2018 (4) TMI 1415 - AT - Income Tax

Income from sale of land - Long term capital gain or income from other sources - land leased out - Held that - By the lease deed dated 11.07.1972 lease of the land in question was granted to SSL. The contention of the A.O. that transfer of land for such a long period is nothing but actual transfer of the said land cannot be accepted because by giving of lease the said plot of land the assessee has not lost its ownership right over the said plot of land. In our considered opinion the land which had been leased out to SSL did not seize to belong to the assessee. The ownership remained with the assessee. When the Official Liquidator appointed by the Hon ble High Court of Gujarat sold the land held by SSL on lease the assessee filed application before the Hon ble High Court for recovery of possession of land in question. The Hon ble High Court of Gujarat held that lease right are intangible asset and therefore what Official Liquidator has transferred was the lease right held by the lessee company. The Official Liquidator has sold the land on as is where is and whatever there is basis . The law is very clear on this issue- no one can transfer a better title then what it has . The purchaser would have got a lease held right over the said plot of land and to get the ownership right 3.11 crores was paid to the assessee and vide agreement dated 04.09.2009 deed of confirmation and release was executed for release of ownership rights of the land under reference. J.K. Kashyap 2008 (3) TMI 10 - HIGH COURT OF DELHI has decided a similar issue holding that consideration received for relinquishing the rights in property attracted provisions of section 45(1) making it liable to capital gains tax. Addition for scheme for gratuity - Held that - From a bare reading of Section 36(1)(v) of the Act it is manifest that the real intention behind the provision is that the employer should not have any control over the funds of the irrevocable trust created exclusively for the benefit of the employees deduction allowed since the conditions stipulated in Section 36(1)(v) of the Act were satisfied. See Textool Company Ltd case 2009 (9) TMI 66 - SUPREME COURT

Summary

Issues Involved:
1. Classification of ?3.11 crores as long-term capital gain or income from other sources.
2. Deduction of ?59,48,904/- for gratuity payment made prior to scheme approval.

Detailed Analysis:

Issue 1: Classification of ?3.11 Crores
The primary issue revolves around whether the receipt of ?3.11 crores should be classified as long-term capital gain or income from other sources. The Assessing Officer (A.O.) contended that the assessee had transferred ownership rights of the property in 1972 to M/s. Star Steel Limited (SSL) under a 98-year lease, and thus, the ?3.11 crores received should be treated as income from other sources. The A.O. argued that the assessee had no ownership rights over the land since the transfer had already occurred in 1972.

However, the Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT) found that the ownership rights had remained with the assessee despite the long-term lease. The ITAT concluded that the ?3.11 crores received was for relinquishing ownership rights, thus qualifying as long-term capital gain. The Tribunal referenced the case of Simka Hotels & Resorts, where the Delhi High Court ruled that income from relinquishment of rights in a property should be assessed as capital gain, not income from other sources.

Issue 2: Deduction for Gratuity Payment
The second issue concerns the deduction of ?59,48,904/- for gratuity payments made by the assessee on 31.12.2009, prior to the scheme's approval by the Commissioner of Income-tax on 07.01.2010. The A.O. disallowed this deduction on the grounds that the payment was made before the scheme was approved.

The CIT(A) and ITAT, however, upheld the assessee's claim for deduction. The ITAT relied on the Supreme Court's decision in Textool Company Ltd., which allowed deductions for payments made to an irrevocable trust created exclusively for employees' benefits, even if the approval came in the subsequent year. The Supreme Court emphasized that the employer should not have control over the fund, and since the assessee met this condition, the deduction was permissible.

Conclusion
The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision to classify the ?3.11 crores as long-term capital gain and to allow the deduction for the gratuity payment. The Tribunal's judgment was based on established legal precedents and the specific facts of the case, ensuring that the assessee's actions were in compliance with the relevant tax laws. The cross-objection raised by the assessee was dismissed as not pressed.