Arrear rent treated as capital gain, undisclosed income confirmed taxable. Failure to prove commercial expediency.

The Tribunal upheld the CIT(A)'s decision to treat arrear rent paid as consideration for the transfer of leasehold rights, resulting in an addition of Rs. 3,56,63,433/- as Long Term Capital Gain. Additionally, the undisclosed income of Rs. 10,00,000/- from license fee was confirmed. The Tribunal dismissed the appeal, affirming both additions as taxable and emphasizing the failure to prove commercial expediency for the payment. The order was pronounced on 05/02/2020.

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Issues Involved:
1. Addition under the head Long Term Capital Gains by treating arrear rent paid as consideration for transfer of leasehold rights.
2. Addition of undisclosed income from license fee.

Detailed Analysis:

1. Addition under the head Long Term Capital Gains:
The main grievance of the assessee was the addition of Rs. 3,56,63,433/- under Long Term Capital Gains by treating arrear rent paid to Kolkata Port Trust (KPT) as consideration for the alleged transfer of leasehold rights. The facts are as follows: The assessee had leasehold rights over two plots from KPT but stopped paying rent since 01.11.1970. An agreement was made in 1999 to sublease the premises to M/s. ARA Enterprises Pvt. Ltd., from which the assessee started receiving rent. However, rent was still not paid to KPT, leading to a demand cum eviction notice in 2006. Subsequently, a Memorandum of Understanding (MOU) was signed in 2008, resulting in payments to clear arrears. The CIT(A) considered these payments as consideration for the transfer of leasehold rights, enhancing the income by Rs. 3,56,63,433/- as Long Term Capital Gain.

Legal Analysis:
The CIT(A) referenced Section 2(14) defining "Capital Asset" and Section 2(47) defining "Transfer." Judicial precedents such as CIT, Madurai vs. Sujatha Jewellers and Mrs. G. Seetha Kamraj vs. CIT were cited to support that subleasing creates an interest in land, thus amounting to a transfer of capital assets. The CIT(A) concluded that the lump sum payments and monthly rents received by the assessee were consideration for the transfer of leasehold rights, thus taxable as Long Term Capital Gain.

2. Addition of undisclosed income from license fee:
The second issue was the addition of Rs. 10,00,000/- out of Rs. 14,66,500/- as alleged undisclosed income from license fee. The assessee argued that Rs. 10,00,000/- was directly paid to KPT in terms of the agreement with its sub-lessee due to commercial expediency. However, the CIT(A) upheld the addition, noting that the assessee failed to prove the commercial expediency of the payment.

Conclusion:
The Tribunal confirmed the CIT(A)'s findings on both issues. The transfer of leasehold rights was deemed a transfer of capital assets under Sections 2(14) and 2(47), making the received amounts taxable as Long Term Capital Gain. Additionally, the addition of Rs. 10,00,000/- as undisclosed income from license fee was upheld due to the assessee's failure to substantiate the commercial expediency of the payment. The appeal filed by the assessee was dismissed.

Order Pronounced:
The order was pronounced in the open court on 05/02/2020.

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