COMMISSIONER OF INCOME TAX, MUMBAI versus D.P. SANDU BROS. CHEMBUR (P) LTD.

Citation: [2005] 1 S.C.R. 895 · Decided: 31-01-2005 · Supreme Court of India · Bench: RUMA PAL · Disposal: Dismissed

Judgment (excerpt)

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COMMISSIONER OF INCOME TAX. MUMBAI 
A 
v. 
~ 
D.P. SAN DU BROS. CHEMBUR (P) LTD. 
JANUARY 3 I, 2005 
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[RUMA PAL, ARIJIT PASA Y AT AND CK TEAKKER, JJ.] 
B 
Income Tax Act, 1961 (Pi"ior to 1995 Amendment)-Sections !0(3), 14, 
45 and 56-Capital Gains Tax - Liability-On the amount received against 
surrender of tenancy rights-Stand of Revenue before Court that the .cost of c 
acquisition was incapable of being ascertained-Liability negated by Courts 
below-On appeal, held: Though cost of acquisition of tenancy right is 
ascertainable assessee not liable to tax in view of the stand of Revenue-The 
income being capital receipt and assessable only under Item E of Section 14, 
cannot be taxed under Section I 0(3) either-~( the income is included in any 
one of the heads, it cannot be brought to tax under the residuary provisions D 
... 
of Section 56 . 
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Respondent-assessee entered into lease agreement with lessor for 50 
years. He prematurely surrendered the tenancy rights to the lessor and 
in lieu of that received an amount. The amount was credited to reserve E 
and surplus account in the Assessee's return for the assessment year 1987-
88; But the same was disallowed by Revenue holding that the amount was 
taxable as "income from other sources" under Section 10(3) r/w Section 
56 of Income Tax Act, 1961. In Assessee's appeal Revenue Authority held 
him liable to pay capital gains on the amount. Tribunal in view of 
amendment to Section 55(2) of the Act in 1995 held that the assessee did F 
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not incur any cost to acquire the leasehold rights and that if at all any 
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cost had been incurred it was incapable of being ascertained. Therefore, 
since the capital gains could not be computed as envisaged in Section 48 
of Income Tax Act, Capital gains earned by the assessee was not exigible 
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to tax. Appeal of Revenue was dismissed by High Court. 
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On appeal, Revenue contended that surrender value of tenancy rights 
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was chargeable to capital gains under Section 45; and that even if it was 
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not chargeable, the same was liable to be taxed as "income from other 
sources" under Section 10(3) r/w Section 56 of the Act. The connected 
895 
H 
896 
SUPREME COURT REPORTS 
[2005) I S.C.R. 
A appeals also raised identical issue. 
Dismissing the appeals, the Court 
HELD : I. A tenancy right is not a capital asset of such a nature 
that the actual cost on acquisition could not be ascertained as a natural 
B legal corollary. A tenancy right is acquired with reference to a particular 
date. It is also possible that it may be acquired at a cost. It is ultimately a 
question of fact. In the present case, however, the Department's stand 
before the High Court was that the cost of acquisition of the tenancy was 
ihcapable of being ascertained. In view of the stand taken by the 
C Department before the High Court the decision of the High Court on this 
issue is upheld. (900-F-H; 901-A) 
A.R. Krishnamurthy and Ors. v. Commissioner of Income Tax, Madras, 
(1989) 176 ITR 417; Bawa Shiv Charan Singh v. Commissioner of Income 
Tax, Delhi, (1984) 149 ITR 29; The Commissioner of Income Tax v. Mangtu 
D Ram Jaipuria, (1991) 192 ITR 533 (Cal.); Commissioner of Income Tax v. 
Joy Ice Cream (Bang) Pvt. ltd., (1993) 2001 ITR 895 (Kar.); Commissioner 
of Income Tax v. Markapakula Agamma, (1987) 165 ITR 386 (A.P.) and 
Commissioner of Income Tax v. Merchandisers (P) ltd., (1990) 182 ITR 107 
(Ker.), referred to. 
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2.1. It cannot be said that even if the income cannot be chargeable 
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under Section 45 of Income Tax Act, 1961, because of the inapplicability 
of the computation provided under Section 48, it could still impose tax 
under the residuary head. If the income cannot be taxed under Section 
45, it cannot be taxed at all. (902-B-C( 
S.G. Mercantile Corporation (P) Ltd. v. Commissioner of Income Tax, 
Calcutta, (1972) 83 ITR 700; United Commercial Bank ltd. v. Commissioner 
of Income Tax ltd., West Bengal, (1957) 32 ITR 688; East India housing and 
land Development Trust ltd. v. Commissioner of Income Tax, West Bengal, 
(1961) 42 ITR 49 and Commissioner of Income Tax v. Chugandas and Co., 
G (1964) 55 ITR 17, relied on. 
2.2. If the income is included under any one of the heads, it cannot 
be brought to tax under the residuary provisions of Section 56. A tenancy 
right is a capital asset the surrender of which would attract Section 45 so 
that the value received would be a capital receipt and assessable if at all 
G only

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