2003 (3) TMI 38 - HC - Income Tax

Capital gains tax - There is no doubt that the leasehold right in respect of a land is a very valuable right and without that right, even if the building is transferred, it does not have any value as a building, unless the leasehold right in respect of the land in which the building is situated is also obtained by the transferee - we are of the definite view that the assessee had transferred both the leasehold right in respect of the land strictly in accordance with the provisions of the lease agreement executed between the assessee and the Cochin Port and the building situated therein and the consideration received is a composite one for both. We also find that the assessee had offered Rs. 1lakh as the consideration for the transfer of the leasehold right which was accepted by the Tribunal as reasonable. We do not find any reason to interfere with the said finding also.

Summary

Issues:
Interference with Commissioner of Income-tax (Appeals) order by Tribunal.

Analysis:
The case involved a question of law referred by the Income-tax Appellate Tribunal regarding the interference with the order of the Commissioner of Income-tax (Appeals). The assessee, a company, obtained a leasehold right in a piece of land from the Cochin Port Trust and sold the building constructed on it during the relevant accounting period. The Assessing Officer computed capital gains on the transfer, which the assessee contested. The Commissioner of Income-tax (Appeals) directed the Assessing Officer to verify the actual capital gains, leading to further appeals and conflicting views. The Tribunal concluded that the transfer included both the building and the leasehold right, considering various documents and the Supreme Court decision in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294, holding that the consideration for the surrender or transfer of the leasehold right was not liable to capital gains.

The senior Central Government standing counsel argued that the Tribunal erred in its interpretation, emphasizing that the transfer was solely for the building, not the leasehold right. Conversely, the respondent's counsel contended that the transfer encompassed both the building and the leasehold right, supported by relevant correspondences and documents. The Tribunal extensively analyzed the lease agreement, communications, and sale deed, concluding that the transfer included both the building and the leasehold right based on the terms and conditions stipulated by the Cochin Port Trust.

The High Court examined the lease agreement, correspondence, and sale agreement, affirming the Tribunal's decision that the transfer involved both the building and the leasehold right. Emphasizing the value of the leasehold right in relation to the land, the Court upheld the Tribunal's finding that the consideration received was for both components. The Court concurred with the Tribunal's acceptance of Rs. 1 lakh as reasonable consideration for the transfer of the leasehold right. Consequently, the Court ruled in favor of the assessee, affirming that the transfer included both the building and the leasehold right, exempting the consideration from capital gains tax.