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TMI Blog2010 (11) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... r a period of 99 years to a Private Limited Company, the shares of which are held by the partners of the assessee firm for a total consideration of ₹ 3,76,43,000/-. In fact, the consideration was paid by the lessee Company by allotment and issue of fully paid up shares of the Company for the entire value of the lease to the partners of the assessee firm. The respondent assessee relied on the terms of the lease deeds and contended that the consideration received for assignment of the lease is rent receivable @ ₹ 3,80,232/- each year for the entire period of the lease i.e. 99 years but received fully and in bulk in advance. However, the Assessing Officer treated the consideration received in the form of allotment of fully paid up shares of the lessee Company to the partners of the assessee firm as sales consideration received, and assessed the same as short term capital gains. The assessee challenged the assessment in appeal before the CIT (Appeals), who allowed the appeal by holding that the entire consideration received is assessable as regular income for all the 99 years, in terms of the claim made by the assessee. On second appeal filed by the Revenue, the Tribunal co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation :- For the purposes of sub-clauses (v) and (vi), immovable property shall have the same meaning as in clause (d) of section 269UA. Admittedly, the transaction herein is a long term lease leaving complete freedom to the lessee Company to enjoy the immovable property leased out for 99 years. So much so, in our view, the transaction is a transfer of capital asset within the meaning of Section 2(47)(vi) of the Act. 7. The next question to be considered is whether the consideration received by way of fully paid up shares of the lessee company issued to the partners of the assessee firm amounts to receipt of consideration by the assessee, assessable at it's hands. While the learned senior counsel for the assessee relied on the findings of the first appellate authority and the Tribunal, learned senior counsel appearing for the Revenue relied on the decision of the Supreme Court in N.Khader Vali Sahed and Another v. N.Gudu Sahid (Decd.) and Others reported in 261 ITR 1 and contended that partnership is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Admittedly, rental income on land and building is assessable either as income from other sources or as income from house-property. Since income is assessable on receipt basis, advance rent received in the previous year for the lease, could be assessed in the assessment year following. So much so, we are afraid whether the assessee's contention even if accepted, helps them to get out of tax liability. However, going by the view we propose to take, we do not think there is any necessity to consider whether the entire income is assessable in the assessment year as income of the assessee as advance rent received, particularly when the Department itself does not have such a case. The Supreme Court has in the decision in Commissioner of Income Tax, Assam, Tripura and Manipur v. Panbari Tea Company Ltd. reported in 1965 (LVII) ITR 422 held as follows:- Under section 105 of the Transfer of Property Act, a lease of immovable property is a transfer of a right to enjoy the property made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t could have paid the annual lease rent of ₹ 3,80,232/- on a year to year basis with 1% interest on the bulk lease rental paid in advance. The true nature of the transaction in our view has to be considered with reference to the benefit to the lessor from the bulk lease rental received. In our view, if 10% is taken as the reasonable return that could be derived on the bulk lease rent received, the assessee would be able to make ₹ 37,64,300/- annually towards the interest for the advance rent received, whereas the assessee's entitlement under the terms of the lease is only annual rent of ₹ 3,80,232/-. So much so, in our view, in substance and reality the consideration received is not rent received in advance as claimed by the assessee but consideration for the lease of land and building for 99 years. The net result of the transfer is non-availability of the land and building to the assessee or to it's partners for enjoyment for the next 99 years, during which period the lessee company will hold and enjoy the property. So much so, the consideration received is for the transfer of leasehold rights, which is assessable to capital gain. None of the decisions re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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