Security deposited against leased property refundable on completion of tenure cannot be consider as Capital Gain

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH “B”, KOLKATA

Before

Shri Mahavir Singh, Judicial Member.

 and

Shri C.D.Rao, Accountant Member

ITA No.812/Kol/2011

Assessment Year : 2007-08

Bypass Properties Private Ltd., Kolkata

(PAN : AABCB 4289 Q)

For the Appellant: Dr.D.Pal, Shri S.Adak,

Shri A.Mishra & Shri

S.Basu                                                                                             ………………Appellant

Versus-

I.T.O., Ward-11(2),

Kolkata                                                                                     …………………Respondent

For the Respondent: Shri Niraj Kumar

Date of Hearing : 07.09.2011.

Date of Pronouncement : 07.12.2011.

ORDER

Per Shri C.D.Rao, AM

This appeal is filed by assessee against the order dated 11.03.2011 of the ld. CIT(A)-XII, Kolkata pertaining to A.Yr. 2007-08.

2. The brief facts of this issue are that while doing the scrutiny assessment after analyzing the various clauses in indenture of conveyance dated 27th April, 1991 and the indenture lease dated 28.12.1995 and the explanation given by assessee at the request of Assessing Officer finally concluded that the assessee’s long term capital gain was Rs.21 crores by observing that :-

“8. But according to section 2(47)(v) of the IT Act any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the transfer of the  transfer of property Act, 1882 amounts to transfer. Contract of handing over the possession of immovable property in view of lease agreement for a period not less than 12 years in exchange of lease rent is a contract as referred in section 53A of Transfer of Property Act, 1882, which treated as ‘transfer’ as per section 2(47)(v) of the Act relating to capital gains. Acquiring a right in a property under section 269UA(f) is treated as ‘transfer’ as per section 53A of transfer of Property Act, 1882. If a person acquires a right in a immovable property by virtue of transaction which is referred to in section 269UA(f) then also ‘transfer’ happened. Broadly speaking, section 269UA(f) covers giving a property on lease for a term of not less than 12 years. From the provisions of section 27(iiib) read with section 269UA(f) it is clear that where the period of lease is more than 12 years, lessee is deemed to be the owner of the property for the purpose of assessment. This view is decided in the case of Yagyawati Jayaswal Family Trust —vs— ITO [2004] 89 ITD 199 (Kol.) (SMC). Possession need not necessarily by sole and exclusive possession. When the transferee is by virtue of the possession given enabled to exercise general control over the property and to make use of it for the intended purpose, then the change of possession is treated as ‘transfer’. It is settled principle that long term lease always be considered as transfer. In the present case, the arrangement or the agreement under lease is a ‘transfer’ for the purpose of section 45 relating to capital gains.

9. Clause — 2(d), Page—6 of lease agreement dt. 28.12.1995 does not quantify any deposit and / or advance with the lessor for ‘enjoyment of the benefit of lease’ by lessee. Quantification or ascertainment of amount of deposit / advance only came into light after the execution of amendment / alteration agreement dt. 10. 11. 2006. So amount of deposit / advance has been quantified / ascertained in the financial year 2006—07 (assessment year 2007-08) and thus Capital Gain arises in the financial year 2006-07 only. Capital Gains have to be included only at the time they are ascertained. It cannot arise at any earlier date if it is not known. The question of capital gains is inter-related with quantification of the amounts. If there are gains, they should be known. Similar view is decided in the case of R. Dalmia —vs- CIT [1982] 133 ITR 169 (Delhi). From the above, it is gathered that Capital Gains receipt in the guise of advance / deposit for enjoyment of benefit of property is taxable in the financial year

10. It is gathered that assessee purchased piece and parcel of land and structures standing thereon measuring an area of 43 cottahs 9 chittaks 21 sq. ft. at 86C, Topsia Road, Kolkata — 700046 at a price of Rs. 4,64,931/- in the year 1991-92. The said property was given on lease with effect from 01.12.1995 to Srei Infrastructure Finance Ltd. at a monthly lease rent of Rs. 1,500/-(Rupees one thousand five hundred) upto 31.03.06 and such lease rent has been increased from Rs.1,500/- per month to Rs.25,000/- per month only with effect from 01.04.2006. In response to this office letter dated 18.12.09, vide Memo No.855, dated 23.12.09, the Registrar of Assurance, Kolkata informed that the value of land (as per stamp duty payable) at 86C, Topsia Road, Kolkata is as follows: Year Value of Land 2005-06 Rs.5,43,895 per cottah 1995-96 Rs.2,36,262 per cottah Thus from the above it is perused that valuation of land under the said lease in the year 1995-96 was more than Rs. 1,01,59,266/- [Rs. 2,36,262/- x 43 cottahs (ignoring chittaks and feet). Similarly, value of the said leasehold land in the year 2005-06 and 2006-07 was more than Rs.2,33,87,485/- and Rs.2,54,21,170/- respectively apart from structures standing on the land given on lease to M/s Srei infrastructure Finance Ltd.  During the relevant years the real market value of land and property of that area (beside Eastern Metropolitan Bypass, Kolkata) might be more than the value as per record of Registrar of Assurance, Kolkata due to increased demand of land in that area for the purpose of housing and realtor business Such valuable land has been given on lease by assessee at a nominal monthly rent of Rs. 1.500/- (yearly Rs.18,000/- only) during the period from 1.12.1995 to 31.03.2006. Monthly rent has been increased to Rs.25,000/- only with effect from 01.04.2006. Vide lease agreement dated 28.12.1995, it is gathered that M/s Srei Infrastructure Finance Ltd., lessee, has constructed building (Ground + 7 upper floors) on the leasehold land at that posh area of Kolkata taking it from assessee and enjoying the benefit of it in exchange of nominal lease rent as stated above. Clause 2(d) of page 6 of indenture of lease dt.28.12.1995 reads as “The Lessee shall if require keep in deposit and/or advance with the lessor such sums as may be mutually agreed by way of security deposit and/or advance for the enjoyment of benefit of lease by lessee which amount shall not be refundable during the continuous of the lease period.” Clause (1) of Amendment / alteration (to the lease agreement dated 28.12.1995) agreement executed on 10.11.06 reads as “that clause 2(d) of page no.6 of lease agreement be modified and read as ‘the lessee shall keep in deposit and / or advance with the lessor a sum of Rs.21,00,00,000/- (Rupees twenty one crores) by way of interest-free security deposit and / or advance for enjoyment of benefit of lease by lessee which amount shall not be refundable during the continuance of the lease period’, Thus from the above original lease agreement dated 28.12.1995 as well as from amended agreement dated 10.11.06, it is gathered that advance and / or deposit has been given to assessee for the ‘enjoyment of the benefit of property given on lease’. This is nothing but consideration received by assessee in exchange of valued property given on lease for a term of 62 years. Receipt of interest-free advance / deposit for such long period of 62 years is nothing but extra gain or premium or gain or profits from capital asset for enjoyment of benefit of stated valuable property. Here assessee and Srei Infrastructure Finance Ltd. i.e Lessor and Lessee have camouflaged the real nature of transaction by using clever phraseology. In the context of the valuation of the property, lease rent received by the assessee is meagre, lumpsum payment in the guise of interest-free advance / deposit being non-refundable during the currency of lease of 62 years could only be termed as consideration paid by lessee for being let into possession of the property taken on lease. If secured market interest rate per year is applied on 21 crores. then the interest part would almost reach as identical with principal of 2l crores in the course of 62 years of currency of lease. So lessor i.e. assessee still enjoy the fruits/income/gains/profits on Rs.21 crores, if lease is terminated after 62 years. Actually in the instant case land owner (assessee) has given the land to Srei Infrastructure Finance Limited who developed property on sanctioned building plan and consideration of land owner i.e. assessee’s part has been given In the guise of interest free advance / deposit by changing the nomenclature of consideration. The nomenclature given to the document may not be decisive or conclusive — intention of the assessee and Srei Infrastructure Finance Limited as

gathered on the documents and surrounding circumstances is decisive. From the facts and circumstances as discussed above it is gathered that receipt of Rs. 21crores as interest free non refundable advance / deposit during the currency of lease is consideration for the property of the assessee under lease which is taxable as Capital Gains.

12. Thus, from Para No.8, 9 and 10 it is found that capital assets / immovable property of the assessee has been transferred and profits / gains of Rs.21,00,00,000/- effected / received therefrom is liable to be capital gains tax u/s 45 of the Income Tax Act, 1961 during this year under assessment. Assessee purchased that property in the year 1991-92 for an amount of Rs.4,64,93 1/- and held by it more than three years. Therefore, the aforesaid capital gains would be long term capital gains and indexed cost of acquisition is to be applied to determine the cost of acquisition of the said property. Penalty proceedings u/s 271(1)(c) is initiated in this issue for furnishing inaccurate particulars of income.”

2.1. Further he treated the lease rent from received from Srei Infrastructure Finance Limited as income from other sources by observing as under :- “11. From the provisions of section 27(iiib) read with 269UA(f) it is clear that where the period of lease is more than 12 years lessee is deemed to be the owner of the property for the purpose of assessment. This view is decided in the case of Yagyawati Jayaswal Family Trust —vs— ITO [2004] 89 ITD 199 (Kol.) (SMC). If a person builds a superstructure upon a site held by him under a leasehold agreement, he will be the owner of the superstructure and accordingly, annual value of the superstructure would be taxable in his hands during the currency of lease. This view is decided in CIT — vs Estate of Omprakash Jhunjhunwala [2002]124 Taxman 111 (Cal.). Income from plot of land is taxable in the hands of the lessor under the head income from “Other Sources”, if the lessor is not engaged in the business of letting plot of lands. In view of the above, it is gathered that lease rent received from Srei Infrastructure Finance Limited would be taxable in the hands of the assessee under the head “Other Source”. Penalty proceedings u/s 271(l)(e) is initiated in this issue for furnishing nacc orate particulars of income.”

2.2. On appeal ld. CIT(A ) has confirmed the addition of Rs.21 crores by observing as under :-

6. I have considered the submission of the appellant and perused the assessment order as well as other documents on record. As mentioned by the A.O in the assessment order, the appellant company had purchased a piece and parcel of land and structures thereon lying at and being premises no. 86C. Topsia Road (South), Kolkata, from B.C. Dey at a price of Rs. 4,64,931/-. The appellant company entered into a lease agreement for said property on 28-12-1995 with a company known as Srei Infrastructure Finance Ltd. (formerly known as Sri International Finance Ltd.). The lease was w.e.f. 01-12-1995 and in lieu the lessee was supposed to pay a nominal amount of Ps. 1,500/- p.m. as lease rent. As per said lease agreement the lease period was agreed for a term of 21 years. Later on, the lessee i.e. Srei Infrastructure Finance Ltd., wrote a letter dt. 26-03-2007 addressed to the lessor i.e. the appellant company wherein it was mentioned that as per discussion, it was agreed that period of lease will be extended from 21 years to 62 year and w.e.f. 01-04-2006, the lease rent stands increased from Rs. 1,500/- to Rs.25,000/- and w.ef. 01-04-2008 it will increase from Rs. 25,000/- p.m. to Rs.50,000/-. It is also mentioned in the said renewal letter dt. 26- 03-2007 that all other terms and conditions at lease agreement dt. 28-12-1995 will remain unchanged. But prior to said extention of lease period and increase in the lease rental, The lessor and the lessee executed an Amendment/Alteration deed on 10-12- 2006. This Amendment/Alteration deed was made to amend/alter the clause 2(d) on  page 6 of lease agreement dt. 28-12-1995. As per the said amendment, the lessee shall Keep in deposit and or advance with lessor a sum of Rs. 21,00,00,000/- by way of interest free security deposit and/or advance for enjoyment of benefit of lease by lesee which amount shall not be refundable during the continuance of the lease period.

6.1. Before, to proceed further, 1 am at the opinion that it is necessary to examine the lease agreement dt. 28-12-1995. In fact, in the year, 1991 the appellant company had purchased undivided one equal sixth part or share or interest of and in all that piece and parcel of land measuring an area of 43 collahs 4 chittacks and 8 Sq. ft. but on actual measurement 43 cottahs 9 chittaks and 21 Kolkata, a portion of premises no. 29/5B and portion of 29/5C, Dr. Ambedkar Sarani, Kolkata. After purchase of said undivided one sixth part or share of land and portion of premises no. 29/5B and portion of 29/5C, Dr. Ambedkar Sarani, the lessor along with other co-owners got their names mutated jointly in the record of KMC and the said portion was renumbered as premises no. 86C, lopsia Road(South), Calcutta. The appellant company i.e. M/s. Bypass Properties Pvt Ltd. jointly along with other co-owners had applied and obtained Building Plan sanctioned by the Calcutta Municipal Corporation for construction of a building consisting of ground plus seven upper floors in the said land. The lease agreement dt. 28-1 2-2005 says, that the lessee has requested to the lessor to grant an absolute lease of the said property for a period of 21 years to which the lessor has agreed on certain terms and conditions. The clause-1 of the lease agreement reads as under :

“………..the lessor doth hereby demise unto lease All That undivided one equal sixth part or share or interest of an in All That piece or parcel of land measuring an area of 43 collahs 4 chittacks and 8 sq. ft. (but actual measurement 43 cottahs 9 chittacks and 21 sq. ft) more or less Together with structures standing thereon situate lying at and being premises no. 86C, Topsia Road (South) in the town of Calcutta and more fully described in Schedule hereunder written thereinafter referred to as “the said demised property”. Together with the benefit of the said sanctioned building plan and also together with all easement rights liberties and privileges enjoying therewith in common with other co-owners of the said premises and Also the right to construct at its own cost the lessors share in the said building or cause to be constructed the same in the said demised property and to Have and To Hold the said demised property and the building to be constructed thereon unto the lease for a period of 21 years commencing from the 1st day of December, 1995 with option for renewal for a further period of 5(five) years or moe as may be mutually agreed yielding and paying therefore unto the lessor a monthly rent of Rs. 1,500/-….”

6.2. Thus, it is apparent that the appellant company had given such a huge piece of land and structures along with rights to construction of building to M/s. Srei Infrastructure for a period of 21 years on a negligible amount of rent of Rs. 1500/- p.m. The appellant company kept on showing lease rent @ Rs. 1,500/- p.m. or Rs. 18,000/- per annum from 01-12-1995 to 31-03-2006 in lieu of said property 3iven

along with other rights.

6.3. As per clause 2(b) the lessee was supposed to pay entire amount of municipal taxes in respect of said demised property and the buildings to be constructed thereon. As per clause 2(c) the lessee shall also pay all enhancement, fresh impositions, levies, multistoried building tax and /or property tax that may be payable on the said demised property or any part thereof.

6.4. The clause 2(d) or thelease agreement dt.28.12.1995 reads as under :- 6 “The lessee shall, if require, keep in deposit and/or advance with the lessor such sum as may be mutually agreed by way of security deposit and/or advance for enjoyment or benefit of lease by the lessee which amount shall not be refundable during the continuance of the lease period.: From the reading of this clause it is apparent that it is not an absolute or the mandatory clause. The lessor may ask for a deposi or advance, if required, for enjoyment of benefits of the property. No amount was fixed for said advance/deposit. Thu it was absolutely a vague clause which could be interpreted in any manner. It will be interesting to note that the appellant company had awarded so-called lease of such a huge property along with bundles of rights for a negligible amount of Rs. 1 ,500/- p.m. but still there was no stipulation of amount of deposit.

6.5. The clause 2(ii) of the agreement says that lessee will permit the lessor or authorized person to examine the state and condition of the property. The clause 2(iii) says that the demised property and the building to be constructed therein will be fully insured by the lessee.

6.6. The clause 3(d) of the so-called lease Agreement dt. 28-12-1995 says : The lessor shall sign execute and register any further and other deed at the request of and cost of the lessee which might be required by the lessee to be signed executed and registered for giving full and proper effect to these presents for the perfect enjoyment of the demised property to the lessee during the term of this lease.” - - Thus it is apparent that the lessor was ready to do anything for the lessee for a consideration of Rs.1500/- p.m. as if the said deal could not he finalized with the said lessee, the appellant company would incur huge losses.

6.7. The clause 3(e) of the Agreement is an important clause which says.: “The lessee shall be entitled to construct at its own cost either from internal resources or borrowed fund or caused to be constructed the building thereon being the lessors share on the demised property comprised in the said premises and the right of the lessee on the said constructed property cannot be limited by the lessor during the continue of the lease period or till the dues of any bank or Housing Finance Company relating to The said construction by the said lessee being fully satisfied.” The clause 3(f) of the Agreement provides that lessee shall be entitled to apply for an obtained high tension electric lines, power lines, water connections. Gas connection, telephones, telex, fax or any other commencements without lines in the demised property and the building to be constructed thereon from time to time and the lessor grant its consent thereto provided a lessee shall pay all the costs and charges and expenses in relation thereto. The clause 3(g) says that on the expiration or sooner determination of the term of this lease such construction or building will be taken over by either parties at the price mutually agreed by and between the parties hereto. From above, it is apparent that the appellant company was simply interested that any how, the so-called lessee should construct a building on the land given by the appellant. The clauses 3(e), (f) and (g) are very unusual clauses which generally do not find place if there is an agreement for lease of a property, specifically the land.

6.8. The clause 4(C) also provides that the lessee shall have the right to sub-lease, sub-let and/or give tenancy of the demised property and the building to be constructed thereon or any portion thereof on any occasions or from time to time to one or more persons on such terms and conditions as the lessee may deem fit and proper and no consent of the lessor shall be required thereto. From this clause, it is apparent that full control of the demised property was handed over by the appellant company to M/s. Srei Infrastructure Finance Ltd. and it was free to deal with the property in whatever manner it desires. The clause 4(e) states that the lessee shall have its option to purchase the said demised property and the builiding to be constructed thereon on mutually agreed price after expiry of lease i.e. 21 years.

6.9. From the reading of various clauses of the lease agreement dated 28-12-1995 it is apparent that the appeIlant company had not only given the piece and parcel of the land and structures thereon, it has also given right for construction of building as per the plan got sanctioned by the appellant from Calcutta Municipal Corporation. The appellant transferred the absolute authority of the property to M/s. Srei Infrastructure Finance Ltd. and the said company was bound to construct a building on the said land. In lieu of these benefits, the appellant company charged a negligible amount of Rs.1,500/- p.m. from the said company. The amount of deposit/ advance against the said property was not compulsory and it was payable by the other company to the appellant company only, if required.  he amount of such deposit/advance was not fixed or determined at the time of entering the so-called lease agreement.

6.l0 As mentioned earlier, the company Srei Infrastructure Finance Ltd.. wrote a letter dt. 26-03-2007 addressed to the appellant company whose subject was “Renewal letter of extension of lease period of Viswakarma’. In the said letter it was mentioned that as per the discussion between the parties, the lease period of the property will be extended from 21 years to 62 years and that w.e.f. 01-04-2006 the lease rental stands increased from Rs.1,500/- p.m. to Ps. 25,000/-p.m.. Thus the period of the lease was extend to 62 years even prior to expiry of original period of 21 years. However, prior to extention of time to the so-called lease from 21 years to 62 years, both the parties executed and Amendment/Alteration deed on 10-11-2006 according to which the clause 2(d) page no. 6 of lease agreement dt. 28-12-1995 was modified and it was agreed that the lessee shall keep deposit and or advance with the lessor a sum of Rs. 21,00,00,000/- by way of interest free deposits and or advance for enjoyment of benefit of lease by lessee and the said amount shall not be refundable during the continuance of the lease period, From the said Amendment/Alteration deed it is apparent that for the first time it was made compulsory that Srei infrastructure Finance Ltd. shall pay a sum of Rs. 21,00,00,000/- to the appellant company and it could not be refunded upto a period of 62 years.      

7. On careful consideration of the facts and after going through the various clauses of agreement dt. 28-12-1995, I am of the opinion that the A.O. has arrived on a correct conclusion that the appellant company has transferred its property to Srei Infrastructure Finance Ltd. in the guise of a lease agreement. He also rightly invoked various provisions of the Act i.e. Sec. 2(47), Sec. 269UA(f) and Sec, 27(iiib) to hold that the appellant company has transferred the capital asset in the relevant previous year. From the said agreement it is apparent that for all the practical purposes the property was transferred by the appellant company and the other company was enjoying absolute powers in every respect with regard to that property. Though, the appellant company handed over the possession of the property to Srei Infrastructure Finance Ltd. in the year 1995 but for the purpose of capital gains the transaction was completed in the year under consideration when the value of the property was determined at Rs. 21 crores which was received by the appellant company in the guise of security deposit and or advance against the lease of the property. In the agreement dt. 28-12-1995 certain clauses were inserted knowingly to give the agreement a colour of lease agreement instead of sale agreement.

8. During the course of appellate proceedings it was contended that one of theessential conditions for taxing capital gains is that the capital asset must have been transferred and capital gain arises only when there is a transfer of capital assets. If the capital asset is not transferred or if there is any transaction which is not regarded as transferred, there will be no capital gain. Further, the capital gain is taxable in the previous year in which the transfer took place However, I find no force in the submission of the appellant because the facts on record clearly shows that there was transfer of capital assets in the form of land and rights to construction thereon which were transferred by the appellant company in the guise of lease agreement. Further, it is apparent from the record that in terms of provisions of sec. 2(47) of the Act the transfer was completed in the year under consideration when the value of the transferred property was determined at Rs. 21 crores and received by the appellant company. The appellant has relied on the decision of Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkatas Kapadia Vs. CIT (supra) and it was submitted that in order to attract section 53A of Transfer of Property Act, certain conditions needs to be fulfilled. I am of the opinion that on perusal of so-called lease agreement and the conduct of parties it is apparent that such conditions are fulfilled because there is a contract in the guise of lease agreement which is in writing and signed by the transferee, but acting as a lessee. Further, it pertains to immovable property and the transferee, in the form of a lessee had taken over possession of the property. The transferee also perform his part of contract by paying sum of Rs. 21 crores to the appellant company. It was argued by the appellant company that as per clause-4(a) of the original lease agreement, it was provided that if at any time the monthly rent or any part thereof shall remain unpaid for six month after the same shall have became payable then the lessor shall be entitled to give one month’s notice to the lessee of termination of lease. If, the lessee pay such arrears of rent with interest @ 18% per annum within one month from the date of receipt of notice, the default will be waived but if all such arrears of rent is not paid along with interest, within the period as aforesaid than the lessor shall be at liberty to determine the lease and to re-enter and take possession of the demised property and the building to be constructed thereon. Thus this clause clearly states that the appellant as a lessor, has a right to terminate the lease. However, I am not inclined to agree with the submission of the appellant because the said clause is nothing but an eye wash and a device to hide the real nature of the transaction. It is not known as to how the appellant company could terminate the said agreement and enter and take possession of the demised property and the building to be constructed thereon because the appellant company itself emphasized that Srei Infrastructure Finance Ltd. has to construct a building on the demised property either by its own resources or by obtaining loan etc. from the financial institutions. Once, the appellant company itself has given power construction of building and that it has not incurred expenditure of a single penny on construction of said building, how come it can take possession of that building ? Further the amountof the so-called lease rent was a negligible amount of Rs.1,500/- p.m. or Rs. 18,000/- per annum, there would be no question of not paying such an amount to the appellant company so that the clause 4(a) of the agreement could ever be invoked.

9. The appellant has further contended that the provisions of Sec. 269 UA(f) and Sec. 27(iiib) are not applicable in its case. However, I am not inclined to agree with this submission also. I also do not agree with the submission that there was no transfer in the year under consideration to attract the provisions of section 45( 1) of the Act. Though the appellant company had handed over the possession of the property in earlier year but the transaction of transfer was completed in the year under consideration when the sale proceeds of Rs. 21 crores were received by the appellant in the guise of advance and or deposit. As mentioned earlier, during the course of  appellate proceedings, the appellant was asked to submit the details of construction of building, if any, on the demised property and as to how the expenditure incurred on construction of said building has been accounted for by the so-called lessor and lessee in their books of accounts. However, in spite of allowing sufficient time and opportunity, such information was not filed upto 08.03.2011. But certain detail and documents were filed by the appellant in dak in the office on 09-03-2011. On perusal of such details it was observed that Srei Infrastructure Finance Ltd. has constructed a building on the demised property and certain expenditure was incurred upto 31-03- 2007. The expenditure incurred on construction of building was capitalized by the said company under the block of .assets under the heading ‘buildings’ and the said company has also claimed the : depreciation on the building constructed on the demised property. Thus, at one hand the company Srei Infrastructure Finance Ltd. Has been claiming depreciation on the building treating itself as a owner of the demised property and building constructed thereon and on the other hand the appellant’s contention is that it had given lease of the demised property and earning only the lease rent. This is nothing but a device to avoid the capital gain fax. The appellant has also argued that the company Srei Infrastructure Finance Ltd. has shown the sum of Rs, 21 crores in its books of accounts as advance given to the appellant company and the appellant company has disclosed the said sum in its books of accounts as liability and hence, the intention of the parties is clear that the transaction was as a lessor and lessee and not as a transferor and transferee. However, I am not inclined to agree with this submission because the entries in the books of accounts cannot be conclusive to determine the nature of transaction and moreover if the transferee company has shown the sum of Rs. 21 crores as advance or deposit, it is not in loss because in any case it cannot claim the depreciation on said amount being the consideration for the land. The appellant company is also not in loss because it is enjoying the benefits of sum of Rs. 21 crores. In view of above. I am of the opinion that the AO was justified in holding that during the year under consideration the appellant company has transferred its property for a consideration of Rs. 21 crores and it is liable for capital gain tax, I agree with the view of the AO that whole transaction was in the nature of transfer of capital asset and to avoid and hide the real nature of the transaction the appellant company has executed a lease agreement. The action of the A.O. in computing the long term capital gain is confirmed. The ground nos.2(a) to 2(h) are dismissed.”

2.3. And further addition of Rs. 3 lakhs by observing as under :-

“12. I have considered the submission of the appellant and perused the assessment order. On careful consideration of the facts and in law I find no infirmity in the view taken by the A.O. Hence, the action of the A.O. assessing the receipt of Rs.3,00,000/- under the head ‘income from other sources’ is upheld. The ground nos. 3(a) to 2(c) are dismissed.”

2.4. Aggrieved by this assessee is in appeal before us.

3. At the time of hearing before us the ld. Counsel appearing on behalf of assessee detailed out the facts that during the previous year 1995-96 assessee lessor has given on lease land and structure measuring an area of 43 Cottahs, 9 Chittacks and 21 Sq.ft 10 being premises No.86C, Topsia Road (South),Kolkata in terms and conditions rent as security deposit/advance from M/s.SREI Infrastructure Finance Limited. The ld. Counsel stated that as per terms and conditions of the said lease agreement the lease was primatily granted for a term of 21 years with an option for further renewal for a period of 5 years or more as may be mutually agreed during which period the lessee would enjoy the possession and other benefits of the above property. The lease rent agreed was Rs.1500/- per month. The above lease agreement was renewed vide rental agreement dated 26.03.2007 and the said lease deed agreement was extended from 21 years to 62 years from 28.12.1995 with an option for further rental of the same at the terms and conditions to be mutually agreed upon. The ld. Counsel for assessee stated that as per the modification to the deed the lessee was required to keep in deposit or advance with the lessor for a sum of Rs.21 crores by way of interest free security deposit which was not refundable during the continuance of lease period. The ld. Counsel stated the fact that the lessee had advanced the interest free security deposit of Rs.21 crores from time to time spreading more than one previous year. The details he pointed out are as under : The assesee received Rs.16.50 crores as advance during the financial year 2005-06 and Rs.4.50 crores during the financial year 2006-07. The ld. Counsel for the assessee stated that when this period of lease was extended for 62 years w.e.f. 1.12.1995 vide letter dated 26.3.2007, lease rentals from Rs.1500/- per month to Rs.25,000/- per month w.e.f. 1.4.2006 and Rs.50,000/- w.e.f. 1.4.2008. The ld. Counsel for the assessee stated that during the previous year under consideration there were only certain changes which were made subsequent to the original lease agreement, which includes deposits or advance of Rs.21 crores by way of interest free security deposit, along with increase in lease rental and for that extension of lease period was allowed. He stated that for charge of capital gain u/s 45 r.w. section 48 of the Act, the following four conditions are required to be fulfilled : (i) there should be a capital asset, (ii) capital asset should be transferred, (iii) consideration has been received in lieu of transfer and (iv) there was cost of acquisition and cost of improvement.

3.1. The ld. Counsel for the assessee argued that all four ingredients above are conditions precedent and in any case this requirement remains unfulfilled, there is no question of charging capital gain. He argued that in the present case, even assumed that there was transfer, even in that case capital gain cannot be computed since assessee has not received any consideration in lieu of transfer of capital asset since the land in question had been given on lease and the assessee received lease rent year after year and on that lease rent tax has been paid in accordance with law. He stated that actually this land was transferred in the financial year 2010-11 and capital gain arose only in 2011-12 and capital gain tax was paid accordingly. Further the ld. Counsel for the assessee argued that as per the Assessing Officer the transfer of possession and enjoyment of the property must be treated as transfer of capital asset in view of provision of section 247/45 of the Act read with the provision of section 53A of the transfer of property Act. The ld. Counsel for the assessee stated that this observation of the AO is without any basis and during the year assessee has received Rs.4.5 crores from lessee and interest free deposit/advance in lieu of possession and enjoyment of the property and it is not an actual transfer of property because this is a perpetuated lease in terms of clause 2(d) of lease agreement dated 28.12.1995. The ld. Counsel argued that assuming that this is a transfer they should have been in 1995 and original lease agreement was entered into and not when this clause was amended or entered into vide agreement dated 10.11.2006, for which he referred to the altered clause which reads as under :-

“The lessee shall keep in deposit and/or advance with the lessor a sum of Rs.21,00,00,000/- by way of interest free security deposit and/or advance for the enjoyment of benefit of lease by lessee which amount shall not be refundable during the continuous of the lease period.”

3.2. The ld. Counsel for the assessee stated that none of the conditions of transfer are satisfied in view of the amended altered lease agreement dated 10.11.2006, in order to treat the property given on lease as a cost of transfer of capital asset. The owner of the property i.e. assessee namely Bypass Properties Pvt. Ltd. has not transferred its ownership in the property to M/s. SREI Infrastructure Finance Limited but just allowed the possession and enjoyment of the property to them for a limited period in lieu of monthly lease rent and fixed amount of security deposit. The original period of lease was 21 years, which remained unexpired and lease remained possession of the property at the time of period of lease, which was extended from 21 years to 62 years. He also pointed out that the security deposit was a refundable amount and appears as a liability and asset in the lessor’s account in the balance sheet of assessee as well as M/s. SREI Infrastructure Finance Limited.

3.3. Further the ld. Counsel for the assessee relied on the following case laws :-

i)                    Supreme Court’s decision in the case of Alapati Venkataramiah vs CIT, Hyderabad reported in 57 ITR 185(SC)

ii)                   Madhya Pradesh High Court’s decision in the case of Smt.Jeejeebai Shinde vs CIT reported in 144 ITR 693 (MP) SLP also dismissed By SC 44 Statute

iii)                  294 ITR 196 (AT)

iv)                 131 TTJ 229 (photo copies enclosed)

263 ITR 706

4. On the other hand, the ld. DR appearing on behalf of the revenue while pointed out the various observations made by ld. CIT(A) which were already incorporated in the preceding paragraphs contended that the action of the revenue is justified in the facts and circumstances of the case. He further submitted that since assessee himself has contended that fresh sale agreement has been entered on the said same property. Therefore he requested to set aside the issue to the file of AO for fresh adjudication as per law since assessee has not cooperated/filed the relevant documents called for by ld. CIT(A).

5. After hearing the rival submissions and on careful perusal of materials available on record, it is observed that assessee has filed the ledger account of Srei Equipment Finance (P) Ltd. from 1st April, 2010 to 31st March, 2011. He further filed the details of security deposits received from Srei Equipment Finance (P) Ltd and further the ledger account of Srei International Finance Ltd. from 1st April, 2001 to 31st March, 2007 which are as under :- 13

SREI EQUIPMENT FINANCE (P) LTD.

Ledger Account

1 April 2010 to 31-March 2011

Date                Particulars                  Vch        Type   Vch.No.          Debit      Credit

1-4-2010  By Opening Balance                                                                      21,00,00,000.00

29-9-2010 To AXIS BANK LTD.

         Ch.No.001901 PAID                Payment   8  11,00,00,000.00

                     To AXIS BANK LTD.

                      Ch.No.001902 PAID               Payment   9  10,00,00,000.00

       21,00,00,000.00 21,00,00.000.00

Details of Security Deposit Received from Srei :

SREI INTERNATIONAL FINANCE LTD.

Ledger Account

1 April 2001 to 31-March 2007

Date             Particulars            Vch Type       Vch.No.      Debit                    Credit

1-4-2001      Dr SIFL                    Journal                1                                   13,00,00,000.00

                 AMT TRFD

30.3.2002 Dr HDFC BANK LTD. Receipt           10                                    1,00,00,000.00

                (UNB Branch)

    Ch.No.011881 & 84

RECD FROM THEM

Dr HDFC BANK LTD.     Receipt            11                                    1,00,00,000.00

(UNB Branch)

Ch.No.011882 & 83

RECD FROM THEM

Dr HDFC BANK LTD.     Receipt           12                                     1,00,00,000.00

(UNB Branch)

Ch.No.011885 & 86

RECD FROM THEM

Dr HDFC BANK LTD.     Receipt           13                                        50,00,000.00

(UNB Branch)

Ch.No.011887

RECD FROM THEM                                                           16,50,00,000.00

Cr Closing Balance                                                16,50,00,000.00_____________

                 16,50,00,000.00 16,50,00,000.00

1.5.2008 Dr. Opening Balance                                                                     16,50,00,000.00

10.5.2006 Dr HDFC BANK LTD. Receipt           7                                    4,50,00,000.00

(UNB Branch)

Ch.No.011887

RECD FROM THEM                                21,00,00,000.00   

Cr. Closing Balance                                                 21,00,00,000.00____________

                               21,00,00,000.00 21,00,00,000.00

However, as per the alteration of security deposit clause dated 10.11.2006 which was placed at page 67 of the paper book it is observed that the lessee shall keep in deposit and advance which is the lessors a sum of Rs.21 crores by interest free deposit . Then it was further stated in the said alteration that the amount of security deposit shall not refundable during the continuance of the lease period. Subsequently the lease period has been extended from 21 years to 62 years on 26.03.2007 which was placed at page 66 of the paper book. On comparison of these two documents on which the ld. AR placed reliance with the ledger account of Srei Equipment Finance Ltd. with the assessee it is observed that the security deposit of Rs.13 crores has been received on 1.4.2001 and Rs.3.50 crores on 30.03.2002 and Rs.4.50 crores on 10.05.2006 that is much prior to the amendment to the security clause which is made on 10.11.2006. It is further observed that though in the amended security clause the security deposit shall not be refundable during the continuance of the lease period the assessee has extended the lease from 21 years to 62 years on 26.03.2007 and in contradiction to the agreement of the security clause on 10.11.2006 the assessee has refunded the entire security of Rs.21 crores on 29.09.2010. on perusal of the three statements i.e. ledger account from 1st April, 2010 to March 31st, 2011 and details of the security deposit received and ledger account from 1.4.2001 to 31st March, 2007. In both the ledger accounts it is not mentioned anything regarding the nature of the receipt i.e. the receipt is on account of security deposit but in the statement of details of security deposit it is stated that the amount is security deposit that too in the heading only. In the balance sheet also in Schedule-VII which is relating to the current liabilities and provisions there is no mention of the security deposit but however we find that this might have been included in the other liabilities.

5.1. From the above observations and from the above observations made by the ld. CIT(A) and the Assessing Officer in their orders we are of the view that the documents on the basis of which the assessee has relied has no bearing on the facts of the case since there is no co-relation between the documents and the actual transactions as pointed out above. It is further stated by the ld. Counsel for assessee that the said property is sold subsequently. However, he has neither mentioned the year in which it is sold and the agreement entered in respect of the said sale. Under this circumstances this requires fresh verification and the documents filed by assessee is not sufficient to accept the contentions of the assessee. The facts narrated by the assessee are not in corroboration with the documents placed by assessee. Therefore, we set aside the orders of the revenue authorities and remit back the issue to the file of AO to further investigate on the issue. At this juncture we are of the view that there might be some other agreement/indebentures based on which the transactions had taken place. Therefore we direct assessee also to file the relevant documents called for by the revenue authorities in order to decide the issue as per law. We order accordingly.

6. In the result the appeal of the assessee is allowed for statistical purposes.

Order pronounced in the court on 07.12.2011.

Sd/-                                                                  Sd/-

  Mahavir Singh, Judicial Member         C.D.Rao, Accountant Member.

Date: 07.12.2011.

R.G.(.P.S.)

Copy of the order forwarded to:

1. M/s.Bypass Properties Private Limited, 86C, Topsia Road (South), Kolkata-

700046.

2 The I.T.O., Ward-11(2), Kolkata.

3. The CIT,

 4. The CIT(A)-XII, Kolkata.

5. DR, Kolkata Benches, Kolkata

True Copy,

By order,

Deputy /Asst. Registrar, ITAT, Kolkata Benches