However, during the relevant previous year i.e. in March, 1986, the Assessee surrendered tenancy rights prematurely and received a sum of 35 lacs. That sum was credited to the reserve and surplus account, which was disallowed by the Assessing Officer, holding that it was income from other source. The Assessee appealed to the Commissioner, who came to the conclusion that the Assessee was liable to pay tax on capital gains on the amount of Rs.35 lacs after deducting an amount of Rs.7 lacs as cost of acquisition. The Department and Assessee challenged the decision before the Tribunal and the Tribunal relied upon a Judgment of the Hon'ble Supreme Court in the case of Commissioner of Income Tax, Bangalore vs. B. C. Srinivasa Shetty (1981) 128 ITR 294 and the amendment to section 55(2) of the Income Tax Act and held that the Assessee did not incur any cost to acquire the leasehold rights and that if at all any cost had been incurred it was incapable of being ascertained. It was therefore held that since the capital gains could not be computed as envisaged in section 48 of the Income Tax Act, therefore, capital gains earned by the assessee, if any, was not exigible to tax. The Department's Appeal to the High Court was dismissed and that is how it approached the Hon'ble Supreme Court. In dealing with the rival contentions, the Hon'ble Supreme Court held as under:
