Long-term lease of mineral rights can be a transfer for capital gains, and the levy was upheld as valid.

A long-term lease of mineral and surface rights was treated as a transfer of a capital asset because the term "transfer" in section 12B(1) was read broadly to include creation of an interest in property, not only an absolute conveyance of title. On that basis, capital gains arising from the lease fell within the charging provision. The provision was also upheld as constitutionally valid: in pith and substance, section 12B was characterised as a tax on capital value of assets, and the mode of computation by reference to sale, exchange, or lease did not take it beyond legislative competence.

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Issues: (i) Whether a 99-year lease of mineral rights and surface rights effected a sale or transfer of a capital asset within the meaning of section 12B(1) of the Indian Income-tax Act, 1922; (ii) Whether section 12B of the Indian Income-tax Act, 1922, imposing tax on capital gains was ultra vires.

Issue (i): Whether a 99-year lease of mineral rights and surface rights effected a sale or transfer of a capital asset within the meaning of section 12B(1) of the Indian Income-tax Act, 1922.

Analysis: The expression "transfer" in section 12B(1) was held to be of wide import and not confined to an out-and-out permanent transfer of title. A lease creates an interest in the land and a right in rem, and therefore constitutes a transfer of interest in the property. The statutory definition of "capital asset" covered property of any kind held by an assessee, and the lease of the mines for a long term fell within the charging provision.

Conclusion: The lease transaction amounted to a transfer of a capital asset, and the capital gains arising from it were taxable.

Issue (ii): Whether section 12B of the Indian Income-tax Act, 1922, imposing tax on capital gains was ultra vires.

Analysis: Section 12B was examined in the light of item 55 of List I of the Seventh Schedule to the Government of India Act. The provision was characterised, in pith and substance, as legislation relating to tax on the capital value of assets. The fact that the computation of gain depended on whether the transaction was by sale, exchange, or lease did not alter the true nature of the levy or render it beyond legislative competence.

Conclusion: Section 12B was intra vires and constitutionally valid.

Final Conclusion: Both referred questions were answered against the assessee and in favour of the revenue, with the capital-gains charge upheld on the lease transaction.

Ratio Decidendi: For the purposes of the capital-gains charging provision, a lease of property can amount to a transfer of a capital asset, and the validity of the levy is judged by its pith and substance as a tax on capital value, not by the form of computation in a particular transaction.

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