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TMI Blog2012 (5) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... nding over the possession of immovable property in view of lease agreement for a period not less than 12 years in exchange of lease rent is a contract as referred in section 53A of Transfer of Property Act, 1882, which treated as 'transfer' as per section 2(47)(v) of the Act relating to capital gains. Acquiring a right in a property under section 269UA(f) is treated as 'transfer' as per section 53A of transfer of Property Act, 1882. If a person acquires a right in a immovable property by virtue of transaction which is referred to in section 269UA(f) then also 'transfer' happened. Broadly speaking, section 269UA(f) covers giving a property on lease for a term of not less than 12 years. From the provisions of section 27(iiib) read with section 269UA(f) it is clear that where the period of lease is more than 12 years, lessee is deemed to be the owner of the property for the purpose of assessment. This view is decided in the case of Yagyawati Jayaswal Family Trust -vs- ITO [2004] 89 ITD 199 (Kol.) (SMC). Possession need not necessarily by sole and exclusive possession. When the transferee is by virtue of the possession given enabled to exercise general control over the property and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ahs (ignoring chittaks and feet). Similarly, value of the said leasehold land in the year 2005-06 and 2006-07 was more than Rs.2,33,87,485/- and Rs.2,54,21,170/- respectively apart from structures standing on the land given on lease to M/s Srei infrastructure Finance Ltd. During the relevant years the real market value of land and property of that area (beside Eastern Metropolitan Bypass, Kolkata) might be more than the value as per record of Registrar of Assurance, Kolkata due to increased demand of land in that area for the purpose of housing and realtor business Such valuable land has been given on lease by assessee at a nominal monthly rent of Rs. 1.500/- (yearly Rs.18,000/- only) during the period from 1.12.1995 to 31.03.2006. Monthly rent has been increased to Rs.25,000/- only with effect from 01.04.2006. Vide lease agreement dated 28.12.1995, it is gathered that M/s Srei Infrastructure Finance Ltd., lessee, has constructed building (Ground + 7 upper floors) on the leasehold land at that posh area of Kolkata taking it from assessee and enjoying the benefit of it in exchange of nominal lease rent as stated above. Clause 2(d) of page 6 of indenture of lease dt.28.12.1995 reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest free advance/deposit by changing the nomenclature of consideration. The nomenclature given to the document may not be decisive or conclusive - intention of the assessee and Srei Infrastructure Finance Limited as gathered on the documents and surrounding circumstances is decisive. From the facts and circumstances as discussed above it is gathered that receipt of Rs. 21crores as interest free non refundable advance/deposit during the currency of lease is consideration for the property of the assessee under lease which is taxable as Capital Gains. 12. Thus, from Para No.8, 9 and 10 it is found that capital assets/immovable property of the assessee has been transferred and profits/gains of Rs.21,00,00,000/- effected/received therefrom is liable to be capital gains tax u/s 45 of the Income Tax Act, 1961 during this year under assessment. Assessee purchased that property in the year 1991-92 for an amount of Rs.4,64,93 1/- and held by it more than three years. Therefore, the aforesaid capital gains would be long term capital gains and indexed cost of acquisition is to be applied to determine the cost of acquisition of the said property. Penalty proceedings u/s 271(1)(c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentioned that as per discussion, it was agreed that period of lease will be extended from 21 years to 62 year and w.e.f. 01-04-2006, the lease rent stands increased from Rs. 1,500/- to Rs.25,000/- and w.e.f. 01-04-2008 it will increase from Rs. 25,000/- p.m. to Rs.50,000/-. It is also mentioned in the said renewal letter dt. 26- 03-2007 that all other terms and conditions at lease agreement dt. 28-12-1995 will remain unchanged. But prior to said extention of lease period and increase in the lease rental, The lessor and the lessee executed an Amendment/Alteration deed on 10-12- 2006. This Amendment/Alteration deed was made to amend/alter the clause 2(d) on page 6 of lease agreement dt. 28-12-1995. As per the said amendment, the lessee shall Keep in deposit and or advance with lessor a sum of Rs. 21,00,00,000/- by way of interest free security deposit and/or advance for enjoyment of benefit of lease by lesee which amount shall not be refundable during the continuance of the lease period. 6.1. Before, to proceed further, 1 am at the opinion that it is necessary to examine the lease agreement dt. 28-12-1995. In fact, in the year, 1991 the appellant company had purchased undiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,500/-...." 6.2. Thus, it is apparent that the appellant company had given such a huge piece of land and structures along with rights to construction of building to M/s. Srei Infrastructure for a period of 21 years on a negligible amount of rent of Rs. 1500/- p.m. The appellant company kept on showing lease rent @ Rs. 1,500/- p.m. or Rs. 18,000/- per annum from 01-12-1995 to 31-03-2006 in lieu of said property 3iven along with other rights. 6.3. As per clause 2(b) the lessee was supposed to pay entire amount of municipal taxes in respect of said demised property and the buildings to be constructed thereon. As per clause 2(c) the lessee shall also pay all enhancement, fresh impositions, levies, multistoried building tax and/or property tax that may be payable on the said demised property or any part thereof. 6.4. The clause 2(d) or the lease agreement dt.28.12.1995 reads as under:- "The lessee shall, if require, keep in deposit and/or advance with the lessor such sum as may be mutually agreed by way of security deposit and/or advance for enjoyment or benefit of lease by the lessee which amount shall not be refundable during the continuance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the building to be constructed thereon from time to time and the lessor grant its consent thereto provided a lessee shall pay all the costs and charges and expenses in relation thereto. The clause 3(g) says that on the expiration or sooner determination of the term of this lease such construction or building will be taken over by either parties at the price mutually agreed by and between the parties hereto. From above, it is apparent that the appellant company was simply interested that any how, the so-called lessee should construct a building on the land given by the appellant. The clauses 3(e), (f) and (g) are very unusual clauses which generally do not find place if there is an agreement for lease of a property, specifically the land. 6.8. The clause 4(C) also provides that the lessee shall have the right to sub-lease, sub-let and/or give tenancy of the demised property and the building to be constructed thereon or any portion thereof on any occasions or from time to time to one or more persons on such terms and conditions as the lessee may deem fit and proper and no consent of the lessor shall be required thereto. From this clause, it is apparent that full c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the continuance of the lease period, From the said Amendment/Alteration deed it is apparent that for the first time it was made compulsory that Srei infrastructure Finance Ltd. shall pay a sum of Rs. 21,00,00,000/- to the appellant company and it could not be refunded upto a period of 62 years. 7. On careful consideration of the facts and after going through the various clauses of agreement dt. 28-12-1995, I am of the opinion that the A.O. has arrived on a correct conclusion that the appellant company has transferred its property to Srei Infrastructure Finance Ltd. in the guise of a lease agreement. He also rightly invoked various provisions of the Act i.e. Sec. 2(47), Sec. 269UA(f) and Sec, 27(iiib) to hold that the appellant company has transferred the capital asset in the relevant previous year. From the said agreement it is apparent that for all the practical purposes the property was transferred by the appellant company and the other company was enjoying absolute powers in every respect with regard to that property. Though, the appellant company handed over the possession of the property to Srei Infrastructure Finance Ltd. in the year 1995 but for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main unpaid for six month after the same shall have became payable then the lessor shall be entitled to give one month's notice to the lessee of termination of lease. If, the lessee pay such arrears of rent with interest @ 18% per annum within one month from the date of receipt of notice, the default will be waived but if all such arrears of rent is not paid along with interest, within the period as aforesaid than the lessor shall be at liberty to determine the lease and to re-enter and take possession of the demised property and the building to be constructed thereon. Thus this clause clearly states that the appellant as a lessor, has a right to terminate the lease. However, I am not inclined to agree with the submission of the appellant because the said clause is nothing but an eye wash and a device to hide the real nature of the transaction. It is not known as to how the appellant company could terminate the said agreement and enter and take possession of the demised property and the building to be constructed thereon because the appellant company itself emphasized that Srei Infrastructure Finance Ltd. has to construct a building on the demised property either by its own resourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that it had given lease of the demised property and earning only the lease rent. This is nothing but a device to avoid the capital gain fax. The appellant has also argued that the company Srei Infrastructure Finance Ltd. has shown the sum of Rs, 21 crores in its books of accounts as advance given to the appellant company and the appellant company has disclosed the said sum in its books of accounts as liability and hence, the intention of the parties is clear that the transaction was as a lessor and lessee and not as a transferor and transferee. However, I am not inclined to agree with this submission because the entries in the books of accounts cannot be conclusive to determine the nature of transaction and moreover if the transferee company has shown the sum of Rs. 21 crores as advance or deposit, it is not in loss because in any case it cannot claim the depreciation on said amount being the consideration for the land. The appellant company is also not in loss because it is enjoying the benefits of sum of Rs. 21 crores. In view of above. I am of the opinion that the AO was justified in holding that during the year under consideration the appellant company has transferred its p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading more than one previous year. The details he pointed out are as under: The assesee received Rs.16.50 crores as advance during the financial year 2005-06 and Rs.4.50 crores during the financial year 2006-07. The ld. Counsel for the assessee stated that when this period of lease was extended for 62 years w.e.f. 1.12.1995 vide letter dated 26.3.2007, lease rentals from Rs.1500/- per month to Rs.25,000/- per month w.e.f. 1.4.2006 and Rs.50,000/- w.e.f. 1.4.2008. The ld. Counsel for the assessee stated that during the previous year under consideration there were only certain changes which were made subsequent to the original lease agreement, which includes deposits or advance of Rs.21 crores by way of interest free security deposit, along with increase in lease rental and for that extension of lease period was allowed. He stated that for charge of capital gain u/s 45 r.w. section 48 of the Act, the following four conditions are required to be fulfilled: (i) there should be a capital asset, (ii) capital asset should be transferred, (iii) consideration has been received in lieu of transfer and (iv) there was cost of acquisition and cost of impr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the property to M/s. SREI Infrastructure Finance Limited but just allowed the possession and enjoyment of the property to them for a limited period in lieu of monthly lease rent and fixed amount of security deposit. The original period of lease was 21 years, which remained unexpired and lease remained possession of the property at the time of period of lease, which was extended from 21 years to 62 years. He also pointed out that the security deposit was a refundable amount and appears as a liability and asset in the lessor's account in the balance sheet of assessee as well as M/s. SREI Infrastructure Finance Limited. 3.3. Further the ld. Counsel for the assessee relied on the following case laws:- i) Supreme Court's decision in the case of Alapati Venkataramiah vs CIT, Hyderabad reported in 57 ITR 185(SC) ii) Madhya Pradesh High Court's decision in the case of Smt. Jeejeebai Shinde vs CIT reported in 144 ITR 693 (MP) SLP also dismissed By SC 44 Statute 3 iii) 294 ITR 196 (AT) iv) 131 TTJ 229 (photo copies enclosed) 263 ITR 706 4. On the other hand, the ld. DR appearing on behalf of the revenue while pointed out the various observati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50,00,000.00 1.5.2008 Dr. Opening Balance 16,50,00,000.00 10.5.2006 Dr HDFC BANK LTD. (UNB Branch) Ch.No.011887 Receipt 7 4,50,00,000.00 RECD FROM THEM 21,00,00,000.00 Cr. Closing Balance 21,00,00,000.00 21,00,00,000.00 21,00,00,000.00 However, as per the alteration of security deposit clause dated 10.11.2006 which was placed at page 67 of the paper book it is observed that the lessee shall keep in deposit and advance which is the lessors a sum of Rs.21 crores by interest free deposit. Then it was further stated in the said alteration that the amount of security deposit shall not refundable during the continuance of the lease period. Subsequently the lease period has been extended from 21 years to 62 years on 26.03.2007 which was placed at page 66 of the paper book. On comparison of these two documents on which the ld. AR placed reliance with the ledger account of Srei Equipment Finance Ltd. with the assessee it is observed that the security deposit of Rs.13 crores has been received on 1.4.2001 and Rs.3.50 crores on 30.03.2002 and Rs.4.50 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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