2006 (9) TMI 488 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of Rs. 30 lakhs addition under section 69 and its taxability under section 45 as surrender of lease rights.
2. Classification of lease rights as capital assets and the applicability of capital gains tax.
3. Applicability of section 69 for unexplained investment.
4. Determination of cost of acquisition for lease rights and its tax implications.

Issue-wise Detailed Analysis:

1. Deletion of Rs. 30 lakhs Addition under Section 69 and its Taxability under Section 45:
The Revenue contended that the Commissioner of Income-tax (Appeals) erred in deleting the Rs. 30 lakhs addition under section 69, arguing it was taxable under section 45 as surrender of lease rights. The assessee maintained that the land in question was agricultural and not a capital asset under section 2(14), thus not attracting capital gains tax. The Commissioner of Income-tax (Appeals) concluded that the Rs. 30 lakhs received was for the surrender of lease rights and not from unexplained sources, thus not taxable under section 69.

2. Classification of Lease Rights as Capital Assets and Applicability of Capital Gains Tax:
The Revenue argued that lease rights are capital assets, and their transfer should be taxed under capital gains. The assessee countered that the land was agricultural and beyond 8 kms from the nearest municipality, thus not a capital asset. The Commissioner of Income-tax (Appeals) agreed with the assessee, citing that the land was agricultural and not a capital asset, hence no capital gains tax was applicable.

3. Applicability of Section 69 for Unexplained Investment:
The Assessing Officer treated the Rs. 30 lakhs as unexplained investment under section 69 due to the absence of consideration in the release deed. However, the Commissioner of Income-tax (Appeals) found no evidence to support that the amount was from unexplained sources, relying on the director's statement under section 132(4) that it was received for surrendering lease rights.

4. Determination of Cost of Acquisition for Lease Rights and Its Tax Implications:
The assessee argued that there was no cost of acquisition for the lease rights, referencing the Supreme Court decision in CIT v. B. C. Srinivasa Setty, which held that gains from assets with no determinable cost of acquisition are not taxable. The Commissioner of Income-tax (Appeals) upheld this view, noting that the amendment to section 55(2) in 1995, which provided for a nil cost of acquisition, was not applicable for the assessment year 1992-93.

Conclusion:
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision, dismissing the Revenue's appeal. It confirmed that the Rs. 30 lakhs received for surrendering lease rights in agricultural land was not taxable under section 69 or as capital gains, as the land was not a capital asset and the cost of acquisition for the lease rights could not be determined. The cross-objection by the assessee was also dismissed.