R.K. PALSHIKAR (HUF) vs. COMMISSIONER OF INCOME-TAX, MADHYA PRADESH, NAGPUR, BHANDARA, NAGPUR

CIVIL APPEAL No. 613/1975Supreme Court[1988] 3 S.C.R. 98905 May 1988Bench: 2 JudgesAuthor: R.S. PATHAK, M.H. KANIA R.K. PALSHIKAR9 pages
AI SummaryDismissed

What were the facts?

The assessee, R.K. Palshikar (HUF), owned agricultural land which it developed into building sites. The assessee leased these sites for 99 years, receiving amounts of 'salami' or premium for these leases. The assessment years in question were 1959-60 to 1961-62. The Income-tax Officer, Appellate Assistant Commissioner, and Income-tax Appellate Tribunal rejected the assessee's contention that capital gains tax was not payable. The High Court, on a reference, answered two questions in favour of the revenue, holding that the land constituted a capital asset and the lease transactions amounted to a transfer attracting capital gains tax. The assessee appealed to the Supreme Court, but only in respect of the second question.

What did the Supreme Court hold?

The Supreme Court dismissed the appeal. Regarding the contention that Section 12-B was inapplicable because the land was a gift and thus had no cost of acquisition, the Court held that this question was not raised before the Income-tax authorities, the Tribunal, or the High Court, and therefore, it did not arise out of the Tribunal's order, citing Commissioner of Income Tax, Bombay v. Scindia Steam Navigation Co. Ltd. ([1961] 42 ITR 589). The Court found that the case fell under the category where a question of law is neither raised nor considered by the Tribunal. Concerning the second question, the Court held that the grant of leases for 99 years, where a premium was charged, amounted to the transfer of an asset of an enduring nature. Therefore, the provisions of Section 12-B of the Act could be brought into play, and the grant of leases constituted a transfer of capital assets as contemplated under Section 12-B. The Court referred to Traders and Miners Ltd. v. Commissioner of Income Tax, Bihar and Orissa ([1955] 27 ITR 341) in support of its reasoning.

What were the issues?

1. Whether the land sold by the assessee constituted a capital asset within the meaning of Section 12-B of the Indian Income-tax Act, 1922, or was agricultural land as defined in Section 2(4A) of the Act. (Mixed law and fact) 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. (Mixed law and fact) Assessee's contentions: - No capital gains tax was leviable as the land was agricultural. - Section 12-B did not apply as only lease-hold rights were conveyed, not outright sale. - Section 12-B was applicable only to assets with a cost of acquisition, and the land was a gift. Revenue's contentions: - The assessee could not raise the contention regarding the land being a gift as it did not arise from the Tribunal's decision or the referred questions.

Which sections of the Income-tax Act were involved?

Section 12-B,Section 2(4A),Section 66(1),Section 66A(2)

AI-generated summary — verify with the full judgment below

t R.K. PALSHIKAR (HUF) v. COMMISSIONER OF INCOME-TAX, MADHYA PRADESH, NAGPUR, BHANDARA, NAGPUR MAY 5, 1988 [R.S. PATHAK, CJ, AND M.H. KANIA, J.] 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.

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 build- ing 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 con- tended before the Incom~-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

The order continues below.

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