Capital gains tax is not chargeable on the transfer of a capital asset acquired without any cost.

( 1 ) THIS reference under Section 2560) of the Income-tax Act, 1961 (hereinafter referred to as the Act) poses the following question for the opinion of this Court :

"whether on the facts and in the circumstances of the case and on a correct interpretation of the provisions of Section 2 (14), Section 45 and action 48 of the T. T. Act, 1961, the Tribunal was justified in holding that capital gains had arisen on the receipt of Rs. 30,000 on surrendering of tenancy rights of the first floor of premises 710, Ballimaran, Chandni Chowk, Delhi ?"

( 2 ) THE facts briefly are these. The assessment year under reference is 1966-67 of which the relevant previous year is the financial year ending March 31, 1966. The assessee is an individual and is engaged in profession as an advocate. He carried on his professional work till the accounting year relevant to the assessment year 1963-64 and thereafter the assesses carried on the same profession in. partnership with another advocate. The assessee took the premises at 710. Ballimaran, Chandni Chowk, Delhi on rent in 1947-48. During the relevant accounting year, the assessee surrendred the tenancy rights of the first floor of the said premises. The assessee received on March 18, 1966 an amount of Rs. 30,000. 00 for surrendering: the said premises in favour of all Indian Bank Employees Association . The Income-tax Officer took the view that the assessee s tenancy tights vis-a-viz 710, Ballimaran, Chandni Chowk, Delhi represented a capital asset and that the amount of Rs. 30,0001- was assessable as capital gains under Section 45 of the Act. The Income-tax Officer, accordingly, included the amount of Rs. 25,0001- as capital gains being the net amount after allowing the statutory exemption in the assessee s total income rejecting the assessee s contention to the contrary.

( 3 ) AN appeal was filed by the assesses before the Appellate Assistance Commissioner who held that the tenancy rights did represent the capita] assets but no capital gains could arise to the assesses by surrender of the rights, because the tenancy rights had not cost the assessee anything and that they were not purchased by him. The Applellate assistant Commissioner deleted the amount of Rs. 25,000. 00 from the assessee s total income.

( 4 ) THE department went in second appeal before the Income-tax Appellate Tribunal (for short called the Tribunal ). It. was contended that the Appellate Assistant Commissioner had accepted the position that the tenancy rights represented a capital asset and that there could no dispute that the assessee had relinquished or surrendered the capital asset. The departmental representative urged that the amount of Rs. 30,000. 00 had to be considered for being processed as capital gains and that it was for the assessee to lead evidence about the actual cost of assets at the time of its acquisition or at least the market value of the asset as on January 1, 1954, The Tribunal allowed the department s appeal. It was held tha. t the tenancy rights represented a capital asset because -Section 2 (14) made it dear that capital asset included property of any kind held by an :;ssesee and the tenancy rignts did represent rights of property, that the tenancy rights have clearly to be distinguished from good-will in which case there may be some difficulty about determining the actual cost of acquisition of goodwill but such a difficulty would not arise in case of tenancy rights and that at any rate there would be no difficulty in determining the market value of the tenancy rights as on January 1, 1954. The question was posed hi another way by the Tribunal for its answer. It observed that the question would be as to what would be the pagri which the assessee would have got on January 1. 1954 for surrendering the accommodation and that this amount would have to be deducted from Rs 30,000. 00 before arriving at the capital gains. The Tribunal set aside the findinc finding of the Appellate Assistan