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Raman Krishnan Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cochin
Decided On
Judge
Reported in(1982)2ITD611(Coch.)
AppellantRaman Krishnan
Respondentincome-tax Officer
Excerpt:
.....the assessee against the assessments were dismissed by the aac who agreed with the ito in that the land transferred was capital asset and the gains arising out of the transfer was chargeable to tax. the aac also confirmed the computation at rs. 21,422 and rs. 16,039, respectively, for the two assessment years.4. the assessee in further appeal before us has reiterated the contention that no capital gains arose on transfer of the assets by the assessee. according to the assessee, the right acquired by the assessee over the property is self-created and what is transferred is a self-generated asset, the acquisition of which did not cost anything in terms of money to the assessee and, therefore, capital gains tax is not exigible. it is stated that the assessee had as cultivating tenant fixity.....
Judgment:
1. These two appeals by the assessee arise from the consolidated order dated 21-6-1979, of the AAC relating to the income-tax assessment for the assessment years 1976-77 and 1977-78. The ground raised by the assessee is common for the two assessment years and it relates to the computation of capital gains.

2. The assessee under order of the Land Tribunal dated 4-7-1974 got assigned in his favour, 37 1/2 cents of land, while holding the same as cultivating tenant. Under two sale deeds dated 30-12-1975 and 18-3-1976, the assessee conveyed 14 cents out of that for a total consideration of Rs. 61,000. In the assessment for the assessment year 1976-77, the ITO computed the capital gains arising out of the transfers at Rs. 21,422. In the previous year for the assessment year 1977-78 the assessee transferred another plot of 6 cents for a consideration of Rs. 33,000. The capital gains arising out of the transfer was computed at Rs. 16,039 in the assessment for the assessment year 1977-78. The ITO rejected the claim of the assessee that no capital gains, chargeable under the Income-tax Act, 1961 ('the Act'), arose on the transfer of these assets. The cost of acquisition to the assessee was found to be 'nil' while deduction of costs of improvements and other expenses were allowed in each year.

3. The appeals preferred by the assessee against the assessments were dismissed by the AAC who agreed with the ITO in that the land transferred was capital asset and the gains arising out of the transfer was chargeable to tax. The AAC also confirmed the computation at Rs. 21,422 and Rs. 16,039, respectively, for the two assessment years.

4. The assessee in further appeal before us has reiterated the contention that no capital gains arose on transfer of the assets by the assessee. According to the assessee, the right acquired by the assessee over the property is self-created and what is transferred is a self-generated asset, the acquisition of which did not cost anything in terms of money to the assessee and, therefore, capital gains tax is not exigible. It is stated that the assessee had as cultivating tenant fixity of tenure over 37 1/2 cents of land, the land owner's right over the same had been assigned in his favour under the provisions of the Kerala Land Reforms Act without payment of any consideration, that the right the assessee acquired over the land was on account of his long possession and physical labour and the transfer of such an asset would not attract tax on capital gains. It is urged on behalf of the assessee that as no capital gains arise in the case of goodwill of a newly commenced business, on the principles stated by the Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294, no capital gains tax is exigible in the instant case.

5. The departmental representative relying on the orders of the lower authorities pointed out that the asset transferred by the assessee is land and not an intangible right as in the case of goodwill. It is a capital asset in the acquisition of which cost is conceivable and, therefore, tax on capital gains is leviable under the provisions of the Act. Leasehold right as well as jenmom right are stated to be property, the acquisition of which may cost something in terms of money. It is stated that in computing the capital gains the value of the improvements has been deducted and since the assessee has not made any payment for the acquisition of the asset, the cost of acquisition to the assessee is nil and it is on that basis the capital gains had been computed by the ITO. It is pointed out that the decision of the Supreme Court relied on by the assessee has no bearing on the facts, as the asset is distinguishable from the type of asset dealt with in that case.

6. The material point that falls for consideration is whether the land transferred by the assessee is capital asset chargeable to capital gains tax. We have considered the rival submissions. We agree with the revenue that the transfer is in respect of a capital asset attracting tax on capital gains. , It is true that the assessee had acquired fixity of tenure over the land by his long possession and enjoyment. When the Kerala Land Reforms Act, 1963, as amended, came into force with effect from 1-1-1970, the landlord's right vested with the Government, that right had been assigned in favour of the assessee under the provisions of the Act, in pursuance of the order of the Land Tribunal dated 4-7-1974. The assignment was without any liability to the assessee to pay the purchase price. The right to get assignment of the landlord's right, title and interest had been acquired by the assessee by virtue of his pre-existing right as a cultivating tenant. However, on assignment of that right the tenancy right got merged in the jenmom right and the assessee became the full owner of the property. On the date of the respective transfers effected by the assessee, he was the owner of the property. The asset belonged to him absolutely, and what he had conveyed was the full proprietary right as owner of the land. The right to claim assignment of landlord's right did not then exist as a separate asset and did not form the subject-matter of the transfer. The tenancy right also did not subsist as a distinct right. The only asset transferred is the land, which is an immovable property. Under the scheme of the Kerala Land Reforms Act, payment of purchase price by the cultivating tenant on the assignment to him of the land owner's right is contemplated. It is by mutual agreement that the assessee appears to have obtained under the said Act the assignment without liability to pay the purchase price. The assessee cannot, therefore, claim that the land is a self-generated asset in his hands. The Supreme Court in the case of Srinivasa Setty (supra) held that the asset contemplated under Section 48(ii) of the Act must be an asset which possesses an inherent quality of being available on the expenditure of money to a person seeking to acquire it and goodwill generated in a new business is not such an asset, in respect of which cost of acquisition in terms of money is conceivable and, therefore, no capital gains would arise on its transfer. Immovable property, however, is a capital asset in respect of which cost of acquisition is conceivable. The principle applicable to transfer of a self-generated right such as goodwill is not, therefore, applicable to transfer of an immovable property even where the cost of acquisition to the assessee is nil. The asset transferred by the assessee being the land purchased and not the right to purchase, which is only a statutory right or the tenancy right, or even the land owner's right as such, but the right, title and interest of the assessee in the land, the transfer is one of a capital asset in respect of which capital gains tax is exigible. We do not, therefore, find any merit in the contention of the assessee. We confirm the order of the A AC. In the result the appeals are dismissed.


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