Delhi H.C : Whether, on the facts and in the circumstances of the case, the Hon’ble 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 assessee ?

High Court Of Delhi

CIT vs. Delhi Public College

Sections 4, 271(1)(c)

Asst. Year 1990-91

Arijit Pasayat, C.J. & D.K. Jain, J.

IT Ref. No. 109 of 1995 & IT Appeal No. 36 of 2001

9th August, 2001

Counsel Appeared

Sanjiv Khanna with Mrs. Premlata Bansal, for the Petitioner : S.K. Khurana, for the Respondent

JUDGMENT

ARIJIT PASAYAT, C.J. :

Both the IT reference and IT appeal are interlinked and are therefore, taken up together for disposal and these will be governed by this common judgment. In the IT reference pursuant to the direction given by this Court under s. 256(2) of the IT Act, 1961 (in short, the Act), following questions have been referred for opinion of this Court by the Tribunal, Delhi Bench ‘B’ Delhi (in short the Tribunal) :

“1. Whether, on the facts and in the circumstances of the case, the Hon’ble 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 assessee ?

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

Whether, on the facts and in the circumstances of the case, the Hon’ble Tribunal was correct in law in holding that the sum of Rs. 35 lakhs was not taxable ?”

Dispute relates to the asst. yr. 1990-91. The figure Rs. “5 lakhs” has to be read in place of “Rs. 35 lakhs” in view of order of rectification passed by the Tribunal.

2. Factual position, in a nutshell, is as under : Assessee, 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 assessee 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 compromises arrived at, and assessee accordingly vacated the premises. On 28th July, 1999, search operation were carried out in the premises of the firm and its partners. 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 29th July, 1999, he resiled from his statement and took the stand that 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 instalment of Rs. 5,10,000 was received in cash. The AO included Rs. 35,00,000 in the income of the assessee. The amount so received was made exigible to tax as business receipt for giving up a source of income. Assessee 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 said authority. Against the said order, assessee preferred an appeal before the Tribunal. 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 amount received by draft was so treated, there was no reason to treat amount received by cash differently. Revenue filed an application for reference, which was rejected and subsequently, as noted above, pursuant to the direction given by this Court, reference has been made.

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

We have heard learned counsel for the parties. Learned counsel for the Revenue submitted that in all cases 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 materialson-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 Revenue wanted to treat amounts received by draft and by cash differently, whereas it was really not so. The stand of Revenue was that there was surrender of a source of income and, therefore, the amount was taxable. Learned counsel for the assessee on the other hand, submitted that there was no definite material placed on record by Revenue to show that the amount related to surrender of a source of income. On the contrary, the materials placed by the assessee clearly indicated that the amount was received for surrender of tenancy.

We find that the case of the AO 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. Receipt had all the ingredients of commercial transaction and was distinguishable from merely surrender of tenancy rights. The CIT(A) also noted that the building was utilized for commercial purpose and for earning profits. Assessee resisted eviction before the forums on the ground that the building was used for commercial consideration and, therefore, by surrendering possession, source of income was surrendered and not mere surrender of tenancy rights. Before the Tribunal also, stand of Revenue was that the business was not continued after handing over premises to the landlord. At Pusa Road, coaching of boys was done by the assessee, 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 by cash are being considered on two different footings. There is a conceptual difference as regards 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 as to which category of receipts the amount falls. 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.

In this view of the matter, we feel that the case is to be reheard by the Tribunal, so that factual aspects can be considered appropriately. Instead of answering the question, 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. Coming to the appeal, we find that 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 assessee submitted that the Tribunal also considered the fact that assessee 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 facts that we have directed quantum appeal to be heard afresh. The Tribunal shall rehear the appeal relating to penalty afresh and decide it in accordance with law.

The reference and the appeal are accordingly disposed of.

[Citation : 254 ITR 441]

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