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TMI Blog2018 (7) TMI 1547X X X X Extracts X X X X X X X X Extracts X X X X ..... to agreement on 6/6/i2006 for granting ingress and egress of property owned by the assessee. In terms of said agreement, the assessee received consideration of Rs. 3.5 crores out of which Rs. 1.4 crores was received during the financial year 2011-12 and Rs. 2 crores during the financial year 2013-14. It is the contention of the assessee that since entire consideration had not been received and an amount of Rs. 1.5 crores received during this year was shown under current liability and hence, not liable to tax. The said contention of the assessee had been rejected by the AO. It was further contended that granting of easement rights does not result in transfer of any capital asset. The said contention of the assessee also had been rejected by the AO and brought to tax Rs. 1.5 crores during the year under consideration. 3. Being aggrieved, an appeal was preferred before the ld.CIT(A). The ld.CIT(A), after considering the provisions of section 2(47) of the Income Tax Act 1961 ['the Act' for short] and the definition of 'Capital Asset' as provided under section 2 of the Act held that the easement constitutes Capital Asset. The grant of licence of easement also results in transfer as env ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and license thereon to M/s. Skyline Construction and Housing Pvt. Ltd. According to section 2(14) of the Act, Capital Asset means: "(14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include- (i) any stock-in-trade, (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes- (a) jewellery; (b) archaeological collections; (c) drawings; (d) paintings; (e) sculptures; or (f) any work of art. Explanation For the purposes of this sub-clause, "jewellery" includes- (a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel (iii) agricultural land in India, not being land situate- (a) in any area which is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch rights which falls under the above definitions. In case of CIT v. Vijay Flexible Containers 186 ITR 693 (Bom), it was held that "the right to obtain a conveyance of immovable property falls within the expression "property of any kind" used in section 2(14) of the Income-tax Act, 1961, and is, consequently, a capital asset. The payment of earnest money in order to obtain such a right constitutes its cost of acquisition. Where such a right is given up, there is a transfer of a capital asset". 6.3 According to section 4 of the Indian Easement Act, 1882, Easement means a right which the owner or occupier of certain land possesses as such of the beneficial enjoyment of that land, to do and continue to do something or to prevent and continue to prevent something being done in or upon or in respect of certain other land not his own". Thereby, the term easement means comfort, convenience or privilege and it develops into "a legal right or privilege of using something not one's own". As easement is a grant of a non-possessory property interest that grants the easement holder permission to use another person's land. In simple terms, it refers to the right which a man sometimes has over o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the easement. According to section 6 of the Indian Easement Act, 1882, an easement may be permanent, or for a term of years or other limited period or subject to periodical interruption or exercisable only at a certain place or at certain times or between certain hours or for a particular purpose or on condition that it shall commerce or become void or become voidable on the happening of a specified event or the performance or non-performance of a specified act. The nature of easement is described in section 7 of the Indian Easement's Act, 1882, which states that easements are restrictions of one or other of the following rights: a. Exclusive right to enjoy - the exclusive right of every owner of immovable property to enjoy and dispose of the same and all products thereof and accessions thereto b. Rights to advantages arising from situation - the right of every owner to immovable property to enjoy without disturbance by another, the natural advantage arising from its situation. From the above discussion it is clear that the easement is an enforceable right which has value and will fall under the definition of the property of any kind. In the present case, the appellant has gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... malgamated company, and therefore, there was a "transfer" within the meaning of section 2(47). It was a transaction to which section 47(vii) applied and, consequently, the cost to the assessees of the shares in the amalgamated company had to be determined in accordance with the provisions of section 49(2) the cost of the shares in the amalgamated company which were sold, was deemed to be the cost of acquisition of the assessees of their shares in the amalgamating company. Held also that, having regard to the fact that the assessees could have disclosed, without prejudice to their contentions, the cost at which they had acquired the shares in the amalgamating company, there was no reason to differ from the view of the Income Tax Officer in the method adopted for computing the capital gains. The definition of "transfer" in section 2(47) clearly contemplates the extinguishment of rights in a capital asset distinct from and independent of such extinguishment consequent upon the transfer thereof. It is not correct to view the expression "extinguishment of any rights therein" as not extending to mean the extinguishment of rights independent of or otherwise than on account of transfer. To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the reducing of the face value of the share, the share capital is reduced, the right of the preference shareholder to the dividend on his share capital and the right to share in the distribution of the net assets upon liquidation is extinguished proportionately to the extent of reduction in the capital. Such reduction of the right in the capital asset would clearly amount to a transfer within the meaning of that expression in section 2(47) of the Income-tax Act, 1961. On perusal of the agreement dated 06/06/2011 entered by the appellant, it is observed that the appellant has given a perpetual right over the land consisting of 30 feet width and 66 feet length for vehicular and pedestrian access to and from the licensee's property. Further, some of the highlights of the agreement are as under: 6.8 The appellant allowed the licensee to show the scheduled property as permanent road to various statutory authorities for the purpose of granting the various approvals and the appellant has waived their right to object to the same. The agreement is an irrevocable agreement. There is no termination clause. There is no repayment of the money received during the year in case of failu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y entering into an agreement with M/s. Skyline Construction & Housing Pvt. Ltd. on 06/06/2011. Another appeal for A.Y.2014-15 was filed on 13/02/2017 against the order of the Assessing Officer taxing the remaining portion of the consideration received of Rs. 2 crores during the year. Since, the issue involved is common to both the assessment years after obtaining the approval from CCIT-2, Bengaluru, both the appeals have been clubbed and taken up for disposal. During the appellate proceedings your Authorized Representative has submitted that the appellant has not sold, exchanged, extinguished or relinquished its rights any favour of any third party; any part of the property. As such right of way and license to ingress and egress land is nothing but transfer of one of rights out of the bundle of rights on the property, therefore tantamount to transfer as contemplated u/s.2(47) of the Income-tax Act 1961, you are required to show cause as to why the consideration received in lieu of granting of perpetual easementary right of way should not be treated as capital receipt and taxed as LTCGs in the assessment year 2012-13. Your reply should reach this office on or before 27/03/2017, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferred any easement rights during the year under consideration since not received the full payment. The capital gains tax is leviable on accrual basis and not on cash basis as contended by the appellant. Further, it is evident that the appellant has received the part money and for the remaining money, it is fully secured by way of property in the office space to be constructed by the licensee. Therefore, the contention of the appellant that it has not received the full consideration is not correct and not acceptable. 6.10 During the appellate proceedings the appellant was asked the cost of the entire property and when it has been acquired. The AR filed a letter which is as under: Oikos Apartments Pvt. Limited (OAPL) is the absolute owner of lands bearing S.No.68/2A,71/1 and 70/1 totally measuring 5 acres and 24 guntas located at Allalasandra village, Yelahanka, (the aforesaid land was originally granted to the father of one Krupa Shankar, who on becoming the owner of the lands on the death of his father, became partner in the firm and brought the land into the hotch pot of the partner firm.) having acquired it on dissolution of a partnership in which the OAPL was a partner. OAP ..... 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