2012 (5) TMI 277 - AT - Income Tax

Allegation of transfer of property in the guise of lease agreement - Long term capital gain - held that - It is stated that the said property is sold subsequently. - However, he has neither mentioned the year in which it is sold and the agreement entered in respect of the said sale. - the documents filed by assessee is not sufficient to accept the contentions of the assessee. The facts narrated by the assessee are not in corroboration with the documents placed by assessee. - Matter need re-verification and therefore remitted back to AO.

Issues Involved:
1. Whether the receipt of Rs. 21 crores as interest-free security deposit constitutes a transfer of capital asset and is liable to capital gains tax under Section 45 of the Income Tax Act, 1961.
2. Whether the lease rent received should be treated as income from other sources.

Issue-wise Detailed Analysis:

1. Transfer of Capital Asset and Capital Gains Tax Liability:
The primary issue revolves around whether the receipt of Rs. 21 crores as an interest-free security deposit by the assessee should be considered a transfer of a capital asset, thereby attracting capital gains tax under Section 45 of the Income Tax Act, 1961. The Assessing Officer (AO) concluded that the transaction constituted a transfer as per Section 2(47)(v) of the IT Act, which includes transactions involving the possession of immovable property in part performance of a contract as referred to in Section 53A of the Transfer of Property Act, 1882. The AO observed that the lease agreement for a period not less than 12 years amounts to a transfer, and the receipt of Rs. 21 crores as an interest-free security deposit is considered as consideration for the transfer of the property.

The CIT(A) upheld the AO's decision, emphasizing that the lease agreement and subsequent amendment indicated a transfer of capital asset. The CIT(A) noted that the property was given on lease for a nominal rent, and the lessee constructed a building on the leasehold land, enjoying the benefits of the property. The CIT(A) concluded that the receipt of Rs. 21 crores was in the guise of an advance/deposit for the enjoyment of the property, thus constituting capital gains.

The assessee argued that the transaction was a lease and not a transfer of capital asset, contending that the security deposit was refundable and should not be considered as consideration for transfer. The assessee also claimed that the capital gain, if any, should be recognized in the financial year 2010-11 when the property was actually transferred.

The Tribunal observed discrepancies in the documents and transactions, noting that the security deposit was received much before the amendment to the lease agreement. The Tribunal found that the facts and documents presented by the assessee did not corroborate the assessee's claims. Therefore, the Tribunal set aside the orders of the revenue authorities and remitted the issue back to the AO for further investigation and verification of relevant documents to decide the issue as per law.

2. Treatment of Lease Rent as Income from Other Sources:
The second issue pertains to whether the lease rent received by the assessee should be treated as income from other sources. The AO treated the lease rent as income from other sources, citing provisions of Section 27(iiib) read with Section 269UA(f), which deem the lessee to be the owner of the property for the purpose of assessment if the lease period is more than 12 years. The AO relied on the case of Yagyawati Jayaswal Family Trust vs. ITO and CIT vs. Estate of Omprakash Jhunjhunwala to support this view.

The CIT(A) upheld the AO's decision, stating that the lease agreement effectively transferred the property to the lessee, who enjoyed absolute powers over the property. The CIT(A) concluded that the lease rent received should be treated as income from other sources, as the assessee was not engaged in the business of letting plots of land.

The assessee argued that the lease rent should be treated as rental income and not as income from other sources. However, the Tribunal did not find sufficient evidence to support the assessee's claim and upheld the CIT(A)'s decision, treating the lease rent as income from other sources.

Conclusion:
The Tribunal set aside the orders of the revenue authorities and remitted the issue of capital gains tax liability back to the AO for further investigation and verification of relevant documents. The treatment of lease rent as income from other sources was upheld. The appeal of the assessee was allowed for statistical purposes, with directions to the AO to decide the issue as per law after further investigation.

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