Law:

Section:

Section 45 of the income-tax act, 1961-Capital gains-Chargeability of-In consideration of salami of rs. 5 lakhs, assessee leased lands, originally purchased by it for rs. 27,260, to its allied concern to extract clay from lands, for a period of 10 years on royalty basis-whether said lease could effect a transfer of "capital asset" within the meaning of section 45 and accordingly liable to capital gains tax-held, on facts, yes-Whether cost of aforesaid leasehold right was capable of valuation and as such capital gains could be computed-held, on facts, yes. Facts The assessee-BOI had purchased certain lands for Rs. 27,260. In consideration of the payment of Rs. 5 lakhs as and by way of premium or salami, it leased the said lands to its allied concern S to extract clay from the lands for a period of 10 years on payment of a specified royalty. During the assessment year 1971-72, the ITO, estimating the market value of the land to be Rs. 8 lakhs, determined the cost of acquisition of the leasehold right at Rs. 17,040, being five-eighth of Rs. 27,260, and taxed the balance of Rs. 4,82,960 as long-term capital gains. On appeal, the AAC held that the term "property" used in section 2(14) would include, in the case of land, the right to enjoy such land and there was a transfer for consideration of Rs. 5 lakhs of such right of enjoyment in the land and that, therefore, it was a case of transfer of a capital asset. He determined the cost of acquisition at Rs. 27,260, i.e., the original price at which the assessee had purchased the land. The Tribunal, on second appeal, sustained the AAC's order. On reference, the assessee contended, inter alia, (i) that the right conferred under the lease was a right to enjoy the property and not a full right in the land itself, and even that right was not an indefeasible right but a right to be in possession for a period of 10 years subject to cancellation even within that period on certain situations, no title in the property or any portion of property as such having been transferred; ( ii) that the "capital asset" in his hands was the land and each one of the rights in respect of that land could not be treated as a separate and distinct…

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