1988 (5) TMI 3 - SC - Income Tax

99-year lease premiums treated as transfer of capital assets under Section 12B, attracting capital gains tax

The SC dismissed the appeal, holding that the grant of long-term (99-year) leases with premiums constituted a transfer of capital assets under section ... Transfer under section 12B - capital gains - capital asset - lease for 99 years - premium (salami) - question arising out of the Tribunal's orderTransfer under section 12B - capital gains - lease for 99 years - premium (salami) - capital asset - Grant of long-term leases with premium amounted to transfer of capital assets attractable to capital gains tax under section 12B. - HELD THAT: - The leases in question were for a term of 99 years and consideration in the form of a premium ('salami') was charged in each case. A grant of lease for such a long period effectively parts the lessor with rights of possession and enjoyment of the property for an enduring period and therefore operates as a transfer of a capital asset. The Court applied the principle exemplified by Traders and Miners Ltd. v. CIT to hold that where a premium is charged on a long-term lease the balance (after any allowable deduction for cost attributable to what was parted with) is properly taxable as capital gains under section 12B. On these grounds the High Court's conclusion that the transactions amounted to transfers within the meaning of section 12B was upheld.The grant of 99-year leases for premium constituted transfers of capital assets and attracted capital gains tax under section 12B.Question arising out of the Tribunal's order - Contention that land was inam/gifted and therefore exempt from capital gains could not be entertained as it was not raised before the Tribunal or covered by the Tribunal's decision. - HELD THAT: - The Court held that the specific contention that the land was originally an inam (gift) and so had no cost of acquisition was neither raised before the income-tax authorities and the Tribunal nor considered by the Tribunal and therefore did not constitute a question arising out of the Tribunal's order. Relying on the principle that a question of law not raised before and not dealt with by the Tribunal does not arise out of its order, the Court declined to admit this new contention in the appeal. The Court also noted there was no finding by the authorities that the inam was originally given without consideration, and that the transactions involved developed building sites on which the assessee had incurred expenditure.The point as to inam/gift and absence of cost of acquisition was not open in the appeal and could not be raised for the first time.Final Conclusion: The appeal was dismissed; the High Court was sustained in holding that the 99-year leases for premium amounted to transfers attracting capital gains tax, and the alternative contention as to inam/gift was not admitted as it did not arise out of the Tribunal's order. Issues Involved:1. Whether 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.Issue-wise Detailed Analysis:1. Capital Asset vs. Agricultural Land:The first contention urged by the assessee was that the land was agricultural land and thus, not subject to capital gains tax. However, it was conceded before the High Court that the land had been diverted to non-agricultural purposes several years ago. Consequently, it was not disputed that the lands in question constituted a capital asset within the meaning of section 2(4A) of the Indian Income-tax Act. Thus, the High Court and subsequently, the Supreme Court, affirmed that the land was a capital asset and not agricultural land.2. Lease as Transfer under Section 12B:The second contention was whether the transaction of lease amounted to a transfer under section 12B of the Act. The assessee argued that section 12B did not apply as only leasehold rights were conveyed, not an outright sale or transfer of complete interest. The High Court rejected this argument, stating that a 99-year lease with a premium or 'salami' constituted a transfer of a capital asset within the meaning of section 12B. The Supreme Court upheld this view, emphasizing that a lease for such a long period (99 years) with a premium charged by the assessee amounts to a transfer of an asset of an enduring nature.Additional Contention by Assessee:The assessee's counsel, Mr. Desai, raised an additional contention that section 12B should not apply as the land was inam land, granted as a gift without any cost of acquisition. This argument was dismissed by the Supreme Court as it was not raised before the Tribunal or the High Court and did not arise out of the Tribunal's order. The court cited the decision in CIT v. Scindia Steam Navigation Co. Ltd., which laid down that a question of law not raised before the Tribunal or considered by it cannot be raised subsequently.Conclusion:The Supreme Court dismissed the appeal, affirming that the leases constituted a transfer of capital assets under section 12B of the Indian Income-tax Act, thereby attracting liability for capital gains tax. The appeal was dismissed with costs.