Full Judgment Text
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PETITIONER:
R.K.PALSHIKAR (HUF)
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, MADHYA PRADESH, NAGPUR,BHANDARA,
DATE OF JUDGMENT05/05/1988
BENCH:
KANIA, M.H.
BENCH:
KANIA, M.H.
PATHAK, R.S. (CJ)
CITATION:
1988 AIR 1305 1988 SCR (3) 989
1988 SCC (3) 594 JT 1988 (2) 266
1988 SCALE (1)1128
CITATOR INFO :
R 1989 SC1055 (9)
ACT:
Indian Income-tax Act, 1922-Whether grant of leases by
assessee amounts to transfer of Capital assets as
contemplated under Section 12-B of-Whether capital gains tax
is payable by assessee on amounts of ’salami’ or premium
received by assessee in respect of leases granted by
assessee.
HEADNOTE:
This was an appeal on a certificate of fitness granted
by the High Court against its judgment on a reference made
under Section 66(1) of the Indian Income-tax Act ("the said
Act").
The appellant/assessee owned some agricultural land,
which the assessee developed into building sites. The
assessee leased out the building sites to various parties.
The leases were for 99 years. The assessee received amounts
of ’salami’ or premium for the said leases.
Question arose whether the assessee was liable to pay
capital gains tax on the amounts of ’salami’ or premium
received. The assessee contended before the Income-tax
Officer that no capital gains tax could be levied on the
said leases as the land was agricultural and that Section
12-B of the said Act did not come into play as only lease-
hold rights had been conveyed by the assessee to the lessees
under the leases in question. Both these contentions were
rejected by the Income-tax Officer, the Appellate Assistant
Commissioner and the Income-tax Appellate Tribunal. Arising
from the decision of the Tribunal, two questions were
referred to the High Court, viz. (1) Whether the land sold
by the assessee constituted a capital asset within the
meaning of Section 12-B of the said Act or was agricultural
land as defined in Section 2(4A) of the Act, and (2) Whether
the transaction of lease effected by the assessee amounted
to a transfer within the meaning of Section 12-B of the said
Act so as to attract liability for capital gains tax. The
High Court answered both the questions in the affirmative
and against the assessee. Leave was granted by the High
Court to the assessee to appeal to this Court only in
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respect of the second question.
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The appellant-assessee had contended that Section 12-B
of the said Act could have no application as the land in
question was Inam land which must have been granted as a
pure gift., to the ancestor of the assessee, and that
Section 12-B was applicable only in the case of assets where
there was a cost of acquisition. The respondent had urged
that the assessee could not raise this contention as it did
not arise out of the decision of the Tribunal and was not
reflected in the questions referred by the Tribunal
particularly in the question in respect of which the
certificate of appeal had been granted.
The Court dismissed the appeal upholding the
submissions of the respondent. It was,
^
HELD:that the question in respect of which certificate
of fitness had been granted, clearly related to one
controversy, namely, whether the provisions of Section 12-B
could be brought into play in this case as the transfer was
of lease-hold interest in immovable property for 99 years
and not an outright sale or transfer of the complete
interest of the transferor in the immovable property. The
question as to whether Section 12-B could be brought into
play where the property sold had not cost anything to
acquire as it was gifted, had not been urged before the
income-tax authorities, the Tribunal or the High Court and
was not covered by the decision of the Tribunal or the High
Court. This case fell within the category of cases where the
question of law concerned is neither raised before the
Tribunal nor considered by it, and in such a case the
question would not be a question arising out of the order of
the Tribunal notwithstanding that it may arise on the
findings given by it, as held by this Court in Commissioner
of Income Tax, Bombay v. Scindia Steam Navigation Co. Ltd.,
[1961] 42 ITR 589. Merely because a question of law might
arise on the facts found by the Tribunal, this would not
render it a question arising out of the decision of the
Tribunal. [995B-C,G]
As regards the question whether the provisions of
Section 12-B could be brought into play, although what was
transferred was only lease-hold interest in the lands in
question, it was significant that the leases were for a long
period of 99 years and in all the transactions of lease,
premium had been charged by the assessee for the grant of
the lease concerned. Under the leases, the assessee had
parted with an asset of an enduring nature, namely, the
rights to possession and enjoyment to the properties leased
for 99 years subject to certain conditions regarding
termination of the leases. It could not be said that the
provisions of Section 12-B of the said Act could not be
brought into play. The grant of the leases amounted to a
transfer of capital assets as contemplated under Section 12-
B of the said Act. [996G-H;997A-B]
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C.I.T. v. Srinivasa & Setty, [1981] 128 ITR 294;
Commissioner of Income Tax, Bombay v. Scindia Steam
Navigation Co. Ltd., [1961] 42 ITR p. 589 and Traders and
Miners Ltd. v. Commissioner of Income Tax, Bihar and Orissa,
[1955] 27 ITR 341, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 61315
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of 1975.
From the Judgment and Order dated 18.8.1973 of the
Madhya Pradesh High Court in M.C.C. No. 248 of 1968.
S.T. Desai, Joel Pares and A.K. Verma for the
Appellant.
S.C. Manchanda, K.C. Dua and Miss A. Subhashini for the
Respondents.
The Judgment of the Court was delivered by
KANIA, J. This is an appeal against the judgment of a
Division Bench of the High Court of Madhya Pradesh on a
reference made to the High Court under Section 66(1) of the
Indian Income-tax Act, 1922 (referred to hereinafter as "the
said Act"). The appeal has been preferred on a certificate
of fitness granted by the High Court under Section 66A(2) of
the said Act read with Article 133(1) of the Constitution of
India.
The relevant facts are as follows:
The assessee is a Hindu Undivided Family represented by
its Karta one R.K. Palshikar. The years of assessment
with which we are concerned are the assessment years
1959-60 to 1961-62. The assessee is the owner of what
is known at present as ’Palshikar Colony’ at Indore.
This colony covers an area of 36.62 acres. The said
land originally belonged to an ancestor of the present
Karta as agricultural land. The land was in the
possession of the tenants and crops like wheat, gram
and so on were grown on the said land by the tenants.
The present Karta wished to develop the land into a
housing colony and took steps to evict the tenants. For
this purpose he filed a suit in the High Court and on
September 24, 1957 that suit was decreed. The assessee
got plans drawn up for the laying out of the said land
as a housing colony in the year 1952 after the assessee
was permitted to develop the land into a housing
colony. In 1958, the Executive Engineer of
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Indore approved the revised lay out plan. The assessee
then divided the land into plots and developed the land
for making it suitable as building sites. The assessee
also constructed some roads, sewages and water pipe
lines and spent a large amount for developing the land.
This expenditure was incurred in the accounting period
1958-59 and the subsequent years. The assessee started
leasing building sites to various parties from May,
1958. The first lease was granted by the assessee,
demising plot No. 12 on May 24, 1958. That lease was
for a period of 99 years. It was agreed under the lease
deed that on the expiration of the said period of
lease, the lessor by his legal heirs will execute a new
lease deed in favour of the lessee or his legal heirs
on terms and conditions as would be settled later. The
’salami’ or premium for the said lease was fixed at
Rs.10,312, out of which amount Rs.501 was paid in
advance and the balance amount of Rs.9,811 was agreed
to be paid before the grant of lease. The agreement of
lease was executed on September 15, 1959. The annual
lease rent of the plot was fixed at Rs.75 which was to
be paid by the lessee in advance. The lessor reserved
his right to take back possession of the land leased if
the rent was not paid for two consecutive years and to
recover the rent. We are not concerned with the other
terms of the lease. In the years 1959-60, 1960-61 and
1961-62 with which we are concerned, the assessee
leased out respectively 3.29 acres, 4.41 acres and 5.68
acres divided into many plots out of the aforesaid land
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and he received by way of ’salami’ or premium
Rs.1,45,190, Rs.2,06,475 and Rs.2,54,341 respectively
in the said years. The terms and conditions of the
other leases were in pari materia with the aforesaid
lease dated May 24, 1958 in that the leases were for a
period of 99 years and provided for the payment of
premium or ’salami’. The question arose whether the
assessee was liable to pay capital gains tax on the
amounts of ’salami’ or premium received as aforesaid.
The contention of the assessee before the Income-tax
Officer concerned was that no capital gains tax could
be levied in respect of the said leases as the land was
agricultural land and secondly that Section 12-B of the
said Act which provided for the levy of tax on the
sale, exchange, relinquishment or transfer of a capital
asset did not come into play as only lease-hold rights
had been conveyed by the assessee to the lessees under
the said leases. Both these contentions were rejected
by the Income-tax Officer as well as by the Appellate
Assistant Commissioner. The assessee preferred an
appeal to the Income-tax Appellate Tribunal and urged
the same contentions, which the Tribunal also rejected.
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Arising from the said decision of the Tribunal, two
questions were referred to the High Court for determination.
These questions are as follows:
(1) Whether on the facts and in the circumstances of
the case, the land sold by the assessee
constituted a capital asset within the meaning of
Section 12-B of the Indian Income Tax Act or was
agricultural land as defined in Section 2(4A) of
the Act?
(2) Whether the transaction of lease effected by the
assessee amounted to a transfer within the meaning
of Section 12-B so as to attract liability for
capital gains tax?
The first contention urged by the assessee before the
High Court was that no capital gains tax could be levied on
the said transactions for the lease of the land as the land
was agricultural land, and the second contention was that
Section 12-B of the said Act did not come into play as only
the lease hold rights in the said lands had been conveyed.
As far as the first contention is concerned, it was conceded
before the High Court that as the land was diverted to non-
agricultural purposes several years ago, that contention
could not be pressed and it was not disputed that the lands
in question constituted a capital assets within the meaning
of Section 2(4A) of the said Act. In support of the second
contention of the assessee, it was urged on behalf of the
assessee that the word "transfer" under Section 12-B of the
said Act must be interpreted in a limited and restricted
sense and the principle of ejusdim generis should be applied
in construing the said word as used in Section 12-B. This
contention was rejected by the High Court which took the
view that, as the lease was for a long period of 99 years,
the agreement of lease would amount to a transfer of a
capital asset within the meaning of Section 12-B of the said
Act read with Section 2(4A) thereof. The High Court answered
both the questions referred in the affirmative and against
the assessee. On an application made by the assessee, leave
was granted by the High Court, as aforesaid, to appeal to
this Court but only in respect of second question.
Before setting out the contentions of the respective
parties it will be useful to take note of the relevant
portion of Section 12(B) of the said Act which provides for
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the levy of tax on capital gains runs thus:
"The tax shall be payable by an assessee under the
head "Capital gains" in respect of any profit or
gains arising
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from the sale, exchange, relinquishment or
transfer of a capital asset effected after the
31st day of March, 1956, and such profits and
gains shall be deemed to be income of the previous
year in which the sale, exchange, relinquishment
or transfer took place."
There are two provisos to the aforesaid sub-section,
but they are not relevant for our purposes. Rest of the
provisions of Section 12-B are also not relevant for our
purposes. The term "Capital asset" has been defined in Sub-
section (4A) of Section 2 of the said Act, as follows:
"capital asset" means property of any kind held by
an assessee, whether or not connected with his
business, profession or vocation, but does not
include:
(i) any stock-in-trade, consumable stores
or raw materials held for the purposes
of his business, profession or vocation;
(ii) personal effects, that is to say, movab
le property (including wearing apparel,
jewellery and furniture) held for
personal use by the assessee or any
member of his family dependent on him.
(iii)any land from which the income derived
is agricultural income;
The first contention which was urged before us by Mr.
Desai, learned counsel for the appellant-assessee is that,
in the present case, Section 12-B of the said Act can have
no application as the land in question was Inam land which
must have been granted as a pure gift to the ancestor of the
assessee. It was submitted by him that the facts on record
show that the land was granted by the Maharaja of Indore as
Inam to the concerned ancestor of the present Karta and it
was urged by him that in accordance with the usual practice,
the Maharaja must have given it free. It was submitted that
Section 12-B of the said Act is applicable only in case of
assets where there was a cost of acquisition. In support of
this contention Mr. Desai cited some judgments including the
decision of this Court in C.I.T. v. Srinivasa & Setty,
[1981] 128 ITR 294 which was a case pertaining to goodwill.
It was, on the other hand, submitted by Mr. Manchanda, that
it was not open to Mr. Desai to raise this contention at all
as it did not arise out of the decision of
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the Tribunal and was not reflected in the questions referred
by the Tribunal, and particularly in the question in respect
of which certificate of appeal has been granted. In our
view, the submission of Mr. Manchanda must be upheld. The
question in respect of which certificate of fitness has been
granted, clearly relates to one controversy, namely, whether
the provisions of Section 12-B of the said Act can be
brought to play in this case as the transfer is of lease
hold interest in immovable property for 99 years and not an
outright sale of transfer of the complete interest of the
transferor in the immovable property. The question as to
whether Section 12-B can be brought into play where the
property sold has not cost anything to acquire as it was
gifted or was not urged before any of the Income-tax
authorities nor before the Tribunal or even before the High
Court. That question has not in any way been covered by the
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decision of the Tribunal or the High Court. In Commissioner
of Income Tax, Bombay v. Scindia Steam Navigation Co. Ltd.,
[1961] 42 ITR p. 589 four prepositions have been laid down
by this Court in this connection and they are as follows:
(1) When a question is raised before the Tribunal and
is dealt with by it, it is clearly one arising out
of its order.
(2) When a question of law is raised before the Tribu
nal but the Tribunal fails to deal with it, it
must be deemed to have been dealt with by it, and
is, therefore, one arising out of its order.
(3) When a question is not raised before the Tribunal
and the Tribunal deals with it, that will also be
a question arising out of its order.
(4) When a question of law is neither raised before
the Tribunal nor considered by it, it will not be
a question arising out of its order
notwithstanding that it may arise on the findings
given by it.
In our view, the present case falls squarely within the
fourth category, namely, of cases where a question of law is
neither raised before the Tribunal nor considered by it and
the aforesaid decision clearly lays down that in such a
case, the question would not be a question arising out of
the order of the Tribunal notwithstanding that it may arise
on the findings given by it. Mr. Desai sought to rely on the
observations in that judgment to the effect that a question
of law might be a simple one, having its impact at one point
or it may be a complex one, trenching over an area with
approaches leading to different points
996
therein and that such a question might involve more than one
aspect but that would not, by itself, be sufficient to
prevent the party concerned from raising it under Section
66(1) of the said Act. In our view, these observations are
of no relevance in the case before us, as the question
sought to be raised by Mr. Desai was neither raised before
the Tribunal nor considered by it nor does it arise on the
judgment of the Tribunal. Merely because a question of law
might arise on the facts found by the Tribunal this would
not render it a question arising out of the decision of the
Tribunal. Moreover, it is interesting to note that in the
present case, there is no finding of fact that the Inam was
originally given without consideration, although, we agree
that it must almost certainly have been so. However, what
the assessee sold was not the agricultural land which was
given to the assessee’s ancestor under the Inam but land
which was developed as housing sites on which development
the assessee had spent considerable amounts of money. In our
view, therefore, it is not open to Mr. Desai to raise this
question at all.
The next question which we have to consider is whether
the provisions of Section 12-B of the said Act can be
brought into play, although, what was transferred was only
lease hold interests in the lands in question. In this
connection, it is significant that the leases are for a long
period of 99 years and in all the transactions of lease
premium has been charged by the assessee for the grant of
the lease concerned. In Traders and Miners Ltd. v.
Commissioner of Income Tax, Bihar and Orissa, [1955] 27 ITR
p. 341 a case decided by a Division Bench of the Patna High
Court, the assessee let on lease for 99 years a portion of a
Zamindari acquired by it. The lease related to the surface
right together with nine mica mines located in that area.
The consideration for the lease was the payment of a
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’salami’ and a reserve rent per year. The Income-tax Officer
determined the cost to the assessee of the mineral rights
and after deducting this amount from the salami, he assessed
the balance to tax as capital gains under Section 12-B of
the said Act. It was held by the Patna High Court that the
gains arising from the said transaction were rightly taxed.
This decision has been cited without comment by Kanga and
Palkhivala in their commentary on the Law of Income-tax (7th
Edition) at page 550 and no contrary case has been cited in
the said text book or has been brought to our attention. It
is true that the decision of the Patna High Court relates to
a case of mining lease, but to our mind, the principle laid
down in that case can well be applied to the case before us.
In the first place, the lease is for a long period, namely,
99 years, hence it would appear held that under the leases
in question the assessee has parted with an asset of an
enduring nature, namely, the rights to possession
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and enjoyment to the properties leased for a period of 99
years subject to certain conditions on which the respective
leases could be terminated. A premium has been charged by
the assessee in all the leases. In these circumstances, we
fail to see how it could be said that the provisions of
Section 12-B of the said Act cannot be brought into play.
The grant of the leases in question, in our view, amounts to
a transfer of capital assets as contemplated under Section
12-B of the said Act.
In the result, we find that there is no substance in
the appeal and dismiss the same with costs.
S.L. Appeal dismissed.
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