1991 (3) TMI 203 - AT - Income Tax

Summary

Issues Involved:
1. Whether the amount of Rs. 1 crore received by the assessee was a consideration for the transfer of a short-term capital asset.
2. Whether the receipt should be treated as business income or capital gains.
3. Whether the capital asset transferred had a cost of acquisition.
4. Whether the transfer of the license required registration under the Registration Act.
5. Whether the transfer constituted an adventure in the nature of trade.
6. Whether the transfer resulted in a short-term or long-term capital gain.

Detailed Analysis:

1. Consideration for Transfer of Short-Term Capital Asset:
The primary issue was whether the Rs. 1 crore received by the assessee was for the transfer of a short-term capital asset. The Tribunal analyzed the sequence of events, starting from the offer made by the assessee to the NDMC in 1976, the acceptance and subsequent legal proceedings, and the final transfer of the license to M/s. Bharat Hotels Ltd. on 18-6-1981. The Tribunal concluded that the assessee acquired the right to the license on 23-3-1977, and the transfer on 18-6-1981 constituted a long-term capital gain, not a short-term capital gain.

2. Treatment as Business Income or Capital Gains:
The Tribunal examined whether the receipt of Rs. 1 crore was business income or capital gains. It was argued that the amount was received as goodwill, which should not be taxed as it had no cost of acquisition. The Tribunal held that the amount could not be considered as business income since there was no adventure in the nature of trade. The receipt was treated as capital gains, specifically long-term capital gains, as the asset was held for more than 36 months.

3. Cost of Acquisition:
The Tribunal discussed the cost of acquisition of the capital asset. The Income-tax Officer had determined that the assessee incurred substantial expenses in acquiring the license, including legal expenses and interest. The Tribunal agreed that there was a cost of acquisition, rejecting the assessee's claim that the asset had no cost. The expenses incurred by the assessee were considered in determining the cost of acquisition.

4. Requirement of Registration:
The Tribunal addressed whether the transfer of the license required registration under the Registration Act. It was concluded that the transaction was a license and not a lease, and therefore, it did not require registration. The Tribunal emphasized that the license did not create any right, title, or interest in the immovable property, and thus, it did not fall under the purview of section 17(1)(b) of the Registration Act.

5. Adventure in the Nature of Trade:
The Tribunal examined whether the transaction constituted an adventure in the nature of trade. Both the Accountant Member and the Judicial Member agreed that the transaction did not amount to an adventure in the nature of trade. The Tribunal concluded that the assessee's intention was not to carry on a business but to acquire the rights and transfer them to a sister concern, which did not constitute a trade activity.

6. Short-Term or Long-Term Capital Gain:
The Tribunal analyzed whether the capital gain was short-term or long-term. The key issue was the date when the assessee acquired the right to the license. The Tribunal concluded that the right was acquired on 23-3-1977, and the transfer on 18-6-1981 resulted in a long-term capital gain, as the asset was held for more than 36 months. The Tribunal rejected the view that the right was acquired only on 11-3-1981, the date of the High Court decree.

Conclusion:
The Tribunal concluded that the amount of Rs. 1 crore received by the assessee was for the transfer of a long-term capital asset, and thus, it should be treated as long-term capital gains. The receipt was not considered as business income, and the transfer did not require registration under the Registration Act. The Tribunal directed that the amount computed as capital gains on the transfer of the long-term capital asset was assessable in the relevant year.