1972 (10) TMI 22 - HC - Income Tax

Lease of Godown Constitutes Transfer under Income Tax Act

Capsulation Services Pvt. Limited Versus Commissioner Of Income-Tax, Bombay City I.

The court held that the hiring of a godown by the assessee-company constituted a 'transfer' under section 15C(2)(i) of the Indian Income-tax Act, 1922. ... ' Whether the hiring by M/s. Pure Products and Madhu Canning Ltd. to the assessee-company of a godown belonging to and used by the former for its business purposes amounted to 'transfer' to the latter within the meaning of the phrase 'the transfer to a new business of building previously used in any other business ' occurring in section 15C(2)(i) ? ' Issues Involved:1. Whether the hiring of a godown by the assessee-company amounted to a 'transfer' within the meaning of section 15C(2)(i) of the Indian Income-tax Act, 1922.2. Interpretation of the term 'transfer' in the context of section 15C(2)(i).3. Applicability of section 15C(2)(i) to buildings taken on lease or rent.4. Whether the formation of an industrial undertaking requires ownership of the building.5. The relevance of monthly tenancy and its classification as a lease under the Transfer of Property Act.Detailed Analysis:1. Whether the hiring of a godown by the assessee-company amounted to a 'transfer' within the meaning of section 15C(2)(i) of the Indian Income-tax Act, 1922:The assessee-company took on a monthly lease a godown from Messrs. Pure Products & Madhu Canning Ltd. The Income-tax Officer denied relief under section 15C, stating that the assessee was carrying on business in a building transferred from another company. The Tribunal upheld this view, emphasizing the transfer of possession of property from one business to another.2. Interpretation of the term 'transfer' in the context of section 15C(2)(i):The court examined the meaning of 'transfer' in section 15C(2)(i). The assessee argued that 'transfer' should mean a transfer by the assessee from one of his businesses to a new business started by him, not in the sense used in the Transfer of Property Act. The revenue contended that 'transfer' is broad and includes lease agreements. The court referred to the Punjab High Court's interpretation, which stated that 'transfer' covers both ownership and lease, and is not limited to the transferor's own business.3. Applicability of section 15C(2)(i) to buildings taken on lease or rent:The court analyzed whether section 15C(2)(i) applies to buildings taken on lease. The assessee argued that the section should not apply to rented buildings. The court noted that the section's language does not exclude leased buildings from its scope. The court also referred to section 80J(4)(ii) of the Income-tax Act, 1961, which explicitly excludes buildings taken on rent or lease, indicating that such exclusion was not intended in section 15C(2)(i).4. Whether the formation of an industrial undertaking requires ownership of the building:The court held that the formation of an industrial undertaking does not necessitate ownership of the building. The requirement is for the building to be essential for the undertaking's formation, regardless of ownership. The court emphasized that the section's objective is to grant relief to new industrial undertakings, which inherently require a building to operate.5. The relevance of monthly tenancy and its classification as a lease under the Transfer of Property Act:The court rejected the contention that a monthly tenancy is not a lease. It clarified that a monthly tenancy is a form of lease, falling under the definition of a transfer of property. The court held that a monthly lease is indeed a transfer of property, thus falling within the ambit of section 15C(2)(i).Conclusion:The court answered the question in the affirmative, holding that the hiring of the godown by the assessee-company amounted to a 'transfer' within the meaning of section 15C(2)(i). The assessee was ordered to pay the costs of the revenue.