The central legal point established in the judgment is that the amount received for surrendering tenancy rights is not taxable as casual and non-recurring income under Section 10(3) of the Income Tax Act, 1961.

P.P.S. Janarathana Raja, J.

The Revenue has come up on appeal as against the order of the Income Tax Appellate Tribunal, 'A' Bench, Chennai dated 10.11.2004 in I.T.A.No.444/MDS/1998 raising the following substantial question of law:-

"1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in upholding the order of the Commissioner of Income-tax (Appeals) even though the amount received of Rs.50,00,000/- on surrender of tenancy right is casual and non-recurring receipt under Section 10(3) of the Income Tax Act, 1961 is valid?"

2. The brief facts of the case are as follows:-

The assessee is a domestic Company, in which the public are substantially interested. It involved in the manufacture of Textiles, Engineering Products and services. The relevant assessment year is 1994-95 and the corresponding account year ended on 31.03.1994. The assessee/respondent company filed its return of income on 31.11.1994 computing the assessable loss of Rs.19,30,14,502/-. Later, the assessee filed a revised return of income on 26.02.1996 computing assessable loss of Rs.39,56,24,432/-. Subsequently, the Assessing Officer sent notice under Section 143(2) of the Income Tax Act, 1961 (hereinafter called as the "Act") on 31.03.1995. The Assessing Officer completed the assessment under Section 143(3) of the Act determining the loss at Rs.30,76,94,998/- and declared "Nil Demand". While completing the assessment, the Assessing Officer found that the assessee received a sum of Rs.50,00,000/-, which is a consideration received from the land owner for surrendering tenancy rights. The Assessing Officer was of the view that the same is assessable under Section 10(3) of the Act and granted deduction of Rs.5,000/- and the remaining amount of Rs.49,95,000/- is assessable under the head 'other sources'. Aggrieved by the same, the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The CIT (Appeals) held that the amount received is a capital receipt and the same was not liable to tax as treated by the Assessing Officer as casual and non-recurring income under Section 10(3) of the Act. Aggrieved by the same, the Revenue went on appeal before the Income Tax Appellate Tribunal. The Appellate Tribunal also held that the same is not assessable under Section 10(3) of the Act and confirmed the order of the Commissioner of Income Tax (Appeals) and dismissed the appeal preferred by the Revenue. Aggrieved by the same, the Revenue filed the present appeal raising the above question of law.

3. Learned counsel appearing for the Revenue vehemently contended that the Tribunal ought to have appreciated that the amount received on surrender of tenancy rights is a casual and non-recurring receipt under Section 10(3) of the Income Tax Act, 1961. Therefore, the order passed by the Tribunal is not in accordance with law and the same should be set aside.

4. Inspite of notice served on the assessee/respondent, there is no representation on behalf of the assessee and the name of the assessee/respondent also appears in the cause list.

5. Heard the learned counsel for the Revenue and perused the documents available on record. The assessee was a tenant of a shop at Connaught place, New Delhi. There was an agreement entered into between the assessee/tenant and the landlord Shri.K.Dutta in the year 1953 and the same was renewed from time to time. The said premises was sold by the landlord to M/s.Bird Travels, who acknowledged the assessee as a tenant and given him tenancy rights and collected the rents. By an agreement dated 21.12.1993, the assessee agreed to vacate the premises and was paid compensation of Rs.50 lakhs towards termination of tenancy right.

6. There is no dispute by the Revenue that the amount received towards termination of tenancy rights is not subjected to capital gains at the relevant point of time. The Assessing Officer was of the view that the same is taxable under the head "other sources". Further,