ITA No. 122/2003 Page 1 of 15 $~21. * IN THE HIGH COURT OF DELHI AT NEW DELHI + INCOME TAX APPEAL NO. 122/2003 Date of order: 9th November, 2011 COMMISSIONER OF INCOME TAX DELHI..... Appellant Through Mr. Kamal Sawhney, Sr. Standing Counsel. versus MS ALKA DALMIA ..... Respondent Through Nemo. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V.EASWAR 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporter or not ? 3. Whether the judgment should be reported in the Digest? SANJIV KHANNA, J.: By order dated 13th April, 2004, the following substantial question of law was framed: “Whether the Tribunal was right in holding that Section 10(3) of the Income-tax Act, 1961 was not applicable and that the amount received for surrender of tenancy right was not assessable to tax under the Income-tax Act, 1961?” 2. The assessment year in question is 1993-94 and the respondent assessee is an individual. The question of law raised pertains to taxation of Rs.1 crore received by the ITA No. 122/2003 Page 2 of 15 assessee on surrender of tenancy rights in property No. 15, Motilal Nehru Marg, New Delhi from Bennet Coleman and Company Limited. The Assessing Officer following the directions under Section 144A of the Income Tax Act, 1961 (Act, for short) held that the said amount was taxable as income from other sources. According to the Assessing Officer, as the assessee has no tenancy right to transfer, the income cannot possibly be charged under the head of “Capital Gains”. 3. On appeal filed by the assessee, it was held that the amount received was a capital receipt but the said amount is not taxable as capital gains in view of the decision of the Delhi High Court in Bawa Shiv Charan Singh versus CIT, (1984) 149 ITR 29. It was held that the said amount cannot be taxed under Section 10(3) of the Act. The addition made was deleted. 4. The Revenue preferred a further appeal before the Income Tax Appellate Tribunal but did not succeed on the said question. 5. It is noticeable that the Additional Commissioner of Income Tax in his order under Section 144A of the Act dated 9th March, 1996 had examined the question of tenancy right and the consideration received. He had observed that the property was originally taken on lease on a monthly rent of Rs.1,000/- by Ram Krishan Dalmia for a period of three years, which came to an ITA No. 122/2003 Page 3 of 15 end on 31st December, 1961. Further, Ram Krishan Dalmia was in occupation of the property since January, 1953 and continued to be in occupation even after the period specified in the lease deed had come to an end. Ram Krishan Dalmia expired on 26th September, 1978 leaving behind a Will dated 15th April, 1977. However, the said Will was contested by one of his daughters, Asha Dalmia and her children. Subsequently, there was an agreement dated 17th November, 1992 amongst Asha Dalmia (the present assessee), Meera Chatterji, Alka Dalmia and Dhruv Nidhi Dalmia (three daughters and the son of Ram Krishan Dalmia) and Bennet Coleman and Company Limited. Pursuant thereto the four children got Rs.1 crore each for surrender of tenancy rights. 6. Additional Commissioner of Income Tax in his order dated 9th March, 1996 under Section 144A of the Act held that the four children were not tenants and, therefore, the amount received by them cannot be treated as a capital receipt. According to him, the agreement dated 17th November, 1992 and the payment made was not on account of surrender of tenancy rights and accordingly the amount received was taxable as income from other sources under Section 10(3) of the Act and not under the head “Capital Gains”. He accordingly held that the judgment of ITA No. 122/2003 Page 4 of 15 the Delhi High Court in Bawa Shiv Charan Singh versus CIT, (supra) was not applicable while the decision of the Allahabad High Court in CIT versus Gulab Chand, 192 ITR 495 was applicable. 7. CIT (Appeals) in his order dated 3rd September, 1996 examined the question of tenancy rights and whether the respondent assessee was a tenant. He referred to the provisions of the Delhi Rent Control Act, concept of statutory tenant etc. and held that the respondent assessee was in fact a tenant and the consideration amount received was on account of surrender of tenancy rights and, therefore, Section 10(3) was not applicable. 8. It is not disputed by the Revenue that Ram Krishan Dalmia was originally the tenant of the property and the property had been taken on rent from Bennet Coleman and Company Limited. Tenancy rights, it is well settled, are inheritable under the general law, unless there is specific statute or a contract to the contrary. 9. In Gian Devi Anand (supra), Bhagwati J. on the question of inheritance of tenancy, whether contractual or statutory in nature, has elucidated the same, observing: “2. The distinction between contractual ITA No. 122/2003 Page 5 of 15 tenancy and statutory tenancy is thus completely obliterated by the rent control legislation. Though genetically the parentage of these two legal concepts is different, one owing its origin to contract and the other to rent control legislation, they are equated with each other and their incidents are the same. If a contractual tenant has an estate or interest in the premises which is heritable, it is difficult to understand why a statutory tenant should be held not to have such heritable estate or interest. In one case, the estate or interest is the result of contract while in the other, it is the result of statute. But the quality of the estate or interest is the same in both cases.” 10. Amarendra Nath Sen J. in Gian Devi Anand (supra) has also dealt with the above issue. He observed as under: “18. ...We find it difficult to appreciate how in this country we can proceed on the basis that a tenant whose contractual tenancy has been determined but who is protected against eviction by the statute, has no right of property but only a personal right to remain in occupation, without ascertaining what his rights are under the statute. The concept of a statutory tenant having no estate or property in the premises, which he occupies is derived from the provisions of the English Rent Acts. But it is not clear how it can be assumed that the position is the same in this country without any reference to the provisions of the relevant statute. Tenancy has its origin in contract. There is no dispute that a contractual tenant has an estate or property in the subject-matter of the tenancy, and heritability is an incident of the tenancy. It cannot be assumed, however, that with the ITA No. 122/2003 Page 6 of 15 determination of the tenancy the estate must necessarily disappear and the statute can only preserve his status of irremovability and not the estate he had in the premises in his occupation. It is not possible to claim that the „sanctity‟ of contract cannot be touched by legislation... XXXX 23. ...It is not in dispute that so long as the contractual tenancy remains subsisting, the contractual tenancy creates heritable rights; and, on the death of a contractual tenant, the heirs and legal representatives step into the position of the contractual tenant; and, in the same way on the death of landlord the heirs and legal representatives of a landlord become entitled to all the rights and privileges of the contractual tenancy and also come under all the obligations under the contractual tenancy. A valid termination of the contractual tenancy puts an end to the contractual relationship. On the determination of the contractual tenancy, the landlord becomes entitled under the law of the land to recover possession of the premises from the tenant in due process of law and the tenant under the general law of the land is hardly in a position to resist eviction, once the contractual tenancy has been duly determined...” 11. There is no evidence/material to show that the tenancy of Ram Krishan Dalmia, which continued from month to month, was terminated. The agreement dated 17th November, 1992 indicates that the month to month tenancy was not terminated by ITA No. 122/2003 Page 7 of 15 issuance of notice under Section 106 the Transfer of Property Act, 1882. The month to month tenancy is recognised and permitted by law. The doctrine of “tenant hold over” is well recognised. The CIT(A) has held that the respondent assessee was a tenant. No eviction or ejectment proceedings were initiated. On the question of difference amongst the terms, a tenant by sufferance, tenant holding over and a trespasser, it has been observed in Badrilal v. Municipal Corporation of Indore, (1973) 2 SCC 380, as under:- “8. It was then urged by Mr Gupte that the appellant having deposited the rent up to March 31, 1954 and the Municipal Commissioner having accepted it he should be deemed to be a tenant holding over. Leaving aside for the moment the contention put forward on behalf of the Corporation that this payment was made behind its back, it has to be noted that the payment was at the rate prevailing before September 30, 1949 and on that date the Corporation having passed a resolution specifying a new rate of rent of Rs 9 per Chasma the payment at the old rate by the appellant and its acceptance by the Municipal Commissioner was not an acceptance of rent as such and in clear recognition of the tenancy right of the appellant. It cannot amount to the Corporation consenting to the appellant continuing as a tenant by paying the old rates of rent. There is thus no question of the appellant being a tenant holding over. But a person who was lawfully in occupation does not become a trespasser, even if he does not become a tenant holding over but is a tenant by ITA No. 122/2003 Page 8 of 15 sufferance. The position at law was explained in Kai Khushroo Bezonjee Capadia v. Bai Jerbai Hirjibhoy Warden as follows: “On the determination of a lease, it is the duty of the lessee to deliver up possession of the demised premises to the lessor. If the lessee or a sub-lessee under him continues in possession even after the determination of the lease, the landlord undoubtedly has the right to eject him forthwith; but if he does not, and there is neither assent nor dissent on his part to the continuance of occupation of such person, the latter becomes in the language of English law a tenant on sufferance who has no lawful title to the land but holds it merely through the laches of the landlord. If now the landlord accepts rent from such person or otherwise expresses assent to the continuance of his possession, a new tenancy comes into existence as is contemplated by Section 116, Transfer of Property Act, and unless there is an agreement to the contrary, such tenancy would be regarded as one from year to year or from month to month in accordance with the provisions of Section 116 of the Act.” At p. 272 it was pointed out: “It can scarcely be disputed that the assent of the landlord which is founded on acceptance of rent must be acceptance of rent as such and in clear recognition of the tenancy right asserted by the person who pays it.” 9. The same position was explained in a recent decision of this Court to which one of us was a party in Bhawanji Lakhamashi ITA No. 122/2003 Page 9 of 15 v. Himatlal Jamnadas Dani. At p. 391 it was observed: “The act of holding over after the expiration of the term does not create a tenancy of any kind. If a tenant remains in possession after the determination of the lease, the common law rule is that he is a tenant on sufferance. A distinction should be drawn between a tenant continuing in possession after the determination of the term with the consent of the landlord and a tenant doing so without his consent. The former is a tenant at sufferance is English Law and the latter a tenant holding over or a tenant at will. In view of the concluding words of Section 116 of the Transfer of Property Act, a lessee holding over is in a better position than a tenant at will. The assent of the landlord to the continuance of possession after the determination of the tenancy will create a new tenancy. What the section contemplates is that on one side there should be an offer of taking a new lease evidenced by the lessee or sub-lessee remaining in possession of the property after his term was over and on the other side there must be a definite consent to the continuance of possession by the landlord expressed by acceptance of rent or otherwise. In Kai Khushroo Bezonjee Capadia v. Bai Jerbai Hirjibhoy Warden case the Federal Court had occasion to consider the question of the nature of the tenancy created under Section 116 of the Transfer of Property Act and Mukherjea, J., speaking for the majority said that the tenancy which is created by the “holding over” of a lessee or under-lessee is a newtenancy in law even though many of the terms of the old lease might be continued in it, by implication; and that to ITA No. 122/2003 Page 10 of 15 bring a new tenancy into existence, there must be a bilateral act. It was further held that the assent of the landlord which is founded on acceptance of rent must be acceptance of rent as such and in clear recognition of the tenancy right asserted by the person who pays it.” 12. The agreement dated 14th August, 1992 referred to by the Additional Commissoner of Income Tax specifically stipulates that the four children of Ram Krishan Dalmia were tenant a paying monthly rent of Rs.5,000/- but Delhi Rent Control Act, 1958 was applicable because the monthly rent was more than Rs.3,500/-. The landlord-owner admitted that the respondent- assessee was their tenant. Moreover, as stated above, vide agreement dated 17th November, 1992, the amount specified was paid to the four children was on account of surrender of tenancy rights. 13. The next question, which aries for consideration is whether the addition under Section 10(3) of the Act can be sustained even when the amount received was on account of surrender of tenancy rights. The said question is no longer res integra and is covered by the decision of the Supreme Court in Commissioner of Income Tax versus D.P. Sandu Bros. Chembur (P) Ltd., (2005) 2 SCC 584 wherein dealing with the similar issue, it has ITA No. 122/2003 Page 11 of 15 been held as under:- “7. That the tenancy right is a capital asset, the surrender of the tenancy right is a “transfer” and the consideration received therefor a capital receipt within the meaning of Section 45 has not been questioned before us and must in any event be taken to be concluded by the decision of this Court in A. Gasper v. CIT. Normally the consideration would therefore be subjected to capital gains under Section 45. XXXXX 11. It is contended that 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 legal corollary. 12. We agree. 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 A.R. Krishnamurthy and Ors, vs. Commissioner of Income Tax, Madras 1989 (176) ITR 417 this Court held that it cannot be said conceptually that there is no cost of acquisition of the grant of the lease. It held that the cost of acquisition of leasehold rights can be determined. In the present case however, the Department's stand before the High Court was that the cost of acquisition of the tenancy was incapable of being ascertained. In view of the stand taken by the Department before the High Court, we uphold the decision of the High Court on this issue. 13. Were it not for the inability to compute the cost of acquisition under Section 48, there is, as we have said, no doubt that a monthly tenancy or leasehold right is a ITA No. 122/2003 Page 12 of 15 capital asset and that the amount received on its surrender was a capital receipt. But because we have held that Section 45 cannot be applied, it is not open to the Department to impose tax on such capital receipt by the assessee under any other section. This Court, as early as in 1957 had, in United Commercial Bank Ltd. v. CIT held that the heads of income provided for in the sections of the Income Tax Act, 1922 are mutually exclusive and where any item of income falls specifically under one head, it has to be charged under that head and no other. In other words, income derived from different sources falling under a specific head has to be computed for the purposes of taxation in the manner provided by the appropriate section and no other. It has been further held by this Court in East India Housing and Land Development Trust Ltd. v. CIT that if the income from a source falls within a specific head, the fact that it may indirectly be covered by another head will not make the income taxable under the latter head. (See also CIT v. Chugandas and Co.) 14. Section 14 of the Income Tax Act, 1961 as it stood at the relevant time similarly provided that “all income shall, for the purposes of charge of income tax and computation of total income, be classified under the following [six] heads of income”, namely: (A) Salaries; (B) Interest on securities; (C) Income from house property; (D) Profits and gains of business or profession; (E) Capital gains; (F) Income from other sources unless otherwise provided in the Act. ITA No. 122/2003 Page 13 of 15 15. Section 56 provides for the chargeability of income of every kind which has not to be excluded from the total income under the Act, only if it is not chargeable to income tax under any of the heads specified in Section 14 Items (A) to (E). Therefore, if the income is included under any one of the heads, it cannot be brought to tax under the residuary provisions of Section 56. 16. There is no dispute that 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 only under Item (E) of Section 14. That being so, it cannot be treated as a casual or non-recurring receipt under Section 10(3) and be subjected to tax under Section 56. The argument of the appellant that even if the income cannot be chargeable under Section 45, because of the inapplicability of the computation provided under Section 48, it could still impose tax under the residuary head is thus unacceptable. If the income cannot be taxed under Section 45, it cannot be taxed at all. [See S.G. Mercantile Corpn. (P) Ltd. v. CIT] 17. Furthermore, it would be illogical and against the language of Section 56 to hold that everything that is exempted from capital gains by statute could be taxed as a casual or non-recurring receipt under Section 10(3) read with Section 56. We are fortified in our view by a similar argument being rejected in Nalinikant Ambalal Mody v. S.A.L. Narayan Row, ITR at pp. 432, 435. 18. The appeal is accordingly dismissed without any order as to costs.” ITA No. 122/2003 Page 14 of 15 14. Thus, once it is held that the income received was of capital nature, it cannot be brought to taxibility under Section 10(3) as income of casual and non-recurring nature. Further, in order to tax the income received from the surrender of tenancy rights, the Assessing Officer must first compute and calculate the cost of acquisition of tenancy rights. 15. In the present case, the Assessing Officer has not held that it is possible to compute and calculate the cost of acquisition of the tenancy rights in the hands of the original tenant Ram Krishan Dalmia. The said exercise was not undertaken by him in the assessment order. In view of the aforesaid position, we are not required to determine, decide and compute income from capital gains under Section 45 of the Act. A similar situation had arisen in the case of D.P. Sandu Bros. Chembur (P) Ltd. (supra) and the Supreme Court had refused to examine and go into the said question in view of the stand taken by the Department that it was not possible to compute the cost of acquisition of the tenancy rights when they were acquired. 16. In view of the aforesaid, the question of law is answered against the appellant and in favour of the assessee. ITA No. 122/2003 Page 15 of 15 The appeal is accordingly disposed of. SANJIV KHANNA, J. R.V. EASWAR, J. NOVEMBER 09, 2011 VKR