9911796707
TMI Blog2012 (5) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... d 28.12.1995 and the explanation given by assessee at the request of Assessing Officer finally concluded that the assessee's long term capital gain was Rs.21 crores by observing that:- "8. But according to section 2(47)(v) of the IT Act any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the transfer of the transfer of property Act, 1882 amounts to transfer. Contract of handing over the possession of immovable property in view of lease agreement for a period not less than 12 years in exchange of lease rent is a contract as referred in section 53A of Transfer of Property Act, 1882, which treated as 'transfer' as per section 2(47)(v) of the Act relating to capital gains. Acquiring a right in a property under section 269UA(f) is treated as 'transfer' as per section 53A of transfer of Property Act, 1882. If a person acquires a right in a immovable property by virtue of transaction which is referred to in section 269UA(f) then also 'transfer' happened. Broadly speaking, section 269UA(f) covers giving a property on lease for a term of not less than 12 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to this office letter dated 18.12.09, vide Memo No.855, dated 23.12.09, the Registrar of Assurance, Kolkata informed that the value of land (as per stamp duty payable) at 86C, Topsia Road, Kolkata is as follows: Year Value of Land 2006-07 Rs.5,9 1,190 per cottah 2005-06 Rs.5,43,895 per cottah 1995-96 Rs.2,36,262 per cottah Thus from the above it is perused that valuation of land under the said lease in the year 1995-96 was more than Rs. 1,01,59,266/- [Rs. 2,36,262/- x 43 cottahs (ignoring chittaks and feet). Similarly, value of the said leasehold land in the year 2005-06 and 2006-07 was more than Rs.2,33,87,485/- and Rs.2,54,21,170/- respectively apart from structures standing on the land given on lease to M/s Srei infrastructure Finance Ltd. During the relevant years the real market value of land and property of that area (beside Eastern Metropolitan Bypass, Kolkata) might be more than the value as per record of Registrar of Assurance, Kolkata due to increased demand of land in that area for the purpose of housing and realtor business Such valuable land has been given on lease by assessee at a nominal monthly rent of Rs. 1.500/- (yearly Rs.18,000/- only) during the per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest part would almost reach as identical with principal of 2l crores in the course of 62 years of currency of lease. So lessor i.e. assessee still enjoy the fruits/income/gains/profits on Rs.21 crores, if lease is terminated after 62 years. Actually in the instant case land owner (assessee) has given the land to Srei Infrastructure Finance Limited who developed property on sanctioned building plan and consideration of land owner i.e. assessee's part has been given In the guise of interest free advance/deposit by changing the nomenclature of consideration. The nomenclature given to the document may not be decisive or conclusive - intention of the assessee and Srei Infrastructure Finance Limited as gathered on the documents and surrounding circumstances is decisive. From the facts and circumstances as discussed above it is gathered that receipt of Rs. 21crores as interest free non refundable advance/deposit during the currency of lease is consideration for the property of the assessee under lease which is taxable as Capital Gains. 12. Thus, from Para No.8, 9 and 10 it is found that capital assets/immovable property of the assessee has been transferred and profits/gains of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany known as Srei Infrastructure Finance Ltd. (formerly known as Sri International Finance Ltd.). The lease was w.e.f. 01-12-1995 and in lieu the lessee was supposed to pay a nominal amount of Ps. 1,500/- p.m. as lease rent. As per said lease agreement the lease period was agreed for a term of 21 years. Later on, the lessee i.e. Srei Infrastructure Finance Ltd., wrote a letter dt. 26-03-2007 addressed to the lessor i.e. the appellant company wherein it was mentioned that as per discussion, it was agreed that period of lease will be extended from 21 years to 62 year and w.e.f. 01-04-2006, the lease rent stands increased from Rs. 1,500/- to Rs.25,000/- and w.e.f. 01-04-2008 it will increase from Rs. 25,000/- p.m. to Rs.50,000/-. It is also mentioned in the said renewal letter dt. 26- 03-2007 that all other terms and conditions at lease agreement dt. 28-12-1995 will remain unchanged. But prior to said extention of lease period and increase in the lease rental, The lessor and the lessee executed an Amendment/Alteration deed on 10-12- 2006. This Amendment/Alteration deed was made to amend/alter the clause 2(d) on page 6 of lease agreement dt. 28-12-1995. As per the said amendment, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn cost the lessors share in the said building or cause to be constructed the same in the said demised property and to Have and To Hold the said demised property and the building to be constructed thereon unto the lease for a period of 21 years commencing from the 1st day of December, 1995 with option for renewal for a further period of 5(five) years or moe as may be mutually agreed yielding and paying therefore unto the lessor a monthly rent of Rs. 1,500/-...." 6.2. Thus, it is apparent that the appellant company had given such a huge piece of land and structures along with rights to construction of building to M/s. Srei Infrastructure for a period of 21 years on a negligible amount of rent of Rs. 1500/- p.m. The appellant company kept on showing lease rent @ Rs. 1,500/- p.m. or Rs. 18,000/- per annum from 01-12-1995 to 31-03-2006 in lieu of said property 3iven along with other rights. 6.3. As per clause 2(b) the lessee was supposed to pay entire amount of municipal taxes in respect of said demised property and the buildings to be constructed thereon. As per clause 2(c) the lessee shall also pay all enhancement, fresh impositions, levies, multistoried building tax and/or prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any bank or Housing Finance Company relating to The said construction by the said lessee being fully satisfied." The clause 3(f) of the Agreement provides that lessee shall be entitled to apply for an obtained high tension electric lines, power lines, water connections. Gas connection, telephones, telex, fax or any other commencements without lines in the demised property and the building to be constructed thereon from time to time and the lessor grant its consent thereto provided a lessee shall pay all the costs and charges and expenses in relation thereto. The clause 3(g) says that on the expiration or sooner determination of the term of this lease such construction or building will be taken over by either parties at the price mutually agreed by and between the parties hereto. From above, it is apparent that the appellant company was simply interested that any how, the so-called lessee should construct a building on the land given by the appellant. The clauses 3(e), (f) and (g) are very unusual clauses which generally do not find place if there is an agreement for lease of a property, specifically the land. 6.8. The clause 4(C) also provides that the lessee shall have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 10-11-2006 according to which the clause 2(d) page no. 6 of lease agreement dt. 28-12-1995 was modified and it was agreed that the lessee shall keep deposit and or advance with the lessor a sum of Rs. 21,00,00,000/- by way of interest free deposits and or advance for enjoyment of benefit of lease by lessee and the said amount shall not be refundable during the continuance of the lease period, From the said Amendment/Alteration deed it is apparent that for the first time it was made compulsory that Srei infrastructure Finance Ltd. shall pay a sum of Rs. 21,00,00,000/- to the appellant company and it could not be refunded upto a period of 62 years. 7. On careful consideration of the facts and after going through the various clauses of agreement dt. 28-12-1995, I am of the opinion that the A.O. has arrived on a correct conclusion that the appellant company has transferred its property to Srei Infrastructure Finance Ltd. in the guise of a lease agreement. He also rightly invoked various provisions of the Act i.e. Sec. 2(47), Sec. 269UA(f) and Sec, 27(iiib) to hold that the appellant company has transferred the capital asset in the relevant previous year. From the said agreement it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm of a lessee had taken over possession of the property. The transferee also perform his part of contract by paying sum of Rs. 21 crores to the appellant company. It was argued by the appellant company that as per clause-4(a) of the original lease agreement, it was provided that if at any time the monthly rent or any part thereof shall remain unpaid for six month after the same shall have became payable then the lessor shall be entitled to give one month's notice to the lessee of termination of lease. If, the lessee pay such arrears of rent with interest @ 18% per annum within one month from the date of receipt of notice, the default will be waived but if all such arrears of rent is not paid along with interest, within the period as aforesaid than the lessor shall be at liberty to determine the lease and to re-enter and take possession of the demised property and the building to be constructed thereon. Thus this clause clearly states that the appellant as a lessor, has a right to terminate the lease. However, I am not inclined to agree with the submission of the appellant because the said clause is nothing but an eye wash and a device to hide the real nature of the transaction. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany has also claimed the : depreciation on the building constructed on the demised property. Thus, at one hand the company Srei Infrastructure Finance Ltd. has been claiming depreciation on the building treating itself as a owner of the demised property and building constructed thereon and on the other hand the appellant's contention is that it had given lease of the demised property and earning only the lease rent. This is nothing but a device to avoid the capital gain fax. The appellant has also argued that the company Srei Infrastructure Finance Ltd. has shown the sum of Rs, 21 crores in its books of accounts as advance given to the appellant company and the appellant company has disclosed the said sum in its books of accounts as liability and hence, the intention of the parties is clear that the transaction was as a lessor and lessee and not as a transferor and transferee. However, I am not inclined to agree with this submission because the entries in the books of accounts cannot be conclusive to determine the nature of transaction and moreover if the transferee company has shown the sum of Rs. 21 crores as advance or deposit, it is not in loss because in any case it cannot cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to keep in deposit or advance with the lessor for a sum of Rs.21 crores by way of interest free security deposit which was not refundable during the continuance of lease period. The ld. Counsel stated the fact that the lessee had advanced the interest free security deposit of Rs.21 crores from time to time spreading more than one previous year. The details he pointed out are as under: The assesee received Rs.16.50 crores as advance during the financial year 2005-06 and Rs.4.50 crores during the financial year 2006-07. The ld. Counsel for the assessee stated that when this period of lease was extended for 62 years w.e.f. 1.12.1995 vide letter dated 26.3.2007, lease rentals from Rs.1500/- per month to Rs.25,000/- per month w.e.f. 1.4.2006 and Rs.50,000/- w.e.f. 1.4.2008. The ld. Counsel for the assessee stated that during the previous year under consideration there were only certain changes which were made subsequent to the original lease agreement, which includes deposits or advance of Rs.21 crores by way of interest free security deposit, along with increase in lease rental and for that extension of lease period was allowed. He stated that for charge of capital gain u/s 45 r.w. s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in view of the amended altered lease agreement dated 10.11.2006, in order to treat the property given on lease as a cost of transfer of capital asset. The owner of the property i.e. assessee namely Bypass Properties Pvt. Ltd. has not transferred its ownership in the property to M/s. SREI Infrastructure Finance Limited but just allowed the possession and enjoyment of the property to them for a limited period in lieu of monthly lease rent and fixed amount of security deposit. The original period of lease was 21 years, which remained unexpired and lease remained possession of the property at the time of period of lease, which was extended from 21 years to 62 years. He also pointed out that the security deposit was a refundable amount and appears as a liability and asset in the lessor's account in the balance sheet of assessee as well as M/s. SREI Infrastructure Finance Limited. 3.3. Further the ld. Counsel for the assessee relied on the following case laws:- i) Supreme Court's decision in the case of Alapati Venkataramiah vs CIT, Hyderabad reported in 57 ITR 185(SC) ii) Madhya Pradesh High Court's decision in the case of Smt. Jeejeebai Shinde vs CIT reported in 144 ITR 693 (M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.00 1.5.2008 Dr. Opening Balance 16,50,00,000.00 10.5.2006 Dr HDFC BANK LTD. (UNB Branch) Ch.No.011887 Receipt 7 4,50,00,000.00 RECD FROM THEM 21,00,00,000.00 Cr. Closing Balance 21,00,00,000.00 21,00,00,000.00 21,00,00,000.00 However, as per the alteration of security deposit clause dated 10.11.2006 which was placed at page 67 of the paper book it is observed that the lessee shall keep in deposit and advance which is the lessors a sum of Rs.21 crores by interest free deposit. Then it was further stated in the said alteration that the amount of security deposit shall not refundable during the continuance of the lease period. Subsequently the lease period has been extended from 21 years to 62 years on 26.03.2007 which was placed at page 66 of the paper book. On comparison of these two documents on which the ld. AR placed reliance with the ledger account of Srei Equipment Finance Ltd. with the assessee it is observed that the security deposit of Rs.13 crores has been received on 1.4.2001 and Rs.3.50 crores on 30.03.2002 and Rs.4.50 crores on 10.05.2006 that is much prior to the amendment to the security clause which is made on 10.11.2006. It is further observed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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