Law: Income Tax Act, 1961

Section: 2(47)45

Income-tax----Capital gains---Transfer---Lease of land---Surrender of lease---Amounts to transfer---Indian Income Tax Act, 1961, Ss.2(47) & 45. The assessee-company took on lease several plots of land. The assessee agreed to develop the plots at its own cost to lay roads, drainage, etc., and make out small plots for constructing buildings thereon for sale, the proceeds of which were agreed to be shared between the lessor and the lessee as per the agreement. After several years, the Government negotiated with the lessor for purchase of a substantial portion of the land including the portion of land leased out to the lessee free from encumbrance. Thereupon, the lessor and the lessee agreed to terminate the lease on terms agreed upon by them. In the meantime, the assessee had spent Rs.1,17,563 on improvement of the lands, but no building was, however, constructed thereon by the lessee. The property was purchased by the Government on April 18, 1974, and the assessee received Rs.2,71,110 on April 26, 1974, out of the sale proceeds as consideration for premature surrender of its leasehold interest in the property. The Income Tax Officer brought the case of the assessee within the definition of "transfer" contained in section 2(47) of the income Tax Act, 1961. The Tribunal held that there had been no transfer. On a reference: Held. that leasehold interest is an interest in land. The assessee had acquired the leasehold right for 99 years. This valuable right was acquired by virtue of an agreement entered into by the assessee with the lessor. The interest in land cannot be equated with self-created goodwill. The land was acquired by the assesee by an agreement and, for possession of the land, moneys were regularly paid under the agreement. This valuable right was surrendered by, the lessee and compensation was received for premature termination of the lease. "Transfer" of a capital asset includes not only relinquishment of the asset or extinguishment of any rights therein but also the compulsory acquisition of the asset. The Government had acquired the land and the assessee as a leaseholder was given compensation. The assessee prematurely surrendered the lease. This…

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