COMMISSIONER OF INCOME TAX Vs. JAVERILAL AND CO P LTD
HIGH COURT OF KERALA
COMMISSIONER OF INCOME TAX
Javerilal And Co P Ltd
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(1.) THE following question of law is referred by the Income -tax Appellate Tribunal, Cochin Bench, to this court pursuant to the direction issued by this court in the judgment dated November 11, 1998, in O. P. No. 11138 of 1998, at the instance of the Commissioner of Income -tax, Cochin.
'Whether, on the facts and in the circumstances of the case, the Tribunal is right in law and fact in interfering with the order of the Commissioner of Income -tax (Appeals) ?'
(2.) THE brief facts necessary for decision of this case are as follows. The assessee is a company in which the public are not substantially interested. The assessee obtained a leasehold right in respect of a piece of land from the Cochin Port Trust and the assessee had constructed a building therein for the purpose of his business. The assessee sold the building during the accounting period relevant to the assessment year 1986 -87 to M/s. Ram Bahadur Thakur Pvt. Ltd, for a consideration of Rs. 2,34,000. The Assessing Officer computed the capital gains on the transfer of the property at Rs. 1,37,120. According to the assessee, there cannot be an assessment to capital gains in respect of this transaction. Therefore, the assessee took up the matter in appeal before the Commissioner of Income -tax (Appeals) and contended that the consideration of Rs. 2,34,000 received included compensation for the surrender of the leasehold right in the land. The appellate authority directed the Assessing Officer to verify the actual amount of capital gains on the transfer of the land and exclude the same from the computation. Pursuant to the said direction, the Assessing Officer took the view that the capital gains relating to the land was nil and so the assessee was not entitled to any relief. This was again taken up before the Commissioner of Income -tax (Appeals). However, the appellate authority confirmed the assessment order holding that the assessee had in fact surrendered the leasehold right in favour of the Cochin Port Trust, and therefore, the assessee has no tenancy right over the land at the time of transfer. However, in further appeal filed by the assessee, the Tribunal, after considering the various documents produced before it, took the view that the transfer was both in respect of the building and in respect of the leasehold right and consideration received was a composite one for both. The Tribunal also found that the assessee's estimate of consideration towards the surrender of leasehold right at Rs. 1 lakh is reasonable. The Tribunal thereafter relying on the decision of the Supreme Court in CIT v. B.C. Srinivasa Setty : 128ITR294(SC) , held that the consideration received on the surrender or transfer of the leasehold right was not liable to capital gains. Hence, the reference.
Sri P. K. R. Menon, senior Central Government standing counsel for taxes appearing for the applicant, submits that the Tribunal erred in holding that the transfer evidenced by a registered document dated June 28, 1985, clearly says that the transfer was only in respect of the building and improvements and not the land or the leasehold right in respect of the land. Senior counsel based on the above submitted that when the document clearly says that the transfer was only in respect of the building, the Tribunal was not justified in holding that the transfer was in respect of the leasehold right also. Senior counsel also took us to the various clauses in the lease agreement as well as the sale deed in support of his contentions.
(3.) SRI P. Balakrishnan, learned counsel appearing for the respondent, on the other hand, submits that the transfer was not only in respect of the building, but also in respect of the leasehold right, and the consideration received was in respect of both. Counsel also took us to the various correspondences between the assessee and the Cochin Port Trust, and the conditions specified in the communication issued by the Cochin Port Trust as also in the registered document, and submitted that the Tribunal had considered all the relevant documents and had come to the conclusion as a fact that the transfer was a composite one both in respect of the leasehold right and in respect of the building, and, therefore, the consideration in respect of the land has to be separately taken, and the same cannot be subjected to capital gains tax in view of the decision of the Supreme Court in B.C. Srinivasa Shetty's case mentioned above.;
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