Commissioner Of Income Tax vs Hindustan Times Ltd.
2004 Latest Caselaw 806 Del

JUDGMENT

B.C. Patel, C.J.

1. This reference is at the instance of the Revenue for the asst. yr. 1974-75 and the question referred to the Court is as under:

"Whether, on the facts and in the circumstances of the case, the amount of Rs. 8,64,000 received by the assessed was a capital receipt ?"

2. The brief facts of the case are required to be narrated here. The assessed purchased a building bearing No. 2/3, Salisbury Court, Fleet Street, London, in February, 1947. One Mr. W.H. Martin was a tenant in the said building at the time of purchase and he was the assessed's representative in London. He was paying £ 25 per month which was being reimbursed by the assessed to Mr, Martin since he was representing the assessed in London. The assessed transferred the property by way of sale on 17th Feb., 1973, to M/s Salisbury Square Investment Trust Ltd. (hereinafter referred to as 'Salisbury'). The sale was subject to the condition that Mr. Martin would continue to occupy the portion which was occupied by him earlier as a monthly tenant. The right of Mr. Martin to continue as a tenant was protected by a deed executed on 1st Feb., 1973, in favor of Salisbury. It is clear from the record that Mr. Martin agreed to vacate the premises and Salisbury agreed to pay a sum of £ 24,000 as compensation. There is a letter written by M/s Salisbury to Mr. Martin in this behalf. The relevant portion reads as under:

"In consideration of your vacating your office premises and the exchange of contracts for the sale and purchase of the above property, today, we agree that we will pay to you, as soon as you vacate our present premises, the sum of £ 24,000 (Twenty-four thousand pounds) as a contribution towards your rent for five years on the alternative accommodation which you will be occupying comprising 600 sq. ft. on the fifth floor of the London International Press Centre Shoe Lane, E.G.

We will pay a further sum of £ 24,000 (Twenty-four thousand pounds) as an agreed contribution towards rents and outgoings, such sum to be paid five years after the first payment."

3. Thus, Salisbury was required to pay a total sum of £ 24,000 and a further sum of £ 24,000 as indicated hereinabove. However, it appears that the assessed received this amount and he credited this amount (£ 24,000) in the P&L a/c for the year ending on 31st March, 1974, under the description "compensation for termination of tenancy in London office". The second Installment became payable after five years from July, 1973. However, the same was received in July, 1978, and similarly, it was credited in the accounts of the assessed.

4. The AO, as observed by the Tribunal, found that the assessed deducted the sum of Rs. 4,32,000 on the ground that no tax was payable as the amount was received by way of a capital receipt. The ITO rejected this claim. Not only that, he also added a further sum of Rs. 4,32,000 being the second Installment receivable and thus added a sum of Rs. 8,64,000.

5. The GIT(A) deleted the said addition. However, while dealing with the submissions, the CIT(A) noted that the amount actually belonged to Mr. Martin in his capacity as a tenant in the property and the assessed had no right to receive the same. In fact, the learned counsel appearing for the assessed did not dispute the finding recorded by the CIT(A) in this behalf. It is submitted before this Court by the Revenue that the assessed was not the tenant, but Mr. Martin being a tenant, held that tenancy rights of his own. We find that Mr. Martin was occupying the premises as a tenant and as he was working with the assessed, he was being reimbursed by the assessed and thus Mr. Martin continued to be a tenant in the premises in question. However, on becoming the owner of the property, the assessed became the landlord of the property in question and there was no question of paying a rent to the assessed by his own employee or there was no question of reimbursement of the amount by the employee. We say so because there is nothing on record. In any event, it is clear that the assessed himself cannot be the tenant in his own premises. Furthermore, what is important to note here is that in the deed dt. 1st Feb., 1973, it is made clear that Mr. Martin agreed to vacate the premises and Salisbury agreed to make the payment to Mr. Martin. If Mr. Martin became a tenant of the premises in his own right before the purchase of the property in question by Salisbury, looking to the nature of the evidence referred to by the Tribunal, the amount ought to go to Mr. Martin and if it is credited to the account of Mr. Martin, then it would be a capital receipt in his hands. But if the amount is received by the assessed, then the amount cannot be considered to be a capital receipt, but would be a revenue receipt which would be taxable in accordance with law.

6. In view of what is stated hereinabove, it is clear that the Tribunal misdirected itself in examining whether the income is in the nature of capital or revenue as also failed to apply the same. Though the Tribunal has rightly held that the tenancy right is a capital asset and, therefore, the compensation so received would not be treated as revenue receipt at all, however, failed to examine as to who was the tenant, rendered the decision. The Tribunal failed to examine the aspect whether the assessed was a tenant or not and in view of the material placed before the Tribunal, it was clear that Mr. Martin was the tenant and he was to receive this amount. The assessed was never the tenant and when it transferred the property by way of sale to Salisbury, it was left with no right, title or interest therein.

7. In view of this, it is clear that the answer must be given in favor of the Revenue and against the assessed. The reference is answered accordingly.