TMI Blog1980 (12) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... yalty calculated at Rs. 12 per 10 cubic feet of clay extracted by the lessee, subject to a minimum royalty of Rs. 60,000 per year. The lease was for a period of ten years from 10th September , 1970, with clause for renewal at the expiry of the term of the lease on such terms as may be mutually agreed upon. Before the ITO, the assessee contended that though a grant of the lease of the land may constitute " transfer " within the meaning of s. 45 of the I.T. Act, in view of the decision in CIT v. K. Rathnam Nadar [1969] 71 ITR 433 (Mad), no capital gains would arise for taxation. The ITO overruled this objection in the view that the entire rights of which the leasehold right is one were in part acquired by the assessee for a consideration of Rs. 27,260 and that the cost of the leasehold right imbedded in such cost does not mean that there is no cost in this regard. The ITO then proceeded to work out the cost of such leasehold interest. He found that if the entire property was to be sold, the fair market value would amount to Rs. 8 lakhs. The leasehold interest was transferred for Rs. 5 lakhs, He, therefore, came to the conclusion that 5/8ths of the total cost of acquisition would repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0th September, 1970, is styled as an "instrument of lease-cum-licence under which the assessee granted " a lease-cum-licence to the company to extract clay from the schedule lands in consideration of the payment of Rs. 5 lakhs (rupees five lakhs only) as and by way of premium or salami for a period of 10 years ". The other clauses in the deed provided that the company shall pay royalty calculated at Rs. 12 (rupees twelve only) per 100 cubic feet of clay, extracted by the company subject to a minimum royalty of Rs. 60,000 per year. The company shall be entitled to use the land for extracting clay up to the available depth. The company was also permitted to sub-lease the right granted under the document after obtaining the written consent of the assessee. The period of the lease was I 0 years commencing from 10th September, 1970, with a right to the company to get a renewal of the lease at the expiry of the term of the lease on such terms which may then be mutually agreed upon. The default clause provided that in the event of the company failing to pay the royalty as per the terms and conditions of the document and within the time stipulated therein, the assessee shall be at liberty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the previous year in which the transfer took place. " Transfer " is defined in s. 2(47) and states that " 'transfer', in relation to a capital asset, includes the sale, exchange or relinquishment of an asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law ". Section 105 of the Transfer of Property Act defines a lease of immovable property as " transfer of a right to enjoy such 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 rendered periodically or on specified occasions to the transferor by the, transferee, who accepts the transfer on such terms. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent ". A lease thus consists of a right to the possession and use of the property owned by some other person. It is an outcome of the separation of ownership and possession. The lessor of the land is he who owned and possessed it, but has transferred the pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad an occasion to consider this question in Maharaja Chintamani Saran Nath Sah Deo v. CIT [1971] 82 ITR 464. It was held (p. 467): " Salami is a single payment made for the acquisition of the right of the lessor by the lessee to enjoy the benefits granted to him by the lease. That general right may properly be regarded as a capital asset and the money paid to purchase it may properly be held to be a payment on capital account." The Supreme Court, thus, in these decisions, had regarded the right of the owner to be in possession and enjoyment as such owner as a distinct right and a capital asset which can be transferred for a price separately from the right to receive royalties or rents from the tenants for a continued enjoyment of that right. It is also clear from these decisions that it is not necessary in every case that there should be a price paid for the grant of lease. Sometimes it may be a payment or a part payment of royalty in advance, but it will have to be determined with reference to the terms and conditions of the lease and the intention of the parties. These decisions are also authorities for the position that the general right of the owner to be in possession and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Minimum Wages Act, 1948, which read as follows: " Employment in potteries industry. Explanation.-For the purpose of this entry potteries industry includes the manufacture of the following articles of pottery, namely: . ...... (Then it lists out 9 items of potteries). The argument was that the words " potteries industry " should be understood in the wide sense as taking in all objects that are made from clay and hardened by fire and as such they will include Mangalore pattern roofing tiles which was not one of the 9 items listed in the Explanation. The Supreme Court referring to the Explanation which said that potteries industry includes the manufacture of the 9 articles of pottery specified therein, held that the word " include " has been used in the sense of it means Relying on these decisions the learned counsel for the assessee contended that there could be no doubt that sale and exchange are " transfers ". There are decisions holding that compulsory acquisitions are also transfers. Relinquishment and extinguishment of rights are also certain special types of transfers and in these circumstances, when the Legislature specifically mentioned, only these items after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " in s. 2(47). The learned counsel also referred to a decision of the Andhra Pradesh High Court in Ghanshyamdas Kishan Chander v. CIT [1980] 121 ITR 121. In that case, the equity of redemption was brought to sale in execution of a money decree against the owner of the equity of redemption. The contention of the assessee, who was the owner of the equity of redemption, was that the value of the equity of redemption would be the total mortgage money plus interest due and as such there would be no capital gain. He also pleaded that there was a transfer of the assets under s. 45 even at the time when the mortgage deed was created. Repelling this contention, the Bench held that mortgage is a transfer of an interest in immovable property and that is different from the transfer of a totality of interest in respect of a capital asset and that a mere delivery of immovable property, cannot be treated as equivalent to a conveyance of the immovable property so as to come within the definition of " transfer ". This decision is no authority either for the contention that in order to constitute a transfer within the meaning of s. 2(47) there should be a transfer of a totality of the interest in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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