Appeal details
Counselvise Citation
[2020] 111 COUNSELVISE.COM (IT) 7086 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 9 month(s) 18 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
05-02-2020
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
B
Next Hearing Date
11-11-2019
Assessment Year
2011-2012
Appeal Filed On
17-04-2017
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B, BENCH KO LKATA BEFORE SHRI S. S. GODARA, JM & DR. A.L. SAINI, AM ITA NO.749/KOL/2017 (ASSESSMENT YEAR: 2011-12) M/S STP LIMITED C/O. G.P. AGARWAL & ASSOCIATES, 7A, KIRAN SHANKAR RAY ROAD, 2 ND FLOOR, KOL-1. VS. DCIT, CIRCLE-10, KOLKATA ./ ./PAN/GIR NO. : AAECS6339M ( /APPELLANT ) .. ( / RESPONDENT ) APPELLANT BY : SHRI D. K. KOTHARI, FCA REVENUE BY : SMT. RANU BISWAS, ADDL. CIT / DATE OF HEARING : 11/11/2019 /DATE OF PRONOUNCEMENT : 05/02/2020 / O R D E R PER DR. A. L. SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAIN ING TO ASSESSMENT YEAR 2011-12, IS DIRECTED AGAINST THE ORDER PASSED BY LD . PRINCIPAL COMMISSIONER OF INCOME TAX (APPEALS)-18, KOLKATA, IN APPEAL NO.414/ CIT(A)-18/16-17, DATED 21.12.2016 WHICH IN TURN ARISES OUT OF AN ASSESSMEN T ORDER PASSED BY ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961 (HER EINAFTER REFERRED TO AS THE ACT) DATED 25.03.2014. 2. ALTHOUGH IN THIS APPEAL THE ASSESSEE HAS RAISED A MULTIPLE GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING THE MAIN GRIEVAN CE OF THE ASSESSEE HAS BEEN CONFINED TO THE FOLLOWING TWO ISSUES WHICH ARE ME NTIONED BELOW: 1.THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE , LD. CIT APPEALS-18, KOLKATA (HEREINAFTER REFERRED TO AS 'CIT (A)') HAS ERRED IN MAKING AN AD DITION UNDER THE HEAD LONG TERM CAPITAL GAINS OF RS.3,56,63,433/- BY TREATING ARREAR RENT O F KOLKATA PORT TRUST (HEREINAFTER REFERRED TO AS 'KPT'), PAID BY OR ON BEHALF OF THE APPELLANT, AS C ONSIDERATION FOR ALLEGED TRANSFER OF LEASEHOLD RIGHTS. 2. THAT THE LD. CIT (A) WAS ERRED IN LAW AS WELL AS IN FACTS IN UPHOLDING THE ADDITION OF THE LD. DCIT OF RS. 10,00,000 OUT OF THE ADDITION MADE OF R S.14,66,500/- AS ALLEGED UNDISCLOSED INCOME FROM LICENSE FEE, WITHOUT APPRECIATING THE FACT THA T RS. 10,00,000 HAS BEEN DIRECTLY PAID BY THE APPELLANT TO KPT IN TERMS OF THE AGREEMENT BETWEEN THE APPELLANT AND ITS SUB-LESSEE IN VIEW OF COMMERCIAL EXPEDIENCY. ITA NO.749/KOL/2017 M/S STP LIMITED 2 3. THESE GROUNDS ARE INTERLINKED THEREFORE WE ADJUD ICATE THEM TOGETHER. FACTS OF THE CASE, WHICH CAN BE STATED QUITE SHORTLY ARE AS FOLLOWS: ASSESSEE HAD GOT LEASE HOLD RIGHTS FROM KOLKATA PORT TRUST [KPT OVER TWO PLOTS OF LAND AT HIDE PARK EXTENSION FOR A LONG TIME. SINCE 01.11.1970 AS SESSEE HAD STOPPED PAYING RENT. IN 1999 IT ENTERED INTO AGREEMENT WITH M/S. A RA ENTERPRISES PVT. LTD. FOR SUB LEASING THE PREMISES TO THEM. SINCE 01.02.1999 IT STARTED RECEIVING MONTHLY RENT FROM M/S. ARA ENTERPRISES PVT. LTD. STILL ASSE SSEE DID NOT PAY ANY RENT TO KOLKATA PORT TRUST. THE KOLKATA PORT TRUST ISSUED D EMAND CUM EVICTION NOTICE TO ASSESSEE IN 2006. THE LD CIT(A) HELD THAT CREATION OF SUB LEASE RIGHTS WOULD ALSO AMOUNT TO TRANSFER OF LEASEHOLD RIGHTS, UNDER CERTA IN CONDITIONS. WHETHER THE LESSOR CONTINUES GETTING RENT EVEN AFTER THE DATE O F TRANSFER IS NOT RELEVANT IN DECIDING WHETHER TRANSFER HAS TAKEN PLACE. ON 31.03 .2010 M/S.ARA ENTERPRISES PVT. LTD., THROUGH THE ASSESSEE, PAID RS.2,24,00,00 0/- AND THE BALANCE PAYMENT OF ARREAR OF RS.1,32,63,433/- WAS MADE IN THE CURRENT YEAR. THEREFORE RS.3,56,63,433/- ( RS.2,24,00,000 + RS.1,32,63,433) IS SALE CONSIDERATION. THESE TWO AMOUNTS WERE TAKEN BY CIT(A) THE CONSIDERATION FOR TRANSFER OF LEASEHOLD RIGHTS. THUS RS.3,56,63,433/- WAS ENHANCED BY LD CI T(A) TREATING IT AS LONG TERM CAPITAL GAIN. THEREFORE, THE ASSESSEE IS IN AP PEAL BEFORE US. 4. SUBSEQUENTLY ASSESSEE SIGNED ANOTHER MEMORANDUM OF UNDERSTANDING [MOU] WITH M/S. ARA ENTERPRISES PVT. LTD. ON 07.02.2008. HOWEVER, THE TERMS AND CONDITIONS OF THIS AGREEMENT SHOW THAT THE SECOND A GREEMENT IS IN NATURE OF TRANSFER OF ASSESSEE'S LEASE HOLD RIGHTS IN FAVOUR OF M/S. ARA ENTERPRISES PVT. LTD., THROUGH SUB LEASING. HENCE SHOW CAUSE NOTICE WAS ISSUED BY LD CIT(A) FOR ENHANCEMENT OF INCOME ON 14.07.2016 AND 30.11.2016. 5. IN RESPONSE, ASSESSEE SUBMITTED ITS REPLY BEFORE LD CIT(A). MAIN POINTS OF THE REPLIES ARE AS UNDER: I) ASSESSEE AND M/S. ARA ENTERPRISES PVT. LTD. RES OLVED THEIR DISPUTES REGARDING AMOUNT PAYABLE TO KOLKATA PORT TRUST THRO UGH AGREEMENT DATED 07.02.2008 ITA NO.749/KOL/2017 M/S STP LIMITED 3 II) ASSESSEE ACTED AS A MERE POST OFFICE BETWEEN KO LKATA PORT TRUST AND M/S. ARA ENTERPRISES PVT. LTD. FOR DISCHARGE OF RENT LIA BILITIES. III) ASSESSEE HAS NOT ACKNOWLEDGED FOR THE PAST LIA BILITY NOR HAS IT EVER CLAIMED THESE IN ANY OF THE PRECEDING YEAR. IV) WITHOUT PREJUDICE TO ITS STAND, IF AMOUNT RECEI VED FROM M/S. ARA ENTERPRISES PVT. LTD. IS TAXED IN THE HANDS OF THE ASSESSEE, THEN THE PAYMENT MADE TO KOLKATA PORT TRUST SHOULD BE ADJUSTED AND ONLY T HE NET AMOUNT CAN BE TAXED IN THE HANDS OF THE ASSESSEE. IN THIS REGARD ASSESSEE HAS RELIED ON THE JUDGMENT OF THE DELHI HIGH COURT IN EXXON MOBIL LUBRICANTS [2010] 3 27 ITR 17. V) IT IS FURTHER SUBMITTED THAT CRYSTALLIZATION OF LIABILITY OF PAYMENT TO KOLKATA PORT TRUST HAD OCCURRED IN ASSESSMENT YEAR 2008-09 AND NOT IN ASSESSMENT YEAR 2011-12. IN THIS REGARD RELIANCE WAS PLACED ON THE FOLLOWING JUDGMENTS DECISIONS: A) NON SUCH TEA ESTATE LTD. 1975 98 ITR 175 SC. EVE N AN ASSESSEE FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTINGS IS NOT ENTITLE D TO CLAIM A DEDUCTION UNTIL LIABILITY FOR THE SUM FOR WHICH DEDUCTION IS CLAIME D HAS ACCRUED. THE REASONS GIVEN BY THE HIGH COURT OVERLOOKED THE PLAIN TERMS OF SEC. 326 OF THE COMPANIES ACT, 1956. SEC. 326 PROHIBITS THE APPOINTMENT OR RE APPOINTMENT OF A MANAGING AGENT UNLESS THE CENTRAL GOVERNMENT APPROVED SUCH A PPOINTMENT OR REAPPOINTMENT. THE CENTRAL GOVERNMENT WOULD NOT ACC ORD ITS APPROVAL UNLESS THE REQUIREMENTS SPECIFIED IN CLAUSES (A),(B) &(C) OF S UB-SECTION (2) OF THE SECTION HAVE BEEN FULFILLED. THEREFORE, IT CANNOT BE ASSUME D THAT THE CENTRAL GOVERNMENT WILL APPROVE EVERY PROPOSED APPOINTMENT OR REAPPOIN TMENT OF A MANAGING AGENT. THUS, IN THE INSTANT CASE IT WAS ONLY WHEN THE CENT RAL GOVERNMENT CONVEYED ITS APPROVAL TO THE APPOINTMENT OF MANAGING AGENTS BY I TS LETTER DATED 02.09. 1957, THAT THE APPOINTMENT BECAME EFFECTIVE AND THE COMPA NY'S LIABILITY TO PAY THE REMUNERATION OF THE MANAGING AGENTS ACCRUED. ITA NO.749/KOL/2017 M/S STP LIMITED 4 B) SAURASHTRA CEMENT & CHEMICAL INDUSTRIES LTD. 213 ITR 523/80 TAXMAN 61 (GUJ] C) ADDL. COMM -VS- FARASOL LTD. 19871 163 ITR 364 [ 1985] 22 TAXMAN 418 [RAJ] D) EXXON MOBIL LUBRICANTS (P) LTD. [DELHI [2010] 32 8 ITR 17. HONBLE HIGH COURT WAS OF THE VIEW THAT LIABILITY OF THE ASSESSE E UNDER THE AGREEMENT HAD ARISEN AND ACCRUED IN AUGUST, 2002, WHEN THE AGREEMENT WAS EXECUTED AND, THEREFORE, THE LIABILITY OF THE ASSESSEE TO PAY FOR PERIOD JAN UARY, 2002 TO MARCH 2002 AROSE AND CRYSTALLIZED IN AUGUST, 2002. 6. HOWEVER, LD CIT(A) REJECTED THE CONTENTION OF TH E ASSESSEE AND ENHANCED THE ASSESSMENT BY RS. 3,56,63,433/-, OBSERVING THE FOLLOWINGS: 4.4(C) I HAVE CAREFULLY CONSIDERED THE FACTS OF TH E CASE AND THE SUBMISSION OF THE ASSESSEE. FOLLOWING ISSUES ARE TO BE DECIDED TO ARR IVE AT THE CONCLUSION:- I) WHETHER ANY ASSET WITHIN THE MEANING OF SECTION 2(14) OF THE 1.T.ACT HAS BEEN TRANSFERRED. II) IF YES, THEN WHAT IS THE YEAR OF TRANSFER? III) WHAT IS THE CONSIDERATION RECEIVED FOR TRANSFE R OF THE ASSET AND WORKING OF CAPITAL GAINS. BEFORE WE GO INTO FURTHER ANALYSIS, FIRST WE WILL T AKE A LOOK AT SECTION 2(14), WHICH DEFINES CAPITAL ASSET' AND SECTION 2(47) WHICH DEFI NES TRANSFER'. SECTION 2(14) READS AS UNDER: '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, OTHER THAN THE SECURITIES R EFERRED TO IN SUB-CLAUSE (B), CONSUMABLE STORES OR RAW MATERIALS HELD FOR THE PURPOSES OF HI S BUSINESS OR PROFESSION; (II) PERSONAL EFFECTS, THAT IS TO SAY, MOVABLE PROP ERTY (INCLUDING WEARING APPAREL AND FURNITURE) HELD FOR PERSONAL USE BY THE ASSESSEE OR ANY MEMBER OF HIS FAMILY DEPENDENT ON HIM, BUT EXCLUDES: ITA NO.749/KOL/2017 M/S STP LIMITED 5 (A) JEWELLERY; (B) ARCHAEOLOGICAL COLLECTIONS; (C) DRAWINGS; (D) PAINTINGS; (E) SCULPTURES; OR (F) ANY WORK OF ART. EXPLANATIONS: 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, WHE THER OR NOT CONTAINING ANY PRECIOUS OR SEMI-PRECIOUS STONE, AND WHETHER OR NOT WORKED O R SEWN INTO ANY WEARING APPAREL; (B) PRECIOUS OR SEMI-PRECIOUS STONES, WHETHER OR NO T SET IN ANY FURNITURE, UTENSIL OR OTHER ARTICLE OR WORKED OR SEWN INTO ANY WEARING APPAREL. AGRICULTURAL LAND IN INDIA, NOT BEING LAND SITUATE (A) IN ANY AREA WHICH IS COMPRISED WITHIN THE JURIS DICTION OF A MUNICIPALITY (WHETHER KNOWN AS A MUNICIPALITY, MUNICIPAL CORPORATION, NOT IFIED AREA COMMITTEE, TOWN AREA COMMITTEE, TOWN COMMITTEE, OR BY ANY OTHER NAME) OR A CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN TEN THOUSAND ACCORDIN G TO THE LAST PROCEEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFO RE THE FIRST DAY OF THE PREVIOUS YEAR; OR (B) IN ANY AREA WITHIN SUCH DISTANCE, NOT BEING MOR E THAN EIGHT KILOMETRES, FROM THE LOCAL LIMITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFE RRED TO IN ITEM(A) AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD TO THE EXTENT OF AND SCOPE FOR, URBANISATION OF THAT AREA AND OTHER RELEVANT CONSIDERATIONS, SPECIFY IN THIS BEHALF BY NOTIFICATION IN THE OFFICIAL GAZETTE; (IV) 6% PER CENT GOLD BONDS, 1977, OR 7 PER CENT GO LD BOND:, 1980, OR NATIONAL DEFENCE GOLD BONDS, 1980, ISSUED BY THE CENTRAL GOVERNMENT; (V) SPECIAL BEARER BONDS, 1991, ISSUED BY THE CENTR AL GOVERNMENT; (VI) GOLD DEPOSIT BONDS ISSUED UNDER THE GOLD DEPOS IT SCHEME, 1999 NOTIFIED BY THE CENTRAL GOVERNMENT SECTION 2(47) READS AS UNDER: TRANSFER IN RELATION TO A CAPITAL ASSET INCLUDES (I) THE SALE, EXCHANGE OR RELINQUISHMENT OF THE ASS ET, OR (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN: OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW; OR (IV) IN A CASE WHERE THE ASSET IS CONVERTED BY THE OWNER THEREOF INTO, OR IS TREATED BY HIM AS STOCK-IN-TRADE OF A BUSINESS CARRIED ON BY HIM, SUCH CONVERSION OR TREATMENT; OR (IVA) THE MATURITY OR REDEMPTION OF A ZERO COUPON B OND; OR ITA NO.749/KOL/2017 M/S STP LIMITED 6 (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE P OSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANCE OF A CO NTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882; OR (VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBER OF, ACQUIRING SHARES IN, A CO-OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY OTHER MANNER WHATSOEVER) WHICH HAS THE EFFECT OF TRANSFERRING OR ENABLING THE ENJOYMENT OF, ANY I MMOVABLE PROPERTY. EXPLANATION - FOR THE PURPOSES OF SUB-CLAUSES (V) & (VI) IMMOVABLE PROPERTY SHALL HAVE THE SAME MEANING AS IN CLAUSE (D) OF SECTION 269UA] IT IS APPARENT THAT SECTION 2(14) REFERS TO ANY RIG HTS. NOW LET US LOOK AT SOME OF THE JUDICIAL PRONOUNCEMENTS ON SIMILAR ISSUES. HON' BLE MADRAS HIGH COURT IN THE CASE OF CIT, MADURAI -VS- SUJATHA JEWELLERS [2007] 290 ITR 631 HAS LOOKED INTO SECTION 2(47) READ WITH SECTION 2(14). IN THIS CASE ASSESSEE HAD TAKEN ON LEASE AN IMMOVABLE PROPERTY UNDER A LEASE AGREEMENT, UNDER WHICH IT HAD TO PAY RS. 10 LAKHS TO THE LESSOR AS INTEREST- FREE ADVANCE. THE LEASE WAS TO BE FOR A PERIOD OF 2 2 YEARS. RENT FOR THE FIRST 15 YEARS WAS FIXED AT RS. 20,350 PER MONTH AND FOR THE REMAINING 7 YEARS, THE MONTHLY RENT PAYABLE WAS RS. 84,428. THERE WAS A RENEWAL CLAUSE. THE ASS ESSEE HAD SUB-LEASED THE PROPERTY BY A LEASE DEED IN FAVOUR OF ANOTHER COMPANY FOR A PERIOD OF 20 YEARS. UNDER THAT SUB- LEASE AGREEMENT THE SUB-LESSEE HAD TO PAY RS. 10 LA KHS AS INTEREST-FREE ADVANCE TO THE ASSESSEE, THE RENT PAYABLE FOR THE FIRST 15 YEARS W AS RS. 77,500 PER MONTH AND FOR THE REMAINING PERIOD, THE RENT PAYABLE WAS RS.92,500 PE R MONTH. ASSESSING OFFICER HELD THAT TRANSFER OF LEASE BY THE ASSESSEE IN FAVOUR OF SUB- LESSEE WOULD AMOUNT TO TRANSFER OF A CAPITAL ASSET AND THE CONSIDERATION RECEIVED BY THE ASSESSEE UNDER THAT TRANSACTION WOULD PARTAKE THE CHARACTER OF CAPITAL GAINS AND, T HEREFORE, LIABLE TO TAX. HON'BLE MADRAS HIGH COURT HELD THAT TRANSFERRING AN IMMOVAB LE PROPERTY BY WAS OF A LEASE CREATES AN INTEREST IN THE LAND. ACCORDING TO SECTI ON 2(14), THE WORD 'CAPITAL ASSET' MEANS, PROPERTY OF ANY KIND HELD BY AN ASSESSEE'. T HEREFORE, IT DOES NOT NECESSARILY MEAN THAT THE PROPERTY, WHICH THE ASSESSEE HOLDS, MUST B E HIS OWN. ANY KIND OF PROPERTY HELD BY AN ASSESSEE WOULD COME WITHIN THE DEFINITION OF 'CAPITAL ASSET'. FROM THE DECISIONS OF THE SUPREME COURT IN A.GASPER V. CIT [1991] 192 ITR 382 AND THE MADRAS HIGH COURT IN A.R.KRISHNAMURTHY & A.R. RAJAGOPALAN V. CIT[1982 ] 133 ITR 922/[1981] 6 TAXMAN 289, IT IS CLEAR THAT TRANSFER BY WAY OF LEASE IS T REATED AS TRANSFER OF A CAPITAL ASSET, ON THE PRINCIPLE THAT THE LEASE CREATES AN INTEREST IN THE LAND AND, THEREFORE, TO THAT EXTENT, IT EXTINGUISHES THE RIGHT OF THE TRANSFEROR. THEREFORE , WHEN THE ASSESSEE TRANSFERS HIS LEASEHOLD RIGHTS IN THE LAND IN HIS OCCUPATION, BY WAY OF A SUB-LEASE TO ANOTHER PERSON, IT AMOUNTS TO EXTINGUISHING HIS RIGHTS IN THE PROPERTY AND SINCE HIS LEASEHOLD RIGHTS HAD CREATED AN INTEREST IN THE LAND, I.E., ENJOYMENT AN D POSSESSION AND, THEREFORE, IT WOULD DEFINITELY COME WITHIN THE DEFINITION OF 'CAPITAL A SSET', AS DEFINED UNDER SECTION 2(14). WHETHER THE OWNER HIMSELF TRANSFERS BY WAY OF A LEA SE OR A LESSEE TRANSFERS BY WAY OF SUB-LEASE, THE PRINCIPLE REMAINS THE SAME, NAMELY, IN EITHER ACTION THERE IS EXTINGUISHMENT OF RIGHTS. HON'BLE ANDHRA PRADESH HIGH COURT IN THE CASE OF MR S. G.SEETHA KAMRAJ -VS- CIT, 2006, 284 ITR 54 HAS ALSO LOOKED INTO THIS ISS UE. IN THIS THE ASSESSEE TOOK ON LEASE FOR 99 YEARS A BUILDING FROM HER HUSBAND CASE AND A S PER THE TERMS OF THE DEED, THE LEASE WAS TO START FROM JUNE 1, 1986. THE ASSESSEE PAID A SUM OF RS. 5,000 AS PREMIUM FOR ITA NO.749/KOL/2017 M/S STP LIMITED 7 OBTAINING THE LEASE AND WAS TO PAY A MONTHLY RENT O F RS. 300. THE LESSEE THEN CREATED A SUB-LEASE IN FAVOUR OF A THIRD PARTY. THE ASSESSEE RECEIVED A LUMP SUM OF RS.4,30,000 AS CONSIDERATION. IT WAS STATED TO BE ADJUSTABLE AGAIN ST MONTHLY RENT OF RS. 367.83. THE INCOME-TAX OFFICER ASSESSED TAX AND WAS OF THE VIEW THAT AN AMOUNT OF RS. 3,87,500 WAS CAPITAL GAIN AND AN AMOUNT OF RS.42,500 WAS THE COS T OF ACQUISITION. THIS WAS UPHELD BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. HON'BL E ANDHRA PRADESH HIGH COURT HELD, THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS CORRECT IN CONSTRUING THE SUB-LEASE AGREEMENT AND HOLDING THAT THE DEPOSIT OF RS.4,30,000 RECEIVED BY THE ASSESSEE WAS A CONSIDERATION FOR GRANTING SU B-LEASE OF THE ASSESSEE'S RIGHTS AND NOT A PAYMENT OF MONTHLY RENT IN ADVANCE AND AS SUC H WAS LIABLE TO TAX AS SHORT TERM CAPITAL GAINS. WHILE DECIDING THIS CASE HON'BLE ANDHRA PRADESH HIG H COURT HEAVILY RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE O F R. K. PALSHIKAR [1988] 172 ITR 311. BESIDES HON'BLE HIGH COURT ALSO REFERRED TO TH E FOLLOWING JUDGMENTS: A) AR KRISHNAMURTI -VS- CIT, 1989 176 ITR 417 (SC] B) TRADERS & MINORS LTD. [1955] 27 ITR 341 [PATNA H IGH COURT] C) A. GASPCR-VS-CIT 192 ITR 382 [SC] D) A. GASPER-VS-CIT [1979] 117 ITR 581 [CALCUTTA HC E) CIT-VS-PANBARI TEA CO. LTD. [1965] 57 ITR 422 THUS IT IS EVIDENT THAT CREATION OF SUB LEASE RIGHT S WOULD ALSO AMOUNT TO TRANSFER OF LEASEHOLD RIGHTS, UNDER CERTAIN CONDITIONS. WHET HER THE LESSOR CONTINUES GETTING RENT EVEN AFTER THE DATE OF TRANSFER IS NOT RELEVANT IN DECIDING WHETHER TRANSFER HAS TAKEN PLACE. PERUSAL OF THE TWO AGREEMENTS WITH M/S. ARA ENTERPRISES PVT. LTD SHOWS THAT AGREEMENT DATED 21.01.1999 WAS IN THE NATURE OF LEA VE AND LICENSE AGREEMENT FOR A LIMITED PERIOD. M/S. ARA ENTERPRISES PVT. LTD. WAS TO OCCUPY THE PREMISES ONLY FOR A LIMITED PERIOD. NO OTHER RIGHTS WERE CONFERRED ON T HE LESSEE THROUGH THIS AGREEMENT. REFUNDABLE DEPOSITS WERE TAKEN, WHICH WERE EQUIVALE NT TO THREE MONTHS OF RENT AND SIX MONTHS OF RENT WAS TAKEN IN ADVANCE TO BE ADJUSTED AGAINST THE MONTHLY RENT @ 50% OF THE RENT. ASSESSEE CONTINUED TO HAVE EFFECTIVE CONT ROL OVER THE PREMISES AND ITS LEASEHOLD RIGHTS WERE NOT AFFECTED IN ANY MANNER. HOWEVER, AG REEMENT DATED 07.02.2008 WAS LIKE TRANSFER OF LEASEHOLD RIGHTS. ASSESSEE GOT LUMP SUM PAYMENTS EQUIVALENT TO ARREARS OF RENT. BESIDES IT WAS ALSO ENTITLED FOR MONTHLY RENT AL FROM THE LESSEE. HOWEVER, HENCEFORTH ASSESSEE DID NOT HAVE THE POWER TO TERMINATE THE AG REEMENT AND EVICT M/S.ARA ENTERPRISES PVT. LTD., SO LONG AS THEY CONTINUED TO PAY TIMELY RENT AND COMPLIED WITH OTHER CONDITIONS OF THE PREMISES FOR THEIR OWN USE IN FUTURE. THEY REMAINED ONLY A NAME LENDER IN THE RECORDS OF KPT BUT EFFECTIVE CONTROL PASSED ON TO M/S.ARA ENTERPRISES PVT. LTD. THUS ENJOYMENT AND POSSESSION OF LAND PASSED O N TO M/S.ARA ENTERPRISES PVT. LTD. IN THE FIRST AGREEMENT M/S.ARA ENTERPRISES PVT. LTD . WERE NOT REQUIRED TO DISCHARGE PRIOR LIABILITIES OF THE APPELLANT WHEREAS THROUGH THE SECOND AGREEMENT THEY AGREED TO PAY THE ARREARS OF RENT ALONG WITH INTEREST TO SAVE THE LEASEHOLD RIGHTS. THUS IT IS APPARENT THAT ASSESSEE PARTED WITH THEIR EXCLUSIVE LEASEHOLD RIGHTS AND CONTROL OVER THE TWO PLOTS OF LAND TO M/S.ARA ENTERPRISES PVT. LTD. FOR EVER, ON RECEIPT OF A LUMP SUM AMOUNT AND SOME MONTHLY RENT. THIS AMOUNTS TO TRANS FER OF RIGHTS OF THE ASSESSEE WITHIN THE MEANING OF SECTION 2(14) READ WITH 2(47) AND TH IS ISSUE IS COVERED BY THE ABOVE JUDGEMENTS IN THE CASE OF SUJATHA JEWELLERS [SUPRA] AND MRS. G. SEETHA KAMRAJ [SUPRA]. ITA NO.749/KOL/2017 M/S STP LIMITED 8 NOW THE NEXT QUESTION ARISES AS TO IN WHICH YEAR TR ANSFER OF LEASEHOLD RIGHTS TOOK PLACE. AGREEMENT WITH M/S.ARA ENTERPRISES PVT. LTD. WAS SIGNED IN FEBRUARY, 2008, BUT THIS AGREEMENT WAS NOT IMPLEMENTED IMMEDIATELY. BESIDES AT THAT TIME ASSESSEE WAS FACING EVICTION PROCEEDINGS FROM KOLKATA PORT TRUST AND UNDER THESE CIRCUMSTANCES, ITS LEASEHOLD RIGHTS WAS NOT SECURE. UNDER THE CIRCUMST ANCES, TRANSFER OF THESE RIGHTS COULD NOT HAVE TAKEN PLACE. BESIDES FOR TRANSFER TO TAKE EFFECT, AGREED CONSIDERATION FOR THE TRANSFER HAD TO CHANGE HANDS. RECORDS SHOW THAT THI S DID NOT HAPPEN IMMEDIATELY. ON 31.03.2010 M/S.ARA ENTERPRISES PVT. LTD., THROUGH T HE ASSESSEE, PAID RS.2,24,00,000/- AND THE BALANCE PAYMENT OF ARREAR OF RS.1,32,63,433 /- WAS MADE IN THE CURRENT YEAR. THUS ENTIRE ARREARS OF DUES WERE CLEARED IN THE CUR RENT YEAR. HENCE ASSESSEE'S LEASEHOLD RIGHTS CAN BE CONSTRUED TO HAVE BEEN RESTORED DURIN G THE CURRENT YEAR. HENCE ANY TRANSFER OF LEASEHOLD RIGHTS WOULD TAKE PLACE ONLY AFTER THE TERMS AND CONDITIONS OF THE AGREEMENT ARE FULLY COMPLIED WITH AND ALL THE ARREA RS ARE PAID TO KPT, UNTIL THEN LESSOR WAS NOT SURE OF HIS OWN LEASE RIGHTS. CONTINUATION OF LEASEHOLD RIGHTS OVER THE PLOTS WAS IN THE HANDS OF KPT. AND ONLY AFTER CLEARING THE AR REARS OF 'RENT KOLKATA PORT TRUST WOULD RESTORE THE LEASEHOLD RIGHTS OF THE LESSOR, W HICH HAS HAPPENED DURING THE YEAR. UNDER THE CIRCUMSTANCES IT IS LOGICAL THAT TRANSFER OF LEASEHOLD RIGHTS TO M/S ARA ENTERPRISES PVT. LTD. WOULD TAKE PLACE ONLY WHEN TH E SAME WAS RESTORED TO THE ASSESSEE. HENCE YEAR OF TRANSFER IS THE CURRENT YEAR AND CAPI TAL GAINS THE ASSESSEE DURING THE CURRENT YEAR. DURING APPEAL HAS ACCRUED TO PROCEEDI NGS ASSESSEE WAS ASKED TO FURNISH DOCUMENTS REGARDING RESTORATION OF ITS LEASEHOLD RI GHTS BY KOLKATA PORT TRUST. HOWEVER, ASSESSEE HAS NOT SUBMITTED ANY COMMUNICATI ON IN THIS REGARD. HOWEVER, IT CAN BE INFERRED THAT ON FULL PAYMENT OF ARREAR OF RENT DURING THE YEAR, EVICTION PROCEEDINGS SUBSIDED AND AFTER THAT TRANSFER OF LEASEHOLD RIGHT S HAS TAKEN PLACE. NOW THE NEXT ISSUE IS REGARDING THE TOTAL CONSIDERA TION RECEIVED FOR TRANSFER OF THIS LEASEHOLD RIGHTS. IT IS SEEN THAT M/S. ARA ENT ERPRISES PVT. HAS PAID RS.2,24,00,000/- ON 31.03.2010 AND BALANCE AMOUNT OF LTD. ARREAR OF RS.1,32,63,433/- HAS BEEN PAID DURING THE YEAR. THESE TWO AMOUNTS ARE BASICALLY TH E CONSIDERATION FOR TRANSFER OF LEASEHOLD RIGHTS. THUS RS.3,56,63,433/- IS THE CONS IDERATION FOR RESTORATION AND SUBSEQUENT TRANSFER OF LEASEHOLD RIGHTS. BESIDES DU RING THE CURRENT YEAR, M/S. ARA ENTERPRISES PVT. LTD. HAS ALSO PAID 50% OF THE RENT PAYABLE TO KOLKATA PORT TRUST. HOWEVER, THIS IS IN THE NATURE OF REVENUE RECEIPT A ND ASSESSEE WOULD KEEP RECEIVING SUCH INCOME IN SUBSEQUENT YEARS. ASSESSEE HAS NOT PROVID ED THE DETAILS OF AMOUNT, IF ANY, WHICH IT MIGHT HAVE PAID FOR ACQUIRING THE LEASEHOL D RIGHTS. AMOUNT PAID IF ANY, WOULD NOT BE MUCH AS IT WAS ACQUIRED A LONG TIME BACK. UN DER THE CIRCUMSTANCES, IT IS PRESUMED THAT THE COST OF ACQUIRING LEASEHOLD RIGHT S IS ALMOST NIL. HENCE ENTIRE AMOUNT OF RS. 3,56,63,433/- IS TAKEN TO BE LONG TERM CAPIT AL GAIN OF THE ASSESSEE AND INCOME IS ENHANCED BY THIS AMOUNT. A.O. IS ACCORDINGLY DIRECT ED TO LEVY SUITABLE TAX ON THIS AMOUNT. 7. WE HEARD BOTH THE PARTIES AND CAREFULLY GONE THR OUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCUMENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLU DING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS BROUGHT ON RECORD. WE NO TE THAT LD CIT(A) HELD THAT CREATION OF SUB LEASE RIGHTS WOULD ALSO AMOUNT TO T RANSFER OF LEASEHOLD RIGHTS, ITA NO.749/KOL/2017 M/S STP LIMITED 9 UNDER CERTAIN CONDITIONS. WHETHER THE LESSOR CONTIN UES GETTING RENT EVEN AFTER THE DATE OF TRANSFER IS NOT RELEVANT IN DECIDING WHETHE R TRANSFER HAS TAKEN PLACE. ON 31.03.2010 M/S.ARA ENTERPRISES PVT. LTD., THROUGH T HE ASSESSEE, PAID RS.2,24,00,000/- AND THE BALANCE PAYMENT OF ARREAR OF RS.1,32,63,433/- WAS MADE IN THE CURRENT YEAR. THEREFORE RS.3,56,63,433/- ( R S.2,24,00,000 + RS.1,32,63,433) WAS TREATED AS SALE CONSIDERATION. THESE TWO AMOUNTS WERE TAKEN BY CIT(A) AS THE CONSIDERATION FOR TRANSFER OF LEAS EHOLD RIGHTS. THUS RS.3,56,63,433/- WAS ENHANCED BY LD CIT(A) TREATING IT AS LONG TERM CAPITAL GAIN. BEFORE WE ANALYZE THE FINDINGS OF THE LD. CIT(A), L ET US GO THROUGH THE PROVISION OF SECTION 2(47) OF THE ACT WHICH READS AS FOLLOWS: 2(47) 'TRANSFER', IN RELATION TO A CAPITAL ASSET, INCLUDES, (I) THE SALE, EXCHANGE OR RELINQUISHMENT OF THE AS SET ; OR (II) THE EXTINGUISHMENT OF ANY RIGHTS THEREIN ; OR (III) THE COMPULSORY ACQUISITION THEREOF UNDER ANY LAW ; OR (IV) IN A CASE WHERE THE ASSET IS CONVERTED BY THE OWNER THEREOF INTO, OR IS TREATED BY HIM AS, STOCK-IN-TRADE OF A BUSINESS CAR RIED ON BY HIM, SUCH CONVERSION OR TREATMENT ; OR (IVA) THE MATURITY OR REDEMPTION OF A ZERO COUPON BOND; OR (V) ANY TRANSACTION INVOLVING THE ALLOWING OF THE POSSESSION OF ANY IMMOVABLE PROPERTY TO BE TAKEN OR RETAINED IN PART PERFORMANC E OF A CONTRACT OF THE NATURE REFERRED TO IN SECTION 53A OF THE TRANSFER OF PROPE RTY ACT, 1882 (4 OF 1882) ; OR (VI) ANY TRANSACTION (WHETHER BY WAY OF BECOMING A MEMBER OF, OR ACQUIRING SHARES IN, A CO-OPERATIVE SOCIETY, COMPANY OR OTHER ASSOCIATION OF PERSONS OR BY WAY OF ANY AGREEMENT OR ANY ARRANGEMENT OR IN ANY O THER MANNER WHATSOEVER) WHICH HAS THE EFFECT OF TRANSFERRING, OR ENABLING T HE ENJOYMENT OF, ANY IMMOVABLE PROPERTY. EXPLANATION 1.FOR THE PURPOSES OF SUB-CLAUSES (V) AND (VI), 'IMMOVABLE PROPERTY' SHALL HAVE THE SAME MEANING AS IN CLAUSE (D) OF SECTION 269UA. EXPLANATION 2.FOR THE REMOVAL OF DOUBTS, IT IS HER EBY CLARIFIED THAT 'TRANSFER' INCLUDES AND SHALL BE DEEMED TO HAVE ALWAYS INCLUDE D DISPOSING OF OR PARTING WITH AN ASSET OR ANY INTEREST THEREIN, OR CREATING ANY INTEREST IN ANY ASSET IN ANY MANNER WHATSOEVER, DIRECTLY OR INDIRECTLY, ABSO LUTELY OR CONDITIONALLY, VOLUNTARILY OR INVOLUNTARILY, BY WAY OF AN AGREEMEN T (WHETHER ENTERED INTO IN ITA NO.749/KOL/2017 M/S STP LIMITED 10 INDIA OR OUTSIDE INDIA) OR OTHERWISE, NOTWITHSTANDI NG THAT SUCH TRANSFER OF RIGHTS HAS BEEN CHARACTERISED AS BEING EFFECTED OR DEPENDE NT UPON OR FLOWING FROM THE TRANSFER OF A SHARE OR SHARES OF A COMPANY REGISTER ED OR INCORPORATED OUTSIDE INDIA; HAVING GONE THROUGH THE EXPLANATION 2 OF SECTION 2( 47) OF THE ACT, WE NOTE THAT THE TRANSFER INCLUDES AND SHALL BE DEEMED TO HAVE ALWAYS INCLUDED DISPOSING OF OR PARTING WITH AN ASSET OR ANY INTEREST THEREIN, O R CREATING ANY INTEREST IN ANY ASSET IN ANY MANNER WHATSOEVER, DIRECTLY OR IN DIRE CTLY, ABSOLUTELY OR CONDITIONALLY, VOLUNTARILY OR INVOLUNTARILY, BY WAY OF AN AGREEMENT. THEREFORE, IT IS QUITE CLEAR THAT M/S STP LTD. (ASSESSEE) HAS TRA NSFERRED ITS LEASE RIGHTS BY WAY OF AN AGREEMENT IN FAVOUR OF M/S ARA ENTERPRISES PV T. LTD. AND FROM THE TRANSFEREE (M/S ARA ENTERPRISES PVT. LTD.) THE ASS ESSEE GOT RS. 2,24,00,000/- AND PAYMENT OF ARREAR OF RS. 1,32,63,433/-. THEREFO RE, BOTH THE AMOUNTS PUT TOGETHER COMES TO RS. 3,56,63,433/-(2,24,00,000 + 1 ,32,63,433) AND THE SAME WOULD BE TAXABLE AS CAPITAL GAIN, AS THE ASSESSEE G OT THIS MONEY BY WAY OF SELLING LEASE RIGHTS. THIS AMOUNT, THE ASSESSEE M/S STP LIM ITED IS ENJOYING AS CAPITAL RECEIPT AGAINST THE TRANSFER OF ITS RIGHTS IN FAVOU R OF M/S ARA ENTERPRISES PVT. LTD. ALTHOUGH, THE ASSESSEE M/S STP LIMITED IS NOT REAL OWNER OF THE PROPERTY BUT HE HAS ALL THE RIGHTS TO USE OR SUB LEASE THE RIGHT S THE PROPERTY. THEREFORE, TRANSFER OF LEASEHOLD RIGHTS BY THE ASSESSEE IN FAVOUR OF M/ S ARA ENTERPRISES PVT. LTD. IS A TRANSFER OF A LEASE RIGHTS WHICH SHOULD BE TAXABL E IN THE HANDS OF THE ASSESSEE AS CAPITAL GAIN. 8. AT THIS JUNCTURE, IT IS ALSO APPROPRIATE TO QUO TE THE DEFINITION OF CAPITAL ASSET WHICH IS MENTIONED IN SECTION 2 (14) OF THE ACT, WH ICH IS REPRODUCED BELOW (TO THE EXTENT APPLICABLE FOR OUR DISCUSSION): (14) 'CAPITAL ASSET' MEANS (A) PROPERTY OF ANY KIND HELD BY AN ASSESSEE, WHET HER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION EXPLANATION.FOR THE REMOVAL OF DOUBTS, IT IS HEREB Y CLARIFIED THAT 'PROPERTY' INCLUDES AND SHALL BE DEEMED TO HAVE ALWAYS INCLUDED ANY RIG HTS IN OR IN RELATION TO AN INDIAN COMPANY, INCLUDING RIGHTS OF MANAGEMENT OR CONTROL OR ANY OTHER RIGHTS WHATSOEVER; ITA NO.749/KOL/2017 M/S STP LIMITED 11 HAVING GONE THROUGH THE DEFINITION OF CAPITAL ASSET S WE NOTE THAT CAPITAL ASSET IS PROPERTY OF ANY KIND HELD BY THE ASSESSEE. IN THIS CASE OF M/S STP LIMITED (ASSESSEE) IS HOLDING LEASE RIGHTS IN THE PROPERTY AND THE ASSESSEE HAS TRANSFERRED THESE LEASE RIGHTS IN FAVOUR OF M/S ARA ENTERPRISES PVT. LTD. AND RECEIVED THE LUMPSUM AMOUNT. THEREFORE, IT FALLS IN THE DEFINITI ON OF PROPERTY OF ANY KIND HELD BY AN ASSESSEE AND HENCE SUBJECT TO CAPITAL GAIN TA X. WE NOTE THAT THE EXPLANATION TO SECTION 2(14) OF TH E ACT CLEARLY SAYS THAT THE PROPERTY INCLUDES AND SHALL BE DEEMED TO HAVE ALWAY S INCLUDED ANY RIGHTS IN OR IN RELATION TO AN INDIAN COMPANY, INCLUDING RIGHTS OF MANAGEMENT OR CONTROL OR ANY OTHER RIGHTS WHATSOEVER. IN THE ASSESSEES CASE UND ER CONSIDERATION, THE ASSESSEE TRANSFERRED HIS LEASE HOLD RIGHTS IN FAVOUR OF M/S ARA ENTERPRISES PVT. LTD AND THESE LEASE RIGHTS FALL IN THE CATEGORY OF ANY OTH ER RIGHTS WHATSOEVER. WE NOTE THAT M/S. ARA ENTERPRISES PVT. HAS PAID RS. 2,24,00,000/- ON 31.03.2010 AND BALANCE AMOUNT OF LTD. ARREAR OF RS.1,32,63,433 /- HAS BEEN PAID DURING THE YEAR. THESE TWO AMOUNTS ARE BASICALLY THE CONSIDERA TION FOR TRANSFER OF LEASEHOLD RIGHTS. THUS RS.3,56,63,433/- IS THE CONSIDERATION FOR RESTORATION AND SUBSEQUENT TRANSFER OF LEASEHOLD RIGHTS. BESIDES DURING THE CU RRENT YEAR, M/S. ARA ENTERPRISES PVT. LTD. HAS ALSO PAID 50% OF THE RENT PAYABLE TO KOLKATA PORT TRUST. HOWEVER, THIS IS IN THE NATURE OF REVENUE RECEIPT A ND ASSESSEE WOULD KEEP RECEIVING SUCH INCOME IN SUBSEQUENT YEARS. ASSESSEE HAS NOT PROVIDED THE DETAILS OF AMOUNT, IF ANY, WHICH IT MIGHT HAVE PAID FOR ACQ UIRING THE LEASEHOLD RIGHTS. AMOUNT PAID IF ANY, WOULD NOT BE MUCH AS IT WAS ACQ UIRED A LONG TIME BACK. UNDER THE CIRCUMSTANCES, IT IS PRESUMED THAT THE CO ST OF ACQUIRING LEASEHOLD RIGHTS IS ALMOST NIL. HENCE ENTIRE AMOUNT OF RS. 3, 56,63,433/- IS TAKEN TO BE LONG TERM CAPITAL GAIN OF THE ASSESSEE AND INCOME I S ENHANCED BY THIS AMOUNT BY LD CIT(A) THEREFORE, HAVING GONE THROUGH THE PROVISION OF SEC TION 2(14) AND SECTION 2(47) OF THE ACT, IT IS EVIDENTLY CLEAR BY READING OF TH ESE SECTIONS, THAT THE ASSESSEE HAS ITA NO.749/KOL/2017 M/S STP LIMITED 12 TRANSFERRED LEASE HOLD RIGHTS IN FAVOUR OF M/S ARA ENTERPRISES PVT. LTD. WHICH IS TRANSFER AS PER SECTION 2(47) OF THE ACT, THEREFOR E, THE LD. CIT(A) HAS RIGHTLY COMPUTED THE CAPITAL GAIN AND HENCE, WE CONFIRM THE ORDER OF THE LD. CIT(A). 9.REGARDING THE SECOND ISSUE, WE NOTE THAT THE LD. CIT(A) MADE ADDITION OF RS. 10,00,000/- OUT OF ADDITION MADE BY THE ASSESSING O FFICER TO THE TUNE OF RS. 14,66,500/- AS ALLEGED UNDISCLOSED INCOME FROM LICE NSE FEE, WE NOTE THAT IT IS NOT CLEAR WHETHER THE SAID AMOUNT WAS PAID IN PURSUANCE OF THE AGREEMENTS BETWEEN ASSESSEE AND ITS SUB-LESSEE IN VIEW OF THE COMMERCI AL EXPEDIENCY. SINCE THE ASSESSEE HAS FAILED TO PROVE THE COMMERCIAL EXPEDIE NCY THEREFORE WE CONFIRM THE ORDER PASSED BY THE LD. CIT(A). 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 05/02/20 20. SD/- (S. S. GODARA) SD/- (A. L. SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; DATED:05/02/2020 RS, SR.PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT- M/S STP LIMITED 2. / THE RESPONDENT.- DCIT, CIRCLE-10, KOLKATA 3. ( ) / THE CIT(A), 4. / CIT 5. ! $$% , % , / DR, ITAT, KOLKATA 6. ( / GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR, I.T.A.T, KOLKATA BENCHES, KOLKATA . ITA NO.749/KOL/2017 M/S STP LIMITED 13
