K.C. Singhal, J.M.
1. The following issues have arisen in this appeal for our consideration :
"1. Whether the transaction between the assesses and M/s Samcor Glass Ltd. (in short "SQL") tantamounts to transaction of lease of land, building thereon and plant and machinery or sale of plant and machinery only.
2. Whether the transaction of lease falls within the ambit of the word 'transfer' as defined in Section 2(47) of the IT Act, 1961 (In short' 1961 Act').
3. If yes, whether the object of transfer falls within the definition of 'capital asset' under Section 2(14) of 1961 Act.
4. Whether consideration arising from such transaction is chargeable to tax under Section 45, r/w Section 50 of 1961 Act."
2. The brief facts as gathered from the orders of lower authorities and the material placed before us may be narrated thus. During the financial year 1983-84, the assessee had set up a new industrial undertaking at SPA 496/497, RIICO Industrial Area, Bhiwadi, Distt. Alwar, Rajasthan, for the manufacture of glass shells/bulbs which came into operation on 28th March, 1984. Further, during the accounting period ending 31st March, 1989, the assessee had set up another unit, being unit No. II, of this division for the manufacture of glass shells. Both these units were leased out by the assessee to M/s SGL, Kota, w.e.f, 24th Feb., 1994 with moratorium of two years. The agreement is dt. 24th Feb., 1994. The properties leased out included the land, building thereon as well as the plant and machinery. Since there was a period of two years as a moratorium, the lease consideration was to be paid from 1st April, 1996 in 16 half-yearly instalments of Rs. 237.14 lacs each termed as lease rent. It is to be noted that an advance of Rs. 364 lakhs was given by lessee to the assessee which was to be adjusted against 19th and 20th instalments as per the detail given in Clause 2.4 of the agreement. During this period of moratorium, the assessee was under an obligation to shift plant and machinery from Bhiwadi and install the same at the premises of the lessee at Kota. The cost of shifting was to be reimbursed by the lessee. In the return filed by the assessee, the assessee had offered the amount received by way of lease consideration as revenue receipts and also claimed depreciation in respect of the properties leased out by the assessee.
3. In the course of assessment proceedings, the assessee was asked to explain about the basis of the lease consideration. In response to this query, it was submitted by the assessee that the business of assessee at Bhiwadi was got valued by the assessee as a going concern through M/s S.S. Kothari & Co., CAs, who valued this business at Rs. 20,729 crores. It is on the basis of this valuation, the lease consideration was arrived at. Out of this amount, the sum of Rs. 364 lakhs was to be paid in advance and the balance amount of Rs. 17.09 crores was to be paid in 16 half-yearly instalments effective from 1st April, 1996 along with add on interest of 14 per cent p.a. In view of the same, the lease rental of Rs. 237.14 lakhs was arrived at which was to be paid every half-yearly. After considering the relevant materials placed before him, AO was of the prima facie view that the transaction between the assessee and the SGL amounted to 'transfer' within the meaning of Section 2(47) for the purpose of Section 45. Accordingly, the assessee was asked to explain as to why this transaction should not be considered as 'transfer' within the meaning of Section 2(47) for the purpose of Section 45 and consequently as to why lease consideration should not be brought to tax under the head "capital gain". Various explanations were tendered by the assessee vide letters dt. 13th Dec., 1996, 27th Dec., 1996, 16th Jan., 1997 and 22nd Jan., 1997, gist of which has been recorded by the AO at pp. 3 and 4 of the assessment order.
4. After considering the various explanations given by the assessee, the AO was of the view that the transaction between the assessee and M/s SGL tantamounted to "transfer" within the meaning of Section 2(47). According to him, this definition is an inclusive definition and, therefore, its meaning cannot be restricted to the kinds of transfer illustrated in that section. Further, the words "the extinguishment of any rights therein" mentioned in Section 2(47) would include every possible transaction which results in the destruction, annihilation, extinction, termination, cessation or cancellation by satisfaction or otherwise of all or any of the bundle or rights which the assessee has in a capital asset, whether such asset is corporeal or incorporeal. In this connection, he relied on the decision of Supreme Court in the case of A.R. Krishnamurthy v. CIT (1989) 176 ITR 417 (SC) wherein conveying of mining rights under lease agreement for a period of 10 years was held to be transfer of the capital asset. According to him, in the instant case, the assessee has a leasehold right over the land for 99 years, which is a property under Section 2(14) of the Act along with the building, plant and machinery and, therefore, granting of the right to use of such properties for a period of 10 years would clearly tantamount to transfer of capital asset and consequently, the provisions of Section 45 would be applicable. He also relied on the decision of the Supreme Court in the case of Sunil Siddharthbhai v. CIT (1985) 156 ITR 509 (SC), wherein it has again been held that definition under Section 2(47) is merely inclusive and does not exhaust other kinds of transfer. He also relied on the decision of Kerala High Court in the case of Blue Bay Fisheries (P) Ltd. v. CIT (1987) 166 YTR 1 (Ken), wherein the High Court held that the expression "transfer" in Section 2(47) must be read widely and not narrowly. According to the AO, this opinion of the Kerala High Court was affirmed by the Supreme Court in the case of CIT v. Narang Daily Products (1996) 219 ITR 478 (SC) while interpreting the provisions of development rebate under Section 33 and the provisions of Section 2(47) with a view to find whether by virtue of lease, the asset has been "otherwise transferred" to the lessee or not. According to him, the apex Court went to the extent that--"even assuming that the transaction may not be a transfer as defined under Section 2(47) of the Act, in our view, the definition of section is an inclusive one and does not exclude a contractual or the ordinary meaning of the word "transfer". According to the AO, the apex Court further held that the exclusive possession and enjoyment of the plant and machinery no longer existed or survived with the assesses. He quoted the observations of their lordships - "such right to exclusive possession and enjoyment vests in the lessee and it is the case where the machinery and plant is otherwise transferred to the lessee". The AO further observed that according to the provisions of Transfer of Property Act, the lease is considered as an acknowledged method of .transfer and, therefore, it was held by him that the transaction between the assessee and the SGL tantamounted to 'transfer' for the purpose of Section 45 r/w Section 2(47).
5. In support of the above conclusion he also relied upon the fact that assessee itself had applied in Form No. 34A seeking permission for transfer of lease/ownership rights in land at 496-497, RIICO Industrial Area, Bhiwadi, Rajasthan, and the building constructed thereon plus plant and machinery. According to him, this impliedly means that the leasing rights over the land along with the building constructed thereon and the ownership rights over the plant and machinery were proposed to be transferred. Had such transaction not tantamounted to transfer then there was no need for the assessee to apply for seeking permission of such transfer. This, according to him, amounted to admission by the assessee that transfer of such assets were to be effected.
6. Further in para 4.2 of his order, the AO observed that the language of a deed may not be very ambiguous and the onus would be on the person who draws a different meaning. According to him, such onus can be discharged not only by referring to the language of the written instrument but also by finding out what has happened in fact in pursuance of such instrument. Thus, he rejected the contention of the assessee that the written instrument should be construed only according to ss. 90 and 91 of the Indian Evidence Act. After considering various substantial evidence to which reference would be made hereafter, he concluded that there was no transfer of immovable property and in fact it was a case of transfer of immovable/depreciable asset only by way of sale. Further, according to him, the assessee had adopted the colourable devise to avoid the payment of tax by resorting to dubious methods. Reference was also made to the decision of the Hon'ble Supreme Court in the case of McDowell & Co. Ltd. v. CTO (1985) 154 ITR 148 (SC). In coming to this conclusion, he relied on the following circumstantial evidence :
(i) Survey at the premises of the assessee on 28th Jan., 1997 revealed that assessee had not really dispossessed itself from the land and the building. Further, it was found that except certain items, it was only the plant and machinery whose possession was given to SGL. According to the AO, it was found that a training centre namely, "Samtel Training Centre" was in operation at the premises of the assessee at Bhiwadi wherein 36 persons were undertaking training on the date of survey. It was further found that it was 14th and 15th batch of training conducted by Samtel Colour Ltd., a sister concern of the assesses. Such training centre had started 7 months back. The front portion of the building with suitable modification was found in use for such training. The administrative block was found converted to a dormitory type accommodation for the trainees. There was also a canteen, volleyball and cricket ground for such trainees.
(ii) Further, it was found that middle and rear portion of the factory building had a lot of old machinery, scraps and packing items belonging to Samtel India Ltd., another, sister concern of the assessee, whose factory was situated opposite to assessee's premises, were lying there for the last two-three months because of the lack of space in their factory.
(iii) It was further found that few rooms in the administrative block were being used by the assessee itself for keeping old books of account. Further, a portion of such premises was found covered by glass cullets (scrap) belonging to assessee.
(iv) No goods belonging to SQL was found in that premises.
(v) Some plant and machinery of the assessee was still lying there and not yet shifted to Kota.
(vi) The survey at the premises of SQL at Kota revealed that Line II of the plant and machinery at Bhiwadi had started shifting from April, 1993 i.e., much prior to the date of lease deed dt. 24th Feb., 1994.
(vii) That business of assessee was got valued as going concern through M/s S.S. Kothari & Co., CAs. who valued the same at Rs. 20,729 crores. This was done prior to the execution of these agreements. The above valuation happens to be the consideration for lease of the assets. This valuation was based on the fact that the life of the plant and machinery at Bhiwadi for manufacture of black and white glasses/shells would be over by the year 2004 and, therefore, it would have little value after the lease period.
(viii) That Samtel group of which assessee is a member had an effective role in the management of SGL, which is a joint venture of Samtel Colour Ltd. and corning of USA
(ix) That more than a crore was spent on dismantling of the plant and machinery and shifting of the same to Kota.
In view of the above discussion, the AO rejected the lease deed and relied on the decision of the Supreme Court in the case of CIT v. Durga Prasad More (1971) 82 ITR 540 (SC). According to him, there was no transfer of either land or building thereon and in fact it was the sale of plant and machinery only. Hence Section 50 of 1961 Act was attracted since such plant and machinery were depreciable assets. Consequently, the difference between the WDV and the sale consideration amounted to short-term capital gain liable to tax in the year under consideration. Further, according to him, it was a case of colourable devise to avoid payment of tax by resorting to dubious methods. Regarding interest element, it was held by him that it will be taxable in the respective years on accrual basis.
7. On appeal, the CIT(A) agreed with the findings and the conclusions of the AO for the reasons given by him. Though the CIT(A) agreed that tax authorities could not interfere with any commercial decision yet he was of the view their economic implications must be analysed with reference to their fairness. With reference to the legal position, it was opined by him that the transaction of lease amounts to transfer in view of the Supreme Court decision in the case of Narang Dairy Products (supra) wherein it has been held that divesting of exclusive possession and enjoyment would tantamount to "otherwise transferred". The decision of Supreme Court in the case of CIT v. Shan Finance (P) Ltd (1998) 231 ITR 308 (SC) was distinguished by him on that ground that issue of 'transfer' was not before the Supreme Court and the Court was concerned with the issue of ownership and use of machinery for the purpose of claiming investment allowance. He further referred to the decision of Supreme Court in the case of Kartikeya V. Sarabhai v. CIT (1997) 228 ITR 163 (SC) for the proposition that relinquishment of assets or extinguishment of any right thereon would tantamount to transfer. He also referred to another decision of Supreme Court in the case of V.S. Balasubramanian (JT) 1998 (2) 608 wherein the decision of Supreme Court in the case of Narang Dairy Products (supra) was relied on. Reference was also made to the recent decision in the case of CIT v. G. Narasimhan and Ors. Further on the facts of the case, he was of the view that impugned transaction was collusive and shaddy since both the parties to the transaction had violated the terms of the lease and, therefore, in such cases, the AO can go behind the transaction to discover the truth. It was further held by him that clause in the lease deed for return of the assets after the lease period is a dead clause inasmuch as such assets would hardly have any value after the lease period. Regarding the consideration, it was held by him that total amount had already been fixed which was to be recovered by the assessee along with the interest rate of 14 per cent p.a. The right to receive the entire consideration, according to him, accrued in the very first year and it was only to be paid in instalments with interest. In view of the mercantile system of accounting adopted by the assessee, he was further of the view that the cash system of accounting could not be resorted to. Finally, it was held by him that AO was Justified in bringing to tax the entire amount of lease transaction under Section 50 of the IT Act. Aggrieved by the same, the assessee is in appeal before the Tribunal.
8. The learned counsel for the assessee Mr. Syali has vehemently assailed the orders of lower authorities at length. His main arguments are two-folds. Firstly, the transaction between the assessee and SGL is a transaction of lease of land, building thereon as well as plant and machinery and not a transfer by way of sale of plant and machinery only as held by the lower authorities. Secondly, the lease transaction per se does not amount to transfer within the definition Clause (47) of Section 2.
9. For the sake of convenience he addressed the Bench first on the second contention. He read out the definition clause to point out that at the best such transaction could fall within Sub-clause (vi) which speaks of any transaction which has the effect of transferring or enabling the enjoyment of any immovable property. He then drew our attention to the Explanation below this clause which defines the meaning of 'immovable property' for the purpose of Sub-clauses (v) and (vi). According to the Explanation the immovable property shall have the same meaning as in Clause (d) of Section 269UA. He then read out the provisions of Section 2G9UA(d) which defines the words 'immovable property'. According to this definition, it includes not only the land and building along with plant and machinery but also rights in such properties which are to be transferred. He then drew our attention to Clause (f) of the same sections which defines 'transfer' according to which transaction of lease for less than 12 years has been excluded. Since the transaction of lease in the present case was for 10 years, it could not be considered as transfer of immovable property.
10. Proceeding further he distinguished the decision of Supreme Court in the case of Narang Dairy Products (supra) by submitting that the said decision was rendered in a different context that is with reference to meaning of the words 'otherwise transferred' contained in Section 33 and not with reference to the provisions of capital gains. It was further submitted by him that the Supreme Court itself has distinguished this decision in the case of CIT v. Shaan Finance (P) Ltd., (supra) at p. 315-316. He further submitted that mere part in of possession is not enough to bring the transaction within the meaning of the word 'transfer'. He drew our attention to the transaction of mortgage wherein the possession though transferred yet it could not be brought within the meaning of the word 'transfer'. He relied on the decision of the High Court in the case of Gujaiat Urban Co-operative Banks Federation v. Union of India (2001) 247 ITR 134 (Guj). He also relied on the observations of the Special Bench of the Tribunal in the case of ITO v. First Leasing Co. of India Ltd. (1985) 23 TTJ (Mad) (SB) 469 : (1985) 13 ITD 234 at 253 para 32. He also relied on the decision of the Tribunal in the case of 170 v. Yogeshchandra V. Shah (1995) 55ITD 300 (Ahd) for the proposition that mere application of assessee under Section 230A of IT Act cannot be considered as admission by the assessee that transaction of lease involves transfer or property' for the purpose of Section 45.
11. Proceeding further, he distinguished the decision of the Supreme Court in the case of A.R. Krishnamurthy and Anr. v. CIT (supra) relied upon by the AO by submitting that the Supreme Court was concerned with the case of mining lease whereunder the assessee was entitled to royalty which cannot be equated with rent. According to him, mining right equates to interest in land and not mere enjoyment of land as right to exploit is there. So it was submitted by him that mining lease cannot be equated with simple lease of land and, therefore, the decision of Supreme Court cannot be applied to the present case.
12. Proceeding further, he drew out attention to the provisions of Section 2(xxiv) of GT Act to point out that definition of 'gift' in this clause specifically includes the lease within the purview of 'transfer'. According to him, there was no need to include the lease in the definition of the transfer if such lease could be included within the general meaning of the word 'transfer'. So it was argued by him that lease transaction cannot be brought within the meaning of the word 'transfer' under Section 2(47) as it is not included specifically. In this connection, he relied on the observations of the Supreme Court in para 16 of the judgment in the case of Gram Panchayat v. Director, Consolidation of Holdings (1989) 2 SCO Suppl. 465 wherein it has been held that expression of one thing is the exclusion of another. Accordingly, it was strongly submitted by him that inclusion of lease for a term of 12 years or more in Section 269UA would amount to exclusion of lease of less than 12 years.
13. The next contention of the learned counsel for the assessee is that the transaction in dispute was in fact the transaction of lease of land, building thereon as well as plant and machinery and not mere sale of plant and machinery as held by AO and CIT(A). According to him, the cardinal rule of construction of contract is that construction must be on the basis of the terms of the contract itself and the surrounding circumstances prevailing at the time of such contract and, therefore, subsequent events cannot be taken into consideration while constructing the document.. This is what has been embedded in Sections 90 and 91 of the Indian Evidence Act. It was also submitted by him that the AO was not justified in holding that such provisions of Evidence Act cannot be applied to the income-tax proceedings. According to him, the basic principle of Evidence Act can always be applied to income-tax proceedings. Reliance was also placed by him on the Supreme Court decision in the case of Chuharmal v. CIT (1988) 172 ITR 250 (SC) and the decision of Andhra Pradesh High Court in the case of Bafna Bros. v. CIT (1988) 174 ITR 733 (AP). He also pointed out that the Delhi High Court in the case of CIT v. I.P. Soni (1982) 136 ITR 838 (Del) and in the case of D.S. Bist & Sons v. CIT (1984) 149 ITR 276 (Del) have applied the provisions of Evidence Act in income-tax proceedings. He also referred to the Tribunal decision in the case of Pmanmall Narayan Prasad Kedia (HUF) v. Asstt CIT (1994) 48 ITD 439 (Cal) wherein such principle has been applied. Hence, it was strongly submitted by him that document of lease deed should be construed in literal sense in view of ss. 90 and 91 of Evidence Act and consequently the circumstantial evidence coming into existence subsequent to the execution of the deed cannot be taken into consideration. In this connection, he relied on the decision of Supreme .Court in the case of Bhaskar Baman Joshi v. Shrinarayan Rambilas Agarwal AIR 1960 SC 301 wherein it has been held that contemporaneous conduct is always admissible as evidence but subsequent event cannot be considered as admissible evidence. He further referred to another decision of Supreme Court in the case of Delhi Development Authority v. Durga Chand Kaushish AIR 1973 SC 2609 for the following proposition :
"That while construing a document one must have regard not to be presumed intention of the parties but to the meaning of the words
14. Further, he referred to the decision of Supreme Court in the case of Provash Chandra Dalui v. Biswanath Baneijee AIR 1989 SC 1834 for the proposition that document should be considered as a whole and not in piecemeal. Further, the document should be construed according to the meaning of the words used and if there is any doubt then the circumstances surrounding their creation may be considered. He further referred to another decision of the Supreme Court in the case of Tamil Nadu Electricity Board v. N. Raju Reddeiary JT (1996) (6) SCC 14 wherein it has been held :
"Once a contract is reduced to writing, by operation of Section 91 of the Evidence Act it is not open to any of the parties to seek to prove the terms of the contract with reference to some oral or other documentary evidence to find out the intention of the parties. Under Section 92 of the Evidence Act where the written instrument appears to contain the whole terms of the contract then parties to the contract are not entitled to lead any oral evidence to ascertain the terms of the contract. It is only when the written contract does not contain the whole of the agreement between the parties and there is any ambiguity then oral evidence is permissible to prove the other conditions which also must not be Inconsistent with the written contract."
15. So in the end it was concluded that legal rights of the parties flow from the document and the same must be construed according to the meaning of the words therein. It is only in the case of doubt that surrounding circumstances contemporaneous to the document should be taken into consideration and not the subsequent conduct of the parties. According to him, even if contemporaneous circumstances are taken into consideration along with the terms of the deed then the conclusion drawn by AO that there was sale of plant and machinery only is erroneous. To substantiate his arguments, he took us through the various clauses of the lease deed which clearly point out that all the ingredients of lease are present in such document and there is nothing to indicate that there was sale of plant and machinery only.
16. Coming to the merits of the case, he took us through the entire order of assessment and the order of CIT(A). According to him, it was a package deal for leasing out the entire business consisting of land and building thereon as well as plant and machinery as no prudent businessman would part with only plant and machinery keeping the land and building for itself which could not be utilised for his business. Further, he referred to the valuation reports to point out that valuation was made for the entire business including land, building and plant and machinery. Therefore, no adverse inference could be drawn from the fact that only plant and machinery was transferred to Kota..He also pointed out that there was no evidence that assessee continued to be in possession of land and building. The fact that small space was used by the assessee for keeping the account books is not sufficient to draw any adverse inference. Further, there is no material to show that any space was given by assessee to its sister concern. Even if there was any breach of terms of agreement, it was between the lessor and the lessee and Department cannot take any advantage of such a situation.
17. On the other hand, the learned counsel for the Department has strongly supported the order of the CIT(A). Firstly, it was contended by him that Section 269UA(d) deals only with the definition of immovable property and this definition has nothing to do with the meaning of the word 'transfer'. According to him, what is incorporated in Section 2(47) is only the definition of immovable property and the definition of the word 'transfer' in Section 269UA(f) has to be restricted for the purpose of Chapter XX-C and cannot be incorporated or extended to Section 2(47). Therefore, the contention of assessee's counsel that lease for less than 12 years is excluded from the definition of transfer cannot be accepted. According to him, the transaction of lease involves transfer of exclusive possession and enjoyment of the property during the lease period. Reference was made to the decision of the Hon'ble Supreme Court in the case of A.R. Krishnamurthy (supra) wherein it has been held that lease for a period of 10 years amounted to transfer of leasehold right liable to tax under Section 45. The decision of Supreme Court in the case, of R.K. Palshikar (HUF) v. CIT (1988) 172 ITR 311 (SC) was also cited in this regard.
18. Proceeding further it was submitted by him that the provisions of Sections 90 and 91 of Evidence Act are merely rule of convenience and cannot be applied strictly to income-tax proceedings. According to him, if the genuineness of the document is doubted then other evidence can be relied on to disprove the genuineness of the document. Reliance was placed on the decision of the Hon'ble Supreme Court in the case of Smt. Gangabai v. Smt. Chhabubai (1982) 1 SCC 4 (para 11) and in the case of Ishwar Dass Jain v. Sohan Lal (2000) 1 SCC 434. Proceeding further, it was contended by him that the Courts can always tear the veil and go behind the document to find out the real nature of the transaction. Reference was made to para 25 of the Supreme Court judgment in the case of Smt. Krishnabai Bhritar Ganpatrao Deshmukh v. Appasaheb Tuljaramarao Nimbalkar (1979) 4 SCC 60. Further reliance was placed on the Supreme Court decision in the case of Vidhyadhar v. Manikrao (1999) 3 SCC 573 at p. 575 and 576 for the proposition that the stranger can dispute the genuineness of the document and in such a situation he can impeach the same on all possible grounds by leading the necessary evidence. Reference was also made to the Supreme Court judgment in the case of Sundaram Finance Ltd. AIR 1966 SC 1178 and the decision of Delhi High Court in the case of Bhagat Construction Co. (P) Ltd. Accordingly it was submitted that AO was legally justified in considering the subsequent events.
19. Coming to the merits of the case, he also took us through the entire assessment order. According to him, it was a case of a sale and the parties had simply given the colour of lease deed. He drew our attention to the valuation reports to point out that the purpose of such valuation was the transfer of the unit at Bhiwadi. According to the report, the life of the business i.e., manufacturing of black and white glass for TV industry was only 10 years and thereafter such unit would have little value. He further pointed out that this unit was valued at Rs. 20,729 crores which had been accepted by both the parties and it is this amount which was agreed to be paid in instalments. Not only this, the lessee had agreed to pay the interest @ 14 per cent p.a. since the amount was not being paid in lump sum. He also prepared a chart to point out that the instalments had been made in such a fashion that interest rate of 14 per cent as agreed to by the parties is recovered by the assessee from the lessee. Reference was made to the letter of the assessee dt. 17th Feb., 1997 addressed to the AO as well as the payment schedule appearing at pp. 84 and 219 of the paper 'book. According to him, it is nothing but the price of the property transferred which was paid in instalments along with interest. This arrangement was stated to be a financing arrangement and, therefore, it was pleaded that it could not be considered as lease.
20. Proceeding further he also pointed out that the sealing unit at Bhiwadi had started shifting in the month of April 1993, i.e., even before the execution of the so-called lease deed. The life of the plant and machinery was only 10 years. Therefore, the fact that the plant and machinery was to be returned after the lease period became irrelevant. He further pointed out that the down payment of Rs. 3.64 crores was made by SQL which was immediately returned by the assessee towards issue of share capital. Further, the transaction was not at arm's length since the assessee had right of effective management in SQL. It was also submitted by him that there was no intention of restarting the business by the assessee. Further, there was no clause of termination as usually exists in every lease document. At this stage, the learned counsel for the assessee interrupted and pointed out that there was termination clause in the lease deed and pointed out the relevant portion of the lease deed at p. 214. In reply, the counsel for the Revenue stated that it cannot be considered as such since no option is given to the lessee or the lessor to terminate such lease. According to him, it is only a clause for remedy in case of certain facts mentioned therein.
21. Proceeding further, he drew our attention to the facts that at the time of survey made by the Department, it was found that building at Bhiwadi was not being used by SGL. On the contrary, a training centre was being run by the sister concern of the assessee. The assessee was also found in possession of certain portion of the premises for keeping the books of account. It was also found that certain scrap materials of the sister concerns was also lying in that building. Some of the plant and machinery which was not shifted was also lying in that building. According to him, these facts clearly showed that assessee had not dispossessed itself from the land and building thereon. Accordingly, it was concluded that considering the facts of the case and the test of the probabilities, it was merely the sale of plant and machinery only.
22. Alternatively, it was contended by him that it was sale of leasehold right for a price of Rs. 20,729 crores which was agreed to between the parties. It is this sale price which was agreed to be paid in instalments along with interest in 10 years which is the usual mode of payment of sale price. Merely because it is shown as lease rental, it cannot be inferred that it was a lease agreement. According to him, the leasehold right is one of the rights of owner of the property and the same can be sold for a price. In this connection, he again strongly relied on the decision of Supreme Court in the case of A.R. Krishnamurthy (supra).
23. In reply, it was submitted by the learned counsel for the assessee that the aspect of financial arrangement was never the case of AO or the CIT(A). Further, there is no evidence to show that it was a case of sham transaction or colourable device as held by the lower authorities. Therefore, construction of the document has to be made from the contents of agreement itself. It was also argued by him that interest rate is recognised for determining the lease rental. In the schedule, the interest has not been specified and the so-called bifurcation of interest has been made by the Departmental Representative alone and not even by AO. Further, in response to the query from the Bench it was stated that value of Rs. 20.729 crores was for land and building as well as plant and machinery and not exclusively for plant and machinery. He also pointed out that different life of machinery had been given by different valuers and the residual value of the machinery was always there. He further stated that the demand of black and white TV is still there in India as well as in developing countries and, therefore, it cannot be said that there would be no residual life of machinery after 10 years. According to him, it was only for determining the value of the. asset that a particular life of machinery was taken into consideration but it does not mean that life of machinery after 10 years should be zero. Merely because the lessor has received the value, it does not mean that there was no lease. Regarding payment of Rs. 3.68 crores, it was submitted that both the payments were for different purpose and there was actual transfer of money from both sides and, therefore, no adverse inference could be drawn. He further pointed out that assessee had been showing on the name plates as the owner of the asset. Further, such lease deed has the approval of the financial institutions. In insurance cover the assessee has been shown as the owner of the goods. There is a clause of the return of the plant and machinery in the lease agreement. The lease deed has been actually acted upon. Further, it is not the lump sum payment but it is a lease rent which has been paid by the lessee to the assessee. According to him the Clause (9) of the agreement is against the concept of the sale. Regarding the alternate plea of the counsel for the Department, it was submitted that the decision of the Supreme Court in the case of A.R. Krishnamurthy (supra) is distinguishable in as much as it related to the mining lease where right to exploit mine was transferred while in this case no such right was given to the lessee. Further, there can be a case of sale where premium or Salami is recovered against such transfer. Hence, it was concluded by him that on the facts of the case, it was purely a case of lease and not sale.
24. Rival submissions of the parties, the material-placed before us and the case law referred to have been considered carefully. At the outset, we are of the view that the matter has not been dealt with by the AO in the right perspective. On one hand it has been held that there was outright sale of plant and machinery only while on the other hand he had brought the entire consideration of Rs. 20,729 crores which represents the value of not only plant and machinery but also the entire business assets including land and building thereon. It is the settled position that no person is allowed to blow hot and cold simultaneously. On the basis of findings recorded by him, he should have assessed under Section 50 only that portion of the consideration which represented plant and machinery only. Admittedly, the valuer had valued the entire business including the immovable properties and, therefore, the entire value could not have been assessed under Section 50 considering the finding recorded by him.
25. Now we will deal with the real question as to whether the AO was justified in coming to the conclusion that the transaction between the assessee and SQL tantamounted to sale of plant and machinery only and there was no transaction of lease of business including land and building thereon and plant and machinery. There is a clear distinction in law between transactions of sale and lease. A sale can be said to be made when there is a transfer of ownership rights from one person to the other against consideration i.e., price. In such cases, the transferor loses all the rights of the ownership, the moment transfer is made. But in case of lease, it is only the right to enjoy the property against consideration which is transferred from the owner to the other party. It is in fact separation of ownership and possession as held by Supreme Court in the case of Samatha v. State of U.P. (1997) 8 SCO 191. Unlike sale, in case of lease, the ownership vests in the lessor and it is only the right to use which is transferred to lessee. So there is fundamental distinction between these two transactions which has to be borne in mind.
26. The question whether there is transaction of lease or sale would depend upon the construction of the document itself unless proved otherwise. It is the cardinal rule that construction of a document and the interpretation of the statute should be made in the manner which carries out the intention behind it. The intention must first be gathered from the words used in the document itself if the language is plain or unambiguous. If the language is ambiguous, the Court may take into consideration the other surrounding circumstances prevailing at the time of creation of the document. For the proposition that construction of the document as well as the statute must be on the basis of language used, reference can be made to Supreme Court decision in the case of CIT v. Sodra Devi (1957) 32ITR 615 (SC). It would also be useful to refer to the following observations of the Hon'ble Supreme Court in the case of Provash Chandra Dalui Ram v. Biswanath Baneijee (supra):
"The best interpretation of a contract is made from the context. Every contract is to be construed with reference to its object and the whole of its terms. The whole context must be considered to ascertain the intention of the parties. It is an accepted principle of construction that the sense and meaning of the parties in any particular part of instrument may be collected 'ex antecedentibus et consequentibus': every part of it may be brought into action in order to collect from the whole one uniform and consistent sense. If it is possible. In construing a contract the Court must look at the words used in the contract unless they are such that one may suspect that they do not convey the intention correctly. If the words are clear, there is very little the Court can do about it. In the construction of a written instrument it is legitimate in order to ascertain the true meaning of the words used and if that be doubtful it is legitimate to have regard to the circumstances surrounding their creation and the subject-matter to which it was designed and intended they should apply."
27. Therefore, it is not necessary for us to refer to the debate of the parties as to whether the provisions of ss. 90 and 91 of Evidence Act should be applied or not. Even otherwise, we find that it is the above cardinal rule which has been incorporated by the legislature in ss. 90 and 91 of the Evidence Act. The Hon'ble Supreme Court has held in the case of Chuhanual (supra) that though the rigour of the provisions of Evidence Act cannot be applied in the income-tax proceedings yet the salutary principle of such Act can be applied. Therefore, we are of the considered view that the intention of the parties to the document must be gathered from the language used in the document itself.
28. However, this rule of interpretation is not absolute. Where genuineness of such document itself is challenged as in the present case one cannot restrict itself to the language used in the document. No doubt in such cases the onus would be very heavy to disprove the contents of the document on the party who challenges the same. At this stage, it would be useful to refer to the following observations of their Lordships of Hon'ble Supreme Court (Bench of three Judges) in the case of Sundaram Finance Ltd. AIR 1966 SC 1178 :
"The true effect of a transaction may be determined from the terms of the agreement considered in the light of the surrounding circumstances. In each case, the Court has, unless prohibited by statute, power to go behind the documents and to determine the nature of the transaction, whatever may be the form of the documents."
29. With reference to income-tax cases, the Hon'ble Supreme Court has repeatedly held that the Department can always tear the veil and find out the real nature of the transaction. Reference can be made to the decisions of the apex Court in the case of Sunil Sidharthbhai (1985) 156 ]TR 509 (SC). The relevant observations at p. Nos. 523 and 524 in the case of Sunil Sidharthbhai (supra), may be usefully quoted as under :
"We have decided these appeals on the assumption that the partnership firm in question is a genuine firm and not the result of a sham or unreal transaction and that the transfer by the partner of his personal asset to partnership firm represents a genuine intention to contribute to the share capital of the firm for the purpose of carrying on the partnership business. If the transfer of the personal asset by the assessee to a partnership in which he is or becomes a partner is merely a device or ruse for converting the asset into money which would substantially remain available for his benefit without liability to income-tax on a capital gain, it will be open to the IT authorities to go behind the transaction and examine whether the transaction of creating the partnership is a genuine, the transaction of transferring the personal asset to the partnership firm represents a real attempt to contribute to the share capital of the partnership firm for the purpose of carrying on the partnership business or is nothing but a devise or ruse to convert the personal asset into money substantially for the benefit of the assessee while evading tax on a capital gain. The ITO will be entitled to consider all the relevant indicia in this regard, whether the partnership is formed between the assessee and his wife and children or substantially limited to them, whether the personal asset is sold by the partnership firm soon after it is transferred by the assessee to it, whether the partnership firm has no substantial or real business or the record shows that there was no real need for the partnership firm for such capital contribution from the assessee. All these and other pertinent considerations may be taken into regard when the ITO enters upon a scrutiny of the transaction, for, in the task of determining whether a transaction is a sham or illusory transaction or a device or ruse, he is entitled to penetrate the veil covering it and ascertain the truth."
30. Similar view has been taken by apex Court in the case of CIT v. B.M. Kharwar (1969) 72 ITR 603 (SC). The relevant observations are quoted below:
"It is now well-settled that the taxing authorities are not entitled, in determining whether a receipt is liable to be taxed, to ignore the legal character of the transaction which is the source of the receipt and to proceed on what they regard as "the substance of the matter". The taxing authority is entitled, and is indeed bound, to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by a device the legal relation, it is open to the taxing authorities to unravel the device and to determine the true character of the relationship. But the legal effect of a transaction cannot be displaced by probing into the 'substance of the transaction'. This principle applies alike to cases in which the legal relation is recorded in a formal document and to cases where it has to be gathered from evidence--oral and documentary--and conduct of the parties."
31. Reference can also be made to Supreme Court decision in the case of Vidhyadhai v. Manik Rao (1999) 3 SCO 573 wherein following observation was made in para 21 of the judgment:
"As regards right of defendant 1 to raise pleas, it is not possible to subscribe to the view expressed in broad terms in Lal Achal Ram case by Privy Council that a stranger to a sale deed cannot dispute payment of consideration or its adequacy. A distinction has to be drawn between a deed which was intended to be real or operative between the parties and a deed which is fictitious in character and was never designed as a genuine document to effect transfer of title. In such a situation, it would be open even to a stranger to impeach the deed as void and invalid on all possible grounds. A person in his capacity as a defendant can raise any legitimate plea available to him under law to defeat the suit of the plaintiff. This would also include the plea that the sale deed by which the title to the property was intended to be conveyed to the plaintiff was void or fictitious or, for that matter, collusive and not intended to be acted upon. Thus, the whole question would depend upon the pleadings of the parties, the nature of the suit, the nature of the deed, the evidence led by the parties in the suit and other attending circumstances,"
32. In view of the above discussion, it is held that intention of the parties to the document can be best known from the language used in the document. However, in case of doubt, the third party like IT Department can tear the veil and find out the real transaction but in such cases the onus will be very heavy which can be discharged by bringing on record the admissible evidence to the contrary. If no such material or evidence is brought on record then no adverse inference can be drawn on mere suspicion or conjecture.
33. In view of the above legal position, let us examine whether there was any material with the AO for coming to the conclusion that there was sale of plant and machinery only. We have gone through the entire assessment order and the material placed before us but we are unable to find out any material or evidence on the basis of which conclusion of AO can be justified. With reference to the plant and machinery the AO has taken into consideration the valuation report of the valuer who has valued the business considering the possible life of the business of manufacturing of black and white TV industry. There is no other material with the AO. The AO has drawn the above inference on the ground that after the period of lease, the plant and machinery would have little value. This in our considered view, is not at all relevant for holding that there was sale of plant and machinery. The fundamental ingredient of the lease is that the lessee is to enjoy the property during the lease period and thereafter the property reverts back to the lessor. Thereafter the lessor continues to be the owner of the property. It is immaterial as to what value of the property remain after the period of lease. It is not the case of the Revenue that plant and machinery would continue to remain in the possession forever with the lessee. After the period of lease, the lessee is bound to restore the same to the lessor. Therefore, it is held that Revenue has failed to prove that there was sale of plant and machinery. On the contrary, contents of the lease deed shows that lessee was prohibited to assign any right in the property to the third party. It was bound to display that ownership of plant and machinery was of the lessor. Further, after the period of lease, lessee was bound in law to return the property to the lessor. There is nothing in the lease deed to show that it was the sale of plant and machinery itself. Accordingly, we vacate the finding of the AO that there was sale of plant and machinery and hold that there was lease of such plant and machinery.
34. The remaining aspect of the question is whether there was grant of lease of the land, building thereon and the plant and machinery as contended by the assessee. The AO has held that assessee was never dispossessed of such land and building inasmuch as it was found in the course of survey that land and building was used by it and its sister concern. The contention of the assessee is that it was package deal because no prudent businessman would dispossess only a part of the business assets particularly when he decides to abandon the carrying on of the business itself. After going through the material on record, we are unable to uphold the view of the AO in this regard. The contents of the lease deed clearly shows that there was grant of lease of land, building thereon as well as plant and machinery against huge consideration. The valuer, M/s S.S. Kothari & Co. had valued the business at Rs. 20,729 crores which includes all the above assets. It has been specifically so mentioned in the valuer's report. It is this consideration which had been agreed to be paid by the lessee. If there was no grant of lease of all the three assets, the lessee would not have agreed to pay such huge consideration. It is not the case of the Department that such huge consideration was not paid by the lessee. On the contrary, the lessor is regularly receiving such payments. The lessee has always been showing such properties as belonging to and owned by the assessee. The registration certificates issued by the excise as well as ST authorities, copies of which appear at pp. 233 and 234 of the paper book show that the lessee had shown the factory premises at Bhiwadi as its branch office which shows that lessee was in possession of such land and building. The one of the argument of the learned Departmental Representative was that such building was found in use by the assessee and its sister concern and it was not used by the lessee. However, there is no material on the record that it was the assessee who allowed the use of the space to its sister concern. If the space was allowed to be used by the lessee than no adverse inference could be drawn. Once the lease is granted, the presumption is that possession and its enjoyment lies with the lessee. The user or non-user cannot affect the legal transaction. For example, had the premises at Bhiwadi found vacant, could the Department say that there was no grant of lease. In our opinion, the answer is in negative unless it is. proved that still the possession was enjoyed exclusively by the lessor. The burden to prove the same is on the person who alleges so. Even if the lessee had allowed use of a negligible part of the building to the assessee, it cannot be said that grant of lease was invalid. So long as the lessee is paying consideration and the activity being carried on is within the knowledge of the lessee, it cannot be said that there was no lease of such land and building. The finding of AO that assessee was not dispossessed of land and building is based on suspicion and conjecture. As already stated, no prudent businessman would pay such huge consideration unless possession of such property had been taken by him. The AO has not given any concrete material to prove that such lease was sham and collusive one. Merely because the assessee had some say in the management of the lessee-company and a part of premises was found in use by the sister concerns cannot be a ground for holding that the lease was sham or collusive particularly when there is no material to show that use of part of such building was allowed by the assessee. It is also not the case of the AO that use of part of such building was allowed by the assessee. It is also not the case of the AO that any rent was received by the assessee. It is also not the case of the AO that at any stage the lessee had denied or disputed the contents of lease-deed. Therefore, it is held that there was a package deal for grant of the lease of land, building thereon and plant and machinery. Such lease was affected in accordance with law after obtaining permission under Section 230A from the IT Department itself. Therefore, it cannot be said that any colourable devise was adopted by the assessee. The transaction of lease was very well within the framework of law. Therefore, it is not necessary for us to record the case law relied on by the parties in this regard.
35. Having held that there was valid agreement of ease of land, buildings and plant and machinery, the next question to be considered is whether there is sale of leasehold right in the above assets liable to tax under Section 45 r/w Section 50 of the IT Act, 1961. A bare reading of Section 45 shows that following ingredients must co-exist:
(1) There must be capital asset as defined in Section 2(14).
(2) There must be transfer of such asset as defined in Section 2(47).
(3) Profits and gains must arise from the transfer of such assets.
In view of the above and the respective contentions of the parties, the following issues arise for our consideration :
(i) Whether the leasehold rights in the property amounts to capital asset within the meaning of Section 2(14).
(ii) Whether the transaction of lease tantamount to transfer as per Section 2(47).
(iii) Whether the transaction between the assessee and the SGL amounts to sale of leasehold rights giving rise to profits and gains on account of such transfer.
36. As far as the first issue is concerned, it is no more res integra since it is fully covered by the decision of the Hon'ble Supreme Court in the case of A.R. Krishnarmurthy (supra) as well as in the case of R.K. Palshikar (HUF) v. CIT (supra) wherein it has been held that leasehold right in a property is a capital asset within the meaning of Section 2(14) of IT Act, 1961 and Section 2(4A) of 1922 Act and consequently, the sale thereof would bring the transaction within the ambit of Section 45 of 1961 Act. At this stage, it would be useful to refer to the following observations of the Patna High Court in the case of Traders & Miners Ltd. v. CIT (1955) 27 ITR 341 (Pat) at p. 345 :
"We think that the expression 'transfer' in the section includes not only a permanent transfer but also a temporary transfer of title to the property in question and lease of mines for any period would fall within the ambit of Section 12B of the Act. It was also contended by Mr. Dutt that a transaction of lease did not tantamount to a transfer of title but that a mere contractual right was created. We do not think that this argument is correct. A lease of land is transfer of interest in the land and creates a right in rem : and there is a transfer of title in favour of the lessee though the lessor has right of reversion after the period of the lease terminates."
37. These observations have been referred with approval by the apex Court in the above two cases. This legal position is not even doubted by the learned counsel for the assessee.
38. Now coming to the second issue, we would like to mention that profits arising from the transfer of capital asset were not exigible to tax under 1922 Act until the incorporation of Section 12B. This section brought such profits within the net of tax under the head 'capital gains'. However, such profits were restricted to profits arising from the sale, exchange, relinquishment or transfer of capital asset. This shows that certain modes of transfer were specifically mentioned in addition to the words 'transfer of capital asset'. The scope of the transfer was extended from time to time and ultimately when 1961 Act was enacted, the word 'transfer' was defined in Section 2(47) which definition also is not exhaustive. It is only inclusive definition inasmuch as it lists out only certain modes of transfer According to the rule of interpretation such definition clause not only takes within its ambit the items mentioned therein but also the natural meaning of such word. Reference can be made to the decision of the Hon'ble Supreme Court in the case of Sunil Sidhaithbhai (supra).
39. According to the ordinary/natural meaning, the transfer means changing of something from one person to another. The apex Court in the case of Narang Dairy Products (supra) has defined the general mining of the word 'transfer' as under :
"to make over possession of to another", "a delivery of title or property from one person to another", "to displace from one surface to another" "removal", "hand over", "make over possession of property to another", "change", "displace" etc."
40. Further, prior to insertion of Section 12B to 1922 Act, there existed an enactment 'Transfer of Property Act, 1872', which recognised the lease transaction within the scope of the word 'transfer' by way of Section 105. In the case of Samatha v. State of A.P. (1997) 8 SCC 191, the Hon'ble Supreme Court observed as under:
"Section 105 of the Transfer of Property Act defines "lease" as a transfer of right to enjoy immovable property made by the transferor to the transferee for a certain period, express or implied, for consideration of price paid or promised, etc. to the transferor by the transferee who accepts the transfer on such terms. Thereby the lease creates a right or an interest and enjoyment of the demised property on terms and conditions contained therein to remain in possession thereof for the duration of the period of lease unless it is determined in accordance with the contract of the statute. It is an encumbrance on the right to be in possession; use and enjoyment of the land by the transferee, Lease is the outcome of separation of ownership and possession."
The above legal position has also not been disputed by the learned counsel for the assessee as is apparent from the fact that assessee had to apply for permission under Section 230A of 1961 Act inasmuch as no property could be transferred without the prior permission of the appropriate authority. In view of the above discussion, we are of the view that the transaction of the lease would fall within the general or natural meaning of the word 'transfer' itself.
41. The contention of the learned counsel for the assessee is however, on different line. According to him the legislature has itself excluded the lease transactions for a period of less than 12 years. According to him the transfer as defined in Clause (47) of Section 2 does not specifically include the lease of assets and such transaction at best can be included only in Sub-clause (vi) of Clause (47) of Section 2. It is his contention that for the purpose of such Clause (vi), the definition of immovable property would be such as defined in Clause (d) of Section 269UA by virtue of Explanation to Section 2(47). That Sub-cluase (i) of Clause (d) of Section 269UA takes within its ambit not only land or building along with plant and machinery but also the rights therein. His line of argument is that the transfer of such immovable property has to be seen with reference to the meaning given to the word 'transfer' in Clause (f) of Section 269U A itself. This clause takes within its scope lease of 12 years or more. Therefore, according to him, the lease for a period of less than 12 years would be outside the scope of transfer.
42. After giving our deep thoughts to such contention, we are unable to accept the same. Once the transaction of lease falls within the general meaning of 'transfer' as held by us, it would be futile to go to the provisions of Section 269UA. In our considered opinion. Explanation to Section 2(47) can be invoked only where the transaction cannot fall either in the general meaning of the word 'transfer' or the items listed at S. Nos. (i) to (iv). There is further fallacy in the arguments of the assessee's counsel inasmuch as the legislature has only incorporated the meaning of the immovable property as defined in Clause (d) of Section 269UA and, therefore, it would be illegal to further incorporate the meaning of the word 'transfer' as defined in Section 269UA(f). The doctrine of incorporation does not permit such contention. The observations of Lord Esher in "In re Wood's case" are authority on this subject and are often quoted by the Courts. These observations have been quoted in "Interpretation of Statutes" by Bindra (5th Edn.) at p. 705 as under :
"If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act just as if they had been actually written in it with the pen or printed in it and the moment you have those clauses in the later Act, you have no occasion to refer to the former Act at all."
In view of the above legal position, the contentions of Assessee's counsel that the definition of 'transfer' as given in Clause (f) of Section 269UA should also be considered, does not hold good. The meaning of the transfer in Clause (f) of Section 269UA has to be restricted only for the purpose of Chapter XX-C and cannot be extended further. When the legislature is specifically dealing with the meaning of the transfer in Section 2(47) for the purpose of Section 45, the question of resorting to any other meaning of transfer would not legally arise. Since we have already held that the lease transaction is includible in the ordinary meaning of the word 'transfer', the above contention of assessee's counsel has to be rejected.
43. The view taken by us is also fortified by the judgment of the Patna High Court in the case of Traders & Miners Ltd. (supra) approved by the Hon'ble Supreme Court in the case of R.K. Palshikar (HUF) (supra) and in the case of A.R. Kirshnammthy (supra). The relevant observations of the Patna High Court have already been quoted by us in the preceding paras and therefore need not be repeated. The observations of Patna High Court were made with reference to Section 12B of the Act of 1922 which did not specifically include the lease transaction. Even then the lease transaction was held to be includible in the ordinary meaning of the word 'transfer. The above judgment of the Patna High Court and the Supreme Court judgment in the case of AR Kirshnamurthy (supra) were tried to be distinguished by the learned counsel for the assessee on the ground that the lease considered by the Courts was mining lease which included' exploitation of assets while in the present case the lease was simple lease. We are unable to accept such distinction in view of'the observations of their lordships of Supreme Court in the case of R.K. Palshikar (HUF) (supra). In this case the Court was concerned with simple lease of the plot. Similar contentions, as raised before us, was raised before the Supreme Court but the same was turned down by observing as under:
"It is true that the decision of the Patna High Court in Traders & Miners Ltd. v. CTT (1955) 27 ITR 341 (Pat) relates to the case of a mining lease, but, to our mind, the principle laid down in that case can well be applied to the case before us."
Accordingly, it has to be held that lease of a capital assets falls within the definition of the word 'transfer' irrespective of its nature.
44. The learned counsel for the assessee has also argued that mere transfer of capital asset is not sufficient to prove the transaction within the ambit of Section 45. If such a wider meaning of the transfer is given then monthly lease or even mortgage would be subject to capital gain. This contention of assessee's counsel, in our view, is also without force. It is pertinent to note that prior to introduction of Section 12B in 1922 Act, the capital receipts arising from the transfer of capital asset were not exigible to tax because such receipt could not be considered as revenue receipts. The revenue receipts by way of rent in case of monthly lease were already taxable under the head 'income from house property' or 'income from other sources' as the case may be. The intention of the legislature was only to bring the capital receipt to tax and that is why it used the word 'profits or gains' and not the entire receipts. So only those transactions were intended to be included which resulted in profits and gains other than the revenue receipts already chargeable to tax. Hence, the monthly lease wa's outside the scope of Section 12B of 1922 Act and for the same reasons outside the ambit of Section 45 of 1961 Act. Therefore, it has to be held that only those lease are included which are transferred as a capital asset against a price or compensation for use of the property for a particular period. In other words, it can be said that if the leasehold rights are sold at a price then it would fall under Section 45.
45. Now the last question in this regard is whether the transaction of lease between assessee and SGL can be said to be sale of leasehold rights. After considering the material placed before us we are of the view that there was sale of leasehold rights. The material placed before us shows that assets to be leased were got valued by the assessee from M/s S.S. Kothari & Co., Chartered Accountants, who had valued such assets at Rs. 20.729 crores. The copy of the report appears at pp. 149 to 156 of the paper book. According to this report, it was the business of the sealing unit of the assessee as a going concern which included land and building also. This value was admittedly adopted as consideration to be paid by the lessee to the assessee. It was agreed that down payment of Rs. 3.64 crores was to be paid at the beginning and balance payment to be paid in 16 half-yearly instalments after moratorium period of two years subject to add on interest @ 14 per cent per annum. According to this arrangement, the lease instalments of Rs. 237.14 lacs was determined to. be paid every half-yearly after the period of moratorium. This is apparent from the schedule annexed with the lease deed. These facts have not been disputed before us. In our view, it is a case where the total value of the entire business of the sealing unit at Bhiwadi being Rs. 20.729 crores was taken as consideration for use and enjoyment of such asset for a period of 10 years. This amount could be paid either at the beginning as lump sum or in the alternative it could be paid in instalments along with interest. In both the situations, it was the payment of price of the leasehold rights. Merely because the payment of instalments was shown in the deed as lease rental, it cannot be said that instalments paid did not form part of the price. According to the commercial practice, once the price of the asset is fixed it is then between the parties to decide about the terms of the payment. If the parties agreed for payment of price in instalments, such payments, in our view, would not cease to be payment of price. In the present case, the parties acted prudently in as much the lessor compensated itself by the receipt of interest on balance payments'. As already held by us, the true effect of the transaction may be determined from the terms of the agreement considered in the light of the surrounding circumstances and the Court has, unless prohibited by the statute, the power to go behind the document and to determine the real nature of the transaction, whatever may be the terms of the document. The surrounding circumstances, as pointed out above, clearly establish that the leasehold rights in the business assets were sold for Rs. 20.729 crores which undoubtedly agreed to be paid in instalments with interest at 14 per cent p.a. Therefore, in our opinion, the decisions of the Supreme Court in the case of A.R. Krishnamurthy (supra) and R.K. Palshikar (HUF) (supra) squarely apply to the present case.
46. Having held that there was sale of leasehold rights, the logical conclusion follows that provisions of Section 45 become applicable. Still consequential question remains as to whether the computation of capital gain can be made under Section 50 as held by AO. In our opinion, Section 50 is in applicable to the facts of the present case. Firstly it is applicable where the property transferred is depreciable asset and secondly where either the asset itself is transferred or block of assest ceases to be in existence. In the present case, the land is not depreciable asset. As far as the other assets are concerned, the ownership of the asset remains with the assessee and therefore, it cannot be said that either the asset itself was sold or the block of assets ceased to be in existence. Therefore, Section 50, in our view, would be in applicable. The nature of the capital gain would depend upon the years of holding by the assessee.
47. In view of the above discussion, the order of CIT(A) is modified and the AO is directed to recompute the capital gain in accordance with law. The AO is also directed to readjudicate the consequential issues like depreciation, investment allowance terminal allowance, etc., in accordance with law.
48. In the result, appeal is partly allowed.