The matter will now be heard all over again after the Chief Justice assigns it to another bench. He did not assign any reasons. The case has been attracting a lot of attention because of the controversial Allahabad HC judgment in Gulab Chand's case, following which the Income Tax department started issuing demands of tax on transactions of surrender of tenancies. The problem is acute in Mumbai since a large number of tenants have shifted to other premises in he suburbs by surrendering their tenancies in the island city.

Several of them had faced tax notices in the last year, and petitions filed in the H C which were heard along with the Cadell appeal, have also alleged harassment from tax officers. Some of the parties havepointed out that the harassment continued despite CBDT instructions that recovery proceedings should be stayed if an appeal is pending.In fact, even as the HC was seized of the matter, the department chose to raise some other points in reference before the ITAT in November. The ITAT, however, threw out that reference because of the delay beyond the limitation period.

In the HC, several tenants had argued that they were forced to leave their premises, and had got smaller, less comfortable accommodation. Most of them would not be able to meet a tax demand on the value of the new accommodation, since they did not have the money.

The dispute covers two sets of circumstances -- If a tenant surrenders a tenancy and is paid in cash by his former landlord, is he liable to pay tax on the amount? And second, even if the transfer is not accompanied by a money transaction, is he liable to pay tax on the value of the new premises which he moves into in lieu of his tenanted premises?

The case of Cadell Weaving Millfell in the first category. The questions also to be decided are whether such transfer of tenancy falls under the chapter of capital gains or under sections covering `casual income' and its exceptions.

In the case of Cadell, the assessing officer and the commissioner (appeals) took the view that the amount (Rs 1.40 cr) received by the assessee Mill was eligible to tax. The Mill came in appeal to the ITAT, by a special bench judgment, made the distinction between statutory and contractual tenants, and held that the receipt of Rs 1.40 cr was a casual and non-recurring income of the assessee. So, the assessee would have to pay tax on Rs 1,39,95,000 (after the exemption of Rs 5000).

In the reference filed by Cadell before the HC and other petitions by individual assessees, finally clubbed together, the points argued were that such a receipt is not an income and that the Supreme Court had accepted in A Gasper v CIT the principle laid down in CIT v B C Srinivas Setty (transfer of goodwill is not taxable).