Company's surrender of leasehold rights to government constitutes taxable transfer under Section 2(47) despite third-party compensation

ITAT Rajkot held that surrender of leasehold rights to Gujarat Government constituted transfer under Section 2(47) as it extinguished capital assets. Despite compensation received from third party M/s. CGPL rather than government, capital gains tax applied under Section 45(1) which doesn't specify source of consideration. Court found surrender wasn't voluntary but planned action based on MOU requiring 80% consideration payment upon surrender application. Relied on SC precedent that third-party compensation constitutes taxable transfer. However, regarding interest under Section 234B, tribunal directed AO to adjust seized cash/FDRs against tax liability from seizure date per Section 132B provisions.

---

---

Issues Involved:
1. Legality of the search and seizure operation under Section 132.
2. Taxability of the amount received from M/s. CGPL under the head "capital gain."
3. Charging of interest under Section 234B.
4. Release of seized cash/FDRs.

Summary:

1. Legality of the Search and Seizure Operation:
The assessees challenged the legality of the search and seizure operation under Section 132, claiming that no warrant of authorization was furnished to them, making the subsequent assessment proceedings null and void. However, this ground was not pressed by the assessees during the appeal, and hence, it was dismissed.

2. Taxability of the Amount Received from M/s. CGPL:
The assessees argued that the amount received from M/s. CGPL for surrendering leasehold rights was a 'capital receipt' and not taxable under 'capital gains.' They contended that the transactions between them and the Government of Gujarat, and between them and M/s. CGPL, were independent. The Tribunal, however, upheld the CIT(A)'s decision, stating that the leasehold rights are a capital asset as per Section 2(14) of the Act, and the surrender of such rights amounts to a 'transfer' under Section 2(47). The consideration received from M/s. CGPL is assessable to tax as capital gains since Section 45(1) does not specify from whom the consideration should be received. The Tribunal dismissed this ground, affirming that the assessees rightly disclosed the amount as capital gains.

3. Charging of Interest under Section 234B:
The assessees contended that the interest charged under Section 234B was unjustified as the Income Tax Department had seized their disclosed FDRs, preventing them from paying the advance tax. The Tribunal noted that the AO failed to adjust the seized FDRs against the tax liability as per Section 132B(1) and retained the FDRs beyond the prescribed period. The Tribunal directed the AO to rework the computation in accordance with the law, thereby allowing the assessees' ground on this issue.

4. Release of Seized Cash/FDRs:
The assessees argued for the release of seized cash/FDRs, which the department retained even after the assessment proceedings were concluded. The Tribunal referred to a similar case and concluded that FDRs are not treated as 'money' but as 'other valuable articles or things' under Section 132(1)(iii). Hence, the assessees are not entitled to interest under Section 132B(4). The Tribunal dismissed the assessees' ground and allowed the revenue's ground on this issue.

Conclusion:
The appeals filed by the assessees and the revenue were partly allowed. The Tribunal upheld the taxability of the amount received from M/s. CGPL as capital gains, directed the AO to rework the interest computation under Section 234B, and dismissed the assessees' request for interest on seized FDRs.

---