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January 2015

Capital gain: Long-term or short-term – Sections 2(42A) and 45 – Written lease for three years – Assessee continuing to pay rent and occupying premises for 10 more years – Amount received on surrender of tenancy is long-term capital gain

By K. B. Bhujle Advocate
Reading Time 1 mins
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CIT vs. Frick India Ltd.; 369 ITR 328 (Del):

Under a written tenancy agreement for three years the assessee occupied premises on 15-03-1973. Thereafter the assessee continued to use and occupy the premises as a tenant. Rent was paid by assessee and was accepted by the landlord. On 18-02-1987 the tenancy rights were surrendered and consideration of Rs. 6.78 crore was received from a third party. The Assessing Officer held that the amount should be treated as short-term capital gains and not as long term capital gains. The logic behind the finding of the Assessing Officer was that the tenancy after the initial period of three years by way of a written instrument, was month to month. Thus the tenancy rights were extinguished on the last day of each month and a fresh or new tenancy was created. The Tribunal held that the amount was assessable as long-term capital gain.

On appeal by the Revenue the Delhi High Court upheld the decision of the Tribunal and held as under:

“The tenancy rights had been held for nearly fourteen years and consideration received on surrender had been rightly treated as long-term capital gain.”

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