1988 (5) TMI 3 - SC - Income Tax

Whether the land sold by the assessee constituted a capital asset within the meaning of section 12B of the Indian Income-tax Act or was agricultural land as defined in section 2(4A) of the Act - Whether the transaction of lease effected by the assessee amounted to a transfer within the meaning of section 12B so as to attract liability for capital gains tax - Whether an issue not considered by the Tribunal can be raised before Supreme Court

Summary

Issues Involved:
1. Whether the land sold by the assessee constituted a capital asset within the meaning of section 12B of the Indian Income-tax Act or was agricultural land as defined in section 2(4A) of the Act.
2. Whether the transaction of lease effected by the assessee amounted to a transfer within the meaning of section 12B so as to attract liability for capital gains tax.

Issue-wise Detailed Analysis:

1. Capital Asset vs. Agricultural Land:
The first contention urged by the assessee was that the land was agricultural land and thus, not subject to capital gains tax. However, it was conceded before the High Court that the land had been diverted to non-agricultural purposes several years ago. Consequently, it was not disputed that the lands in question constituted a capital asset within the meaning of section 2(4A) of the Indian Income-tax Act. Thus, the High Court and subsequently, the Supreme Court, affirmed that the land was a capital asset and not agricultural land.

2. Lease as Transfer under Section 12B:
The second contention was whether the transaction of lease amounted to a transfer under section 12B of the Act. The assessee argued that section 12B did not apply as only leasehold rights were conveyed, not an outright sale or transfer of complete interest. The High Court rejected this argument, stating that a 99-year lease with a premium or "salami" constituted a transfer of a capital asset within the meaning of section 12B. The Supreme Court upheld this view, emphasizing that a lease for such a long period (99 years) with a premium charged by the assessee amounts to a transfer of an asset of an enduring nature.

Additional Contention by Assessee:
The assessee's counsel, Mr. Desai, raised an additional contention that section 12B should not apply as the land was inam land, granted as a gift without any cost of acquisition. This argument was dismissed by the Supreme Court as it was not raised before the Tribunal or the High Court and did not arise out of the Tribunal's order. The court cited the decision in CIT v. Scindia Steam Navigation Co. Ltd., which laid down that a question of law not raised before the Tribunal or considered by it cannot be raised subsequently.

Conclusion:
The Supreme Court dismissed the appeal, affirming that the leases constituted a transfer of capital assets under section 12B of the Indian Income-tax Act, thereby attracting liability for capital gains tax. The appeal was dismissed with costs.