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

Court :
Income Tax Appellate Tribunal

Brief :
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.

Citation :
Bypass Properties Private Ltd., Kolkata ………………Appellant Versus- I.T.O., Ward-11(2), Kolkata…………………Respondent