9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2006 (3) TMI 81 - HC - Income TaxCapital gains - Whether Tribunal was correct in construing the sub-lease agreement and holding that the deposit received by the assessee was a consideration for granting sub-lease of the assessee s rights and not a payment of monthly rent in advance and as such liable to tax as short-term capital gains? the excess realised on the alienation of the asset over and above the cost of the lease rights is assessable to short-term capital gains. The assessee has to pay lease rent of Rs. 300 per month and the cost of lease right will be taken at 12 1/2 times the lease rent payable per annum which works out to Rs. 37,500. The assessee also paid premium of Rs. 5,000 which is non-refundable. Therefore, the total cost in the hands of the assessee works out to Rs. 42,500. Therefore, the difference of Rs. 3,87,500 will be assessed to short-term capital gains. Penalty proceedings under section 271(1)(c) are separately initiated. Therefore, we do not find any merit in the contentions raised on behalf of the assessee and the reference is answered in favour of the Revenue
Issues Involved:
1. Interpretation of the sub-lease agreement. 2. Classification of the deposit received as consideration for granting sub-lease versus advance payment of monthly rent. 3. Taxability of the deposit as short-term capital gains. Issue-wise Detailed Analysis: 1. Interpretation of the Sub-Lease Agreement: The primary issue was whether the deposit of Rs. 4,30,000 received by the assessee under the sub-lease agreement was a consideration for granting sub-lease rights or an advance payment of monthly rent. The Tribunal, Commissioner of Income-tax, and the Income-tax Officer concluded that the deposit was indeed a consideration for granting sub-lease rights, thus making it liable to tax as short-term capital gains. 2. Classification of the Deposit: The assessee argued that the deposit was an advance payment of monthly rent, not a consideration for the sub-lease. The Tribunal and other authorities rejected this argument, noting that the lease rights were transferred for a significant period (97 years and 5 months), and the amount received was not refundable nor subject to interest. The authorities relied on the precedent set by the Supreme Court in A.R. Krishnamurthy v. CIT [1989] 176 ITR 417 (SC), which held that long-term lease transactions involving substantial premiums are considered transfers of capital assets. 3. Taxability as Short-Term Capital Gains: The Income-tax Officer assessed the deposit as short-term capital gains, determining that the lease rights constituted a capital asset. The cost of acquisition was calculated as Rs. 42,500, including a premium of Rs. 5,000 and 12 1/2 times the annual lease rent of Rs. 300. The difference of Rs. 3,87,500 was thus taxed as short-term capital gains. This assessment was upheld by the Commissioner of Income-tax and the Tribunal. Relevant Case Law and Precedents: - R.K. Palshikar (HUF) v. CIT [1988] 172 ITR 311 (SC): The Supreme Court ruled that long-term leases with substantial premiums constitute a transfer of capital assets. - Traders and Miners Ltd. v. CIT [1955] 27 ITR 341 (Patna): Similar principles were applied to a mining lease, where the premium was considered capital gains. - A.R. Krishnamurthy v. CIT [1989] 176 ITR 417 (SC): The Supreme Court held that the premium paid for a mining lease was a transfer of a capital asset. - A. Gasper v. CIT [1979] 117 ITR 581 (Cal): The Calcutta High Court ruled that tenancy rights constitute a capital asset. - Maharaja Chintamani Saran Nath Sah Deo v. CIT [1966] 62 ITR 167 (Patna): The court distinguished between capital receipts and revenue receipts in the context of lease transactions. - CIT v. Panbari Tea Co. Ltd. [1965] 57 ITR 422 (SC): The Supreme Court clarified the distinction between premium (capital income) and rent (revenue receipt). Conclusion: The court concluded that the deposit of Rs. 4,30,000 received by the assessee was a consideration for granting sub-lease rights and not an advance payment of monthly rent. Therefore, it was liable to tax as short-term capital gains. The reference was answered in favor of the Revenue and against the assessee.
|
