1989 (2) TMI 2 - SC - Income Tax

Transfer of a capital asset - Capital Gains, Determination Of Cost Of Acquisition - whether the grant of a mining lease for a period of ten years by the assessee can give rise to capital gain taxable under section 45 - Held, yes - held that cost of acquisition of the mining lease had to be apportioned from the cost of the land as on date of acquisition of the freehold rights.

Summary

Issues:
1. Whether the grant of a mining lease can give rise to capital gain taxable under section 45 of the Income-tax Act, 1961?
2. Whether the cost of acquisition of the leasehold right is capable of valuation for computing capital gains?

Analysis:
The case involved a dispute regarding the taxability of capital gains arising from the grant of a mining lease for ten years by the assessee. The Income-tax Officer assessed the market value of the land and calculated the capital gains based on the transfer of leasehold interest. The Appellate Assistant Commissioner determined the cost of acquisition differently, considering the total price paid for the land. The Tribunal affirmed this decision, emphasizing that the purchase price included various interests in the land. The High Court held that the lease deed constituted a transfer of a capital asset and confirmed the tax liability. The Supreme Court was approached with two questions for determination.

The first contention raised by the appellant was that there was no identifiable "cost of acquisition" for the right granted under the lease, thus challenging the applicability of section 45 of the Act. The Court rejected this argument, emphasizing that the cost of acquisition of the land inherently included the cost of acquiring the mining right under the lease. Reference was made to previous judgments supporting the view that a lease constitutes a transfer of interest in the land.

Regarding the second contention, the Court held that since the value of the leasehold rights could be determined, the computation provisions under the Act were applicable, and section 45 was triggered. A comparison was drawn with a previous case involving goodwill, where the Court concluded that goodwill lacking a determinable cost element could not give rise to capital gains. In contrast, the Court found that the cost of acquisition of leasehold rights in this case was ascertainable, thus dismissing the appellant's argument.

Ultimately, the Court dismissed the appeal, upholding the tax liability on the capital gains arising from the grant of the mining lease. The judgment clarified the nexus between the cost of acquiring the land and the rights granted under the lease, emphasizing the determinability of the cost of leasehold rights for tax computation purposes.