AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2003 (9) TMI 21
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....?" About question No. 1, it is now common ground that the Rajasthan Land Tax Act, under which liability was created has been held to be ultra vires the legislative competence of the State Legislature and, therefore, invalid. However, the declaration of levy of tax to be invalid was to operate prospectively from the date of the judgment of the Supreme Court in Federation of Mining Associations of Rajasthan v. State of Rajasthan and other connected matters decided on August 30, 1991. Question No. 1 relates to disallowance of Rs. 8,21,088 claimed by the assessee as outstanding liability on account of land tax under the Rajasthan Land Tax Act. It has been disallowed under section 43B of the Act on the ground that it represents the amount of tax not actually paid when it became payable and was still outstanding as at the end of the previous year. The assessee contended that since the Rajasthan land tax has been declared to be ultra vires by the hon'ble Supreme Court, it cannot be termed as tax or duty within the meaning of section 43B but should be considered as any other expenses incurred wholly and exclusively for the purpose of business and liable to be deducted on the basis of....
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....ispute in this regard are that the assessee was holding a large area measuring 15 sq. kms. under mining lease for limestone. A request was made by M/s. J. K. White Cement Works that the assessee should surrender 4 sq. kms., part of the total lease area, to enable M/s. J. K. White Cement Works to obtain lease of the surrendered area in its favour from the State Government. In pursuance of this an agreement to that effect was agreed to between the assessee and M/s. J. K. White Cement Works which was duly approved by the State Government. In consideration of such agreement, the assessee received Rs. 1,00,000 and it surrendered 4 sq. kms. of lease area to be allotted to M/s. J. K. White Cement Works. The State Government ultimately granted lease of the said area in favour of M/s. J. K. White Cement Works after the same was surrendered by the assessee. The Assessing Officer treated the receipt of Rs. 1,00,000 as income by treating it to be a casual receipt under section 10(3). On appeal, the Commissioner of Income-tax (Appeals) affirmed the view of the Assessing Officer. However, the Commissioner of Income-tax agreed with the assessee that the receipt of Rs. 1,00,000 was a capital re....
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.... held that the arrangement was not in the nature of trading transaction, but was one in which the appellants parted with an asset of enduring a value. What the assessee was paid was to compensate it for loss of a capital asset and was not, therefore, in the nature of a revenue receipt. In the case of CIT v. Automobile Products of India Ltd. [1983] 140 ITR 159 (Bom), the hon'ble Bombay High Court has held that the termination of the activity was not a necessary incident of the business of the assessee and that the extinct and surrender of the industrial licence and the collaboration agreement impaired the profit making structure of the assessee. Therefore, the amount of Rs. 24 lakhs paid by PAL to the assessee-company as compensation is a capital receipt. In the present case here before us the facts are similar. In the case here before us the assessee was enjoying some lease rights which were given by the State Government. The lease rights were surrendered and the company to whom the lease rights were further allotted paid a sum of Rs. 1 lakh to the assessee as compensation. This amount was paid just to avoid any future litigation. Therefore, in our considered view, this amoun....
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....ic0ating adjustment of certain amount only. However, contrary to the inference drawn by the Assessing Officer, this letter clearly indicated that this was written with reference to transfer of mining lease dated February 10, 1987, between the partners who are carrying on the business in the name and style of M/s. Gotan Lime Stone Khanij Udhyog, Gotan, the assessee and M/s. J. K. q White Cement Works, Gotan, and the amount has been adjusted only in respect of the transfer of the leasehold rights over 4 sq. kms. area. As a supportive document, learned counsel for the assessee-respondent also placed on record the order of the Government of Rajasthan, Mines Department, dated January 13, 1987, which puts beyond doubt that it was not a case of forgoing pre-emptory rights to acquire the mining lease in the land in question in preference to someone else but was for entering into such transaction of transfer of 4 sq. kms. mining lease area out of the existing lease area of the assessee on certain conditions in favour of M/s. J. K. White Cement Works, Gotan. Thus, the factual statement appearing in the order of the Tribunal is the correct statement of facts. On the aforesaid premise....
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....ee possessed in the mining lease of 4 sq. kms. to M/s. J. K. White Cement Works." After referring to a large number of decisions from the courts of England and Scotland seemingly taking different views, the court approved the following view by Lord President Cooper in IRC v. Fleming and Co. (Machinery) Ltd. [1951] 33 TC 57 (C Sess); so also in Kelsall Parsons and Co. v. IRC [1938] 21 TC 608 (C Sess). The case of termination of contract broadly speaking falls in two sides of the line-(a) the cancellation of a contract which affects the profit-making structure of the recipient of compensation and involves the loss by him of an enduring trading asset, and (b) the cancellation of a contract which does not affect the recipient's trading structure nor deprive him of any enduring trading asset, but leaves him free to devote his energies and organisation released by the cancellation of the contract to replacing the contract which has been lost by other like contracts. It was, inter alia, held that the cases falling under clause (a) were held to be resulting in receipt of capital nature and cases falling under clause (b) were held to be resulting in receipt of revenue nature. The S....
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....ndent for surrendering a part of an enduring trading asset, namely, the leasehold area over 4 sq. kms., is not a revenue receipt but that is a capital receipt and apparently falls outside the purview of section 10(3) to be taxed as a casual receipt of revenue nature. However, we notice that notwithstanding noticing that it was a sale of a business asset of enduring nature and that it would be a compensation received for such transfer, the question has not been pursued whether the capital receipt results in accrual of capital gains so as to be taxed under that head, because such question was not raised in Kettlewell Bullen and Co. 's case [1964] 53 ITR 261 (SC). Whether the amount received by the assessee-respondent from M/s. J. K. White Cement Works in the present case for transfer of his capital asset results in a capital gain? It was a transfer of leasehold rights over 4 sq. kms. area in favour of M/s. J. K. White Cement Works, there could not be a direct transfer by the assessee to M/s. J. K. White Cement Works, therefore, with the consent of the appropriate State Government which is the paramount owner of the rights in the sub-soil, the leasehold rights were surrendere....
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.... with those provisions. There are other provisions which indicate that section 48 is concerned with an asset capable of acquisition at a cost. Section 50 is one such provision. So also is sub-section (2) of section 55. None of the provisions pertaining to the head 'Capital gains' suggests that they include an asset in the acquisition of which no cost at all can be conceived." Applying this principle to the case of goodwill, the court found that in the case of goodwill it is not possible to determine the date when it comes into existence. The date of acquisition of the asset is another material factor in applying the computation provisions pertaining to capital gains, therefore, computation provisions cannot be made applicable to the case of goodwill to find out its cost of acquisition or to find out the date of acquisition of goodwill because it comes into existence over a course of period. In view thereof, it was held that notwithstanding that goodwill is a transferable asset, no capital gain arises from such transfer. We may notice here that this principle was further affirmed in a case reported in Sunil Siddharthbhai v. CIT; Kartikeya V. Sarabhai v. CIT [1985] 156 ITR 5....
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....tax Act is in the nature of advisory jurisdiction and only such issues can be and are answered as arise properly on the facts and the questions referred to the High Court." In the circumstances, the Supreme Court expressed its inability to answer the question which was not raised before the High Court. However, significantly, the Supreme Court still said about the merits of the contention before it that: "The contention raised on behalf of the assessee has great force and, if it were open to it to raise this issue before us, we may have had to decide it in its favour. But due to technical problems, unfortunately, the course of proceedings in the present case precludes us from giving any relief to the assessee." The Supreme Court has further observed that the benefit of the decision of the Supreme Court in B. C. Srinivasa Setty [1981] 128 ITR 294 was not given to the assessee as he did not raise this question before the High Court, though there were certain High Court decisions on the same lines. With these observations the Supreme Court has concluded as under: "As we have stated earlier, it does appear that, on the merits, the assessee has a good case in view of the ....
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....t covered by situations mentioned in section 49) is nil, no tax on capital gains consequent to transfer of such assets could be charged. They have interpreted that, only if an asset did cost something to the assessee in terms of money, the provisions relating to the levy of tax on any capital gains under section 45(1) read with section 48(ii) would apply. A transaction to which these provisions cannot be applied has been held to be one never intended by section 45(1) to be the subject of the charge. The courts have further interpreted that the intent of levying capital gains tax goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on expenditure of money to a person seeking to acquire it. The courts have held that none of the provisions pertaining to the head 'Capital gains' suggests that 'capital assets' include an asset in the acquisition of which no cost at all can be conceived. The leading case propounding this interpretation is CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC). In order to overcome the judicial interpretation, the Finance Act, 1987, with effect from April 1, 1988, has provided in secti....