TMI Blog2005 (9) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... n easement right, as held by the learned CIT(A). In any case, there was no cost of acquisition of such easement right also. It is also mentioned that the assessee was not holding any capital asset, as defined under section 2(14) of the Act which could be transferred as the life interest in the property was merely a licence enjoyed by her. It is also mentioned that there is no evidence on record that the assessee was having any tenancy right in the property. Therefore, it was prayed that the impugned addition of Rs. 40 lakhs may be deleted. Without prejudice to the aforesaid prayer, it was mentioned in ground No. 6 that the learned CIT(A) erred in holding that the assessee was not entitled to exemption under section 54F on the ground that the assessee owned another immovable property in Guruprasad Apartments, Bund Garden Road, Pune. 2.1 The facts of the case, as mentioned in the order of learned CIT(A), are that the assessee filed a return of income for this year on 18-9-1997 declaring total income of Rs. 45,200. In the note accompanying the return, it was stated that an amount of Rs. 60 lakhs received by her on surrendering life interest was not liable to be taxed. Before the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been compensated in monetary terms. Upon doing so, it lost the characteristics of life interest and assumed the characteristics of right to use the property. This was nothing but transfer of the asset, liable to tax under the head "Capital gains". He also referred to the objections raised by the assessee to the proposed sale by the landlords, in which the assessee disclosed herself as care taker of the property. This, according to the Assessing Officer, disproves the claim that she had life interest in the property. 2.2 In the appellate proceedings, the assessee took a number of arguments before the learned CIT(A), which has been summarized on page 11 of the appellate order. It was claimed that - (i) being in the nature of compensation, the receipt is a capital receipt, (ii) even if the transaction amounts to transfer of the capital asset, no capital gains can be computed as the cost of acquisition was nil, (iii) the amount was received as a consequence of family settlement and, thus, there is no transfer, and (iv) the impugned receipt was invested in acquisition of a new house property and other assets entitled for exemption under section 54EA and, therefore, exemptions under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion note dated 17-2-1997, articles of agreement dated 15-10-1996, statement of income for assessment year 1997-98, and sale deed dated 10-1-1997. It was pointed out by him that the main controversy in the case revolves around computation of capital gains in respect of property situated at 42, Sasson Road, Bund Garden, Pune, owned by the brothers of the assessee. The assessee had been staying in this property with her parents for about 40 years. The brothers wanted to sell the property to M/s. Kalyani Estates. In order to find any defects in the title of the property, the intending buyer issued a public notice in the news paper. The assessee raised objections by writing a letter which does not bear any date. In this letter, it was inter alia intimated that she had been residing and using, occupying and enjoying the property for the last 40 years and she had also been caretaker of the said property, out-house, open space, garden, etc. It was intimated that all these rights and privileges were enjoyed by her independently with the consent of owners for the past many years and such right may be taken into consideration in such a manner that no inconvenience is caused to me or my rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecifically mentions that after the receipt of the such entire sum, Mrs. Nargis will remove herself and her family members and all of her belongings from the said property and will handover vacant and peaceful possession of the said property to landlords and will give up her claim of using and enjoying the said property for herself. This shows that the assessee had complete domain over the property insofar as its enjoyment is concerned, which extended to her and family members. It appears that she and her family were enjoying the property in an unrestricted manner. However, the terms of her rights were not shown by any pre-existing document. In any case, the enjoyment was not restricted personally to the assessee as the property could be enjoyed by others along with the assessee as per her choice, even as per the documents existing on record. 2.5 The learned counsel of the assessee pointed out that the definition of the term "immovable property" is furnished in negative term in section 3 of the aforesaid Act and it is defined that immovable property does not include standing timber, growing crops, or grass. Therefore, we have to look to section 3(26) of the General Clauses Act. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f valuation of life interest. Clause (a) of the Explanation defines "life tenant", to mean a person for the duration of whose life, the life interest is to subsist. On the basis of this definition and the method of computation of life interest for the purposes of taxation under the Wealth Tax Act, a case was made out that life interest in an immovable property will also be an immovable property. It does appear, on the basis of aforesaid provision in a fiscal statute, which may be taken as in the nature of analogous law, that life interest in an immovable property is also an immovable property. 2.8 During the course of hearing, the Bench drew the attention of the learned counsel towards the provisions of Gift-tax Act, 1958, and in particular to section 4 of that Act regarding "gifts to include certain transfers". In clause (e) of sub-section (1) of this section, it is provided that for the purposes of this Act, where a person, who has an interest in the property, as a tenant for a term or for life or remainder-man, surrenders or relinquishes his interest in the property or otherwise allows his interest to be terminated without consideration or for a consideration which is not adeq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the appeal states that the learned CIT(A) erred in ignoring various documents and agreements placed before him, according to which the assessee had a right to occupy the property till her life time and, therefore, he failed to appreciate that the amount received by her in lieu of the interest was a capital receipt. We have already discussed that life interest has been accepted to be a property, which is transferable. In this connection, we may also have regard to provisions of section 2(14) of the IT Act which defines the term "capital asset" to mean property of any kind held by an assessee, whether or not connected with the business or profession. Certain properties, namely, stock-in-trade, consumable stores, raw materials held for the purpose of business or profession; personal effects and certain agricultural lands have been excluded from the definition of "capital asset". It was not the case of the learned counsel that his case falls in the exclusionary clauses of sub-section (14) of section 2. Therefore, it is held that the assessee's right to possession, enjoyment and control over the property was an immovable property and, therefore, it constituted a capital asset. We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 4 of the appeal states that before any tax, it should be shown that there was a transfer of capital asset, as defined in section 2(14) of the IT Act. As the property was a personal right, it could not have been transferred and, therefore, there was no liability to capital gains. This matter has also been covered in preceding paragraphs, in which it has been held that life interest is a capital asset, which can be transferred. Gift-tax Act contains specific provisions to deem such transfers as gifts. Therefore, the transaction is exigible to tax under the head 'Capital gains'. Accordingly, ground No. 4 of the appeal is dismissed. 3.5. Ground No. 5 states that the assessee was not a tenant in the property and recital in agreement dated 15-10-1996, describing the owners as landlords could not lead to an inference that there was a relationship of landlords vs. tenant between the owners and the assessee. On the basis of the discussion in the preceding paragraphs, we are of the view that what the assessee had was life interest in the property for possession, control and enjoyment. Such persons are sometimes described as life tenants also. However, they are not life tenants in the se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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