Tenancy Rights

NON – Taxability of surrender of tenancy rights prior to 1-4-94
By Vimal Punmiya, Chartered Accountant

The issue regarding taxability/non-taxability of surrender of Tenancy rights is giving sleepless nights to millions of Tenants, especially in city like Mumbai where Pugree system is in great vogue.
The decision of the Special Bench constituted by the Bombay Tribunal in the case of Cadell Wvg. Mill Co. (P) Ltd. V/s. ACIT reported in (1995) 55 ITD 137 (Bom.) sent shocking waves to millions where in the Tribunal had taken stand that the amount received on surrender of tenancy right was casual income and taxable and that only where permission was granted to the tenant at any time by the Landlord under the terms of the contractual tenancy or where any permission to sub-lease was obtained by the tenant from the Landlord, the surrender of tenancy rights even by the statutory tenant is a valid transfer of capital asset.

Recently on similar facts and issues the Special Bench constituted under the Delhi Tribunal in the case
The amount received on surrender of Tenancy rights is a Capital Receipt.
It can be charged to tax only under Capital Gains.

But chargeability failed because of the decision of the Apex Court in the case of BC Srinivas Shetty reported in 128 ITR 294/5 Taxman 1(c) provisions cannot be applied was regarded as never intended by section 45 to be subject of charge.

That the amendment made in section 55(2) by the Finance Act 1994 taxing the receipts as Capital Gains was only prospective in operation.





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2 thoughts on “Tenancy Rights

  1. Please help me, me and my friends 4 nos are agreed to stay in a house for 11 months with the rent 3200 and the advance of 30000. we signed the agreement. now 2 of our roommates want to vacate the room. now we 2 have to pay the house rent instead of 4. we said, if you are going means, we will reduce your rent for upcoming months from your advance. they are going to split the aggrement to save thier advance. now what we 2 can do?

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