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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. 990      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] 991      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 992      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. 993 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 994           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 995 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 997 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. 998