Immovable property lease transfer under IT hammer

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: The question before the high court was — whether the transaction of lease and sub-lease is a transfer falling within the definition under section 2(47) of the Income Tax Act? The assessee had taken on lease an immovable property under a lease agreement. The assessee had sub-leased the same property by lease deed in favour of another company for a period of 20 years.

So, the question before the Income Tax department was - whether transfer of leasehold rights in favour of the sub-lessee would amount to transfer of a capital asset at the hands of the assessee and if so, the consideration paid by the sub-lessee to the assessee would part-take the character of capital gains and assessable to tax as such?

The assessing officer(AO) held that transfer of lease by the assessee would amount to transfer of a capital asset.

But the Commissioner (Appeals) and the Income Tax Appellate Tribunal ( ITAT) both did not agree with the AO and the matter finally landed before the high court which held that transfer of an immovable property by way of a lease creates an interest in the land.

According to section 2(14) of the Income Tax Act, the word ‘‘capital asset’’ means, ‘‘property of any kind held by an assessee’’. Therefore it does not necessarily mean that the property, which the assessee holds, must be his own.

• The definition of ‘capital assets’ need not be read in a restrictive manner to mean that the property which the assessee owned by himself alone would come within the meaning of ‘‘capital asset’’.

• It is already settled law that the right conferred on a lessee under a lease deed is a capital asset in the hands of the lessor.

• The Supreme Court has already held that transfer by way of lease would amount to transfer of a capital asset and therefore tax is leviable as capital gains.

Rental income

Income from house property has always been a subject matter of battles royale . What makes it more interesting is the involvement of a historical property owned by a royal family.

The building in dispute is the Scindia House located at Connaught Place in Delhi. And the dispute is whether the rental from this building is business income or income from house property.