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 ... Question of law - Liability for capital gains tax - Hindu undivided family - capital asset within the meaning of section 12B - transfer within the meaning of section 12B - first contention by the assessee was that no capital gains tax could be levied on the said transactions for the lease of the land as the land was agricultural land, and the second contention was that section 12B of the said Act did not come into play as only the leasehold rights in the said lands had been conveyed - HELD THAT:- As the question sought to be raised by Mr. Desai was neither raised before the Tribunal nor considered by it nor does it arise on the judgment of the Tribunal. Merely because question of law might arise on the facts found by the Tribunal, this would not render it a question arising out of the decision of the Tribunal. Moreover, it is interesting to note that in the present case, there is no finding of fact that the inam was originally given without consideration, although we agree that it must almost certainly have been so. However, what the assessee sold was not agricultural land which was given to the assessee's ancestor under the inam, but land which was developed as housing sites on which development the assessee had spent considerable amounts of money. In our view, therefore, it is not open to Mr. Desai to raise this question at all. It is true that the decision of the Patna High Court in Traders and Miners Ltd. v. CIT [1954 (10) TMI 41 - PATNA HIGH COURT] relates to the case of a mining lease, but, to our mind, the principle laid down in that case can well be applied to the case before us. In the first place, the lease is for a long period, namely, 99 years, and hence it would appear that under the leases in question, the assessee has parted with an asset of an enduring nature, namely, the rights to possession and enjoyment of the properties leased for a period of 99 years subject to certain conditions on which the respective leases could be terminated. A premium has been charged by the assessee in all the leases. Thus, we fail to see how it could be said that the provisions of section 12B of the said Act cannot be brought into play. The grant of the leases in question, in our view, amounts to a transfer of capital assets as contemplated under section 12B of the said Act. Appeal dismissed. 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.