TMI Blog2006 (3) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the Revenue - - - - - Dated:- 3-3-2006 - Judge(s) : BILAL NAZKI., G. CHANDRAIAH. JUDGMENT The judgment of the court was delivered by Bilal Nazki J.- Heard learned counsel for the parties. This is a reference made by the Tribunal at the instance of the assessee and the following question has been referred: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in construing the sub-lease agreement and holding that the deposit of Rs. 4,30,000 received by the assessee was a consideration for granting sub-lease of the assessee's rights and not a payment of monthly rent in advance and as such liable to tax as short-term capital gains?" The facts, which gave rise to the reference, are that the assessee took on lease for 99 years a building from her husband and as per the terms of the deed, the lease was to start from June 1, 1986. The assessee paid a sum of Rs. 5,000 as premium for obtaining lease and was supposed to pay a monthly rent of Rs. 300. The lessee had also a right to create a sub-lease and she actually created a sub-lease in favour of M/s. Bhavani Shankar and Gopi Venkata Sanyasaiah Somanath by a deed dated February 10,1988 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ultimately two questions were referred to the High Court by the Income-tax Appellate Tribunal. The questions being: "(1) Whether, on the facts and in the circumstances of the case, the land sold by the assessee constituted a capital asset within the meaning of section 12B of the Indian Income-tax Act or was agricultural land as defined in section 2(4A) of the Act? (2) Whether the transaction of lease effected by the assessee amounted to a transfer within the meaning of section 12B so as to attract liability for capital gains tax?" These questions were considered by the Supreme Court and answered in the following terms: "The next question which we have to consider is whether the provisions of section 12B of the said Act can be brought into play, although what was transferred was only leasehold interest in the lands in question. In this connection, it is significant that the leases are for a long period of 99 years and in all the transactions of lease, premium has been charged by the assessee for the grant of the lease concerned. In Traders and Miners Ltd. v. CIT [1955] 27 ITR 341, a case decided by a Division Bench of the Patna High Court, the assessee let on lease for 99 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mining lease in favour of Sri Krishna Tiles and Potteries (Madras) P. Ltd. an allied concern of the assessee. The lease was for a period of 10 years and the lessee had to pay a premium or salami of Rs. 5 lakhs in addition to the payment of a royalty of Rs. 12 per 100 cublic feet of clay extracted subject to a minimum of Rs. 60,000 per year. The Income-tax Officer came to the conclusion that the lease deed was in fact a transfer deed for leasehold interest in the land in favour of the company and the transfer was assessable to capital gains tax. The Supreme Court in these facts held as follows: "The amount of Rs. 27,260 paid by the assessee was not only the cost of acquiring the land but also of acquiring a bundle of rights in the said land including the right to grant lease. There is thus no force in the contention of learned counsel that, conceptually, there is no 'cost of acquisition' which is attributable to the right of limited enjoyment transferred by the grant of the lease. So far as the apportionment of the cost of acquisition is concerned, it is a question of fact to be determined by the Income-tax Officer in each case on the basis of evidence. The determination of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned in paragraph 12 of this judgment, it would be reasonable to conclude that the amount of capital receipt included within the sum of Rs. 2,20,000 was in the neighbourhood of Rs. 20,000. The actual amount of salami for 171 acres at the rate of Rs. 100 per acre works out at Rs. 17,100. But Mr. Tarkeshwar Prasad, appearing on behalf of the Commissioner of Income-tax, has conceded before us that the amount of salami which would be a capital receipt may reasonably be estimated at the round sum of Rs. 20,000. This sum of Rs. 20,000 being in the nature of capital receipt is obviously not assessable to tax. The remaining sum of Rs. 2,00,000 is, however, a revenue receipt and taxable as such." The CIT v. Panbari Tea Co. Ltd. [1965] 57 ITR 422 (SC) was also a case where similar questions were considered by the Supreme Court. It was held by the Supreme Court as follows: "Under section 105 of the Transfer of Property Act, a lease of immovable property is a transfer of a right to enjoy the property made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction. The basic fact is that the assessee received lease rights in the property for 99 years from her husband, that she has alienated these lease rights in favour of a third person and finally that she had received an amount of Rs. 4,30,000 on which she neither pays any interest nor is she obliged to refund that amount. She received lease rights on June 10, 1986, and she in turn sub-leased it to the third party on January 1, 1988. She held the lease rights for a period of less than 36 months. Therefore, the excess realised on the alienation of the asset over and above the cost of the lease rights is assessable to short-term capital gains. The assessee has to pay lease rent of Rs. 300 per month and the cost of lease right will be taken at 12 1/2 times the lease rent payable per annum which works out to Rs. 37,500. The assessee also paid premium of Rs. 5,000 which is non-refundable. Therefore, the total cost in the hands of the assessee works out to Rs. 42,500. Therefore, the difference of Rs. 3,87,500 will be assessed to short-term capital gains. Penalty proceedings under section 271(1)(c) are separately initiated." Therefore, we do not find any merit in the contentions raised o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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