursuant to the direction given by this court, a reference has been made.

So far as the appeal under Section 260A of the Act is concerned, it relates to levy of penalty. Proceedings were initiated for concealment of income in terms of Section 271(1)(c) of the Act. The same was primarily cancelled by the Tribunal in the ground that the addition was deleted in the quantum appeal.

3. We have heard learned counsel for the parties. Learned counsel for the Revenue submitted that in all cases the amounts received for surrender of tenancy rights cannot be held to be capital receipts. It was further submitted on the facts of the case, the Tribunal, without looking into the materials on record in their proper perspective, has observed that the amount was received for surrender of tenancy rights and it attached undue importance to the fact that the Revenue wanted to treat the amounts received by draft and by cash differently, whereas it was really not so. The stand of the Revenue was that there was surrender of a source of income and, therefore, the amount was taxable. Learned counsel for the assessed, on the other hand, submitted that there was no definite material placed on record by the Revenue to show that the amount related to surrender of a source of income. On the contrary, the materials placed by the assessed clearly indicated that the amount was received for surrender of tenancy.

4. We find that the case of the Assessing Officer was that the building was used commercially for earning profits. The agreement to vacate and receipt of money was pursuant to the stand taken before the rent control authorities that the premises were used for commercial purpose. The receipt had all the ingredients of a commercial transaction and was distinguishable from mere surrender of tenancy rights. The Commissioner of Income-tax (Appeals) also noted that the building was utilised for commercial purpose and for earning profits. The assessed resisted eviction before the forums on the ground that the building was used for commercial consideration and, therefore, by surrendering possession, the source of income was surrendered and not mere surrender of tenancy rights. Before the Tribunal also, the stand of the Revenue was that the business was not continued after handing over the premises to the landlord. At Pusa Road, coaching of boys was done by the assessed, which continued for some time and thereafter the firm was dissolved and the source for coaching the girls had dried up. These aspects do not appear to have been considered by the Tribunal. On the contrary, it laid great emphasis on the fact that the amount received by the draft and the amount received in cash are being considered on two different footings.

5. There is a conceptual difference as regards the character of receipt between an amount received for surrender for tenancy and an amount received for giving up a source of income. The factual backdrop in each case has to be analysed to decide to which category of receipts the amount falls.

6. It is to be noted that both sides before the Tribunal highlighted their respective stands. But the Tribunal has not analysed the position in the requisite perspective.

7. In this view of the matter, we feel that the case is to be reheard by the Tribunal, so that the factual aspects can be considered appropriately. Instead of answering the questions, we direct that the Tribunal to rehear the matter. We make it clear that we have not expressed any opinion on the merits of the case.

8. Coming to the appeal, we find that the deletion of penalty was primarily on the ground that the addition made has been deleted by the Tribunal in the quantum appeal. Learned counsel for the assessed submitted that the Tribunal also considered the fact that the assessed was under a bona fide belief that the amount was received on a surrender of tenancy rights and, therefore, was not taxable. Learned counsel for the Revenue, on the other hand, pointed out that the stand of the petitioner has been varying from time to time and in fact one of the partners had taken a false plea that the amount had been received by writings, horse racing, playing cards, etc., and the dramatically different stands taken show the lack of bona fides. We do not think it necessary to examine these aspects in view of the fact that we have directed the quantum appeal to be heard afresh. The Tribunal shall rehear the appeal relating to penalty afresh and decide it in accordance with law.