Income from transfer of a leased premises amounts to extinguishment of taxpayer’s right in the capital asset and therefore taxable as ‘Capital Gains’ under the Income-tax Act.
Mumbai bench of Income-tax Appellate Tribunal (the Tribunal) in the case of ACIT Vs United Motors (I) Ltd. (2009-TIOL-693-ITAT-MUM) has held that income from transfer of a leased premises without transferring its own business amounts to extinguishment of the taxpayer’s right in the capital asset as per section 2(47) of the Income-tax-tax Act, 1961 (the Act).
The Tribunal also observed that such transfer of a leased premise without transferring the business cannot be considered as loss of source of income. Further, the source of income is always the business which is capable of producing some income and not the building from where the source of income is operated. Accordingly, the Tribunal held that the building itself cannot be considered as source of income.
Facts of the case
- The taxpayer company was in the automobile business in vehicles of TELCO and Mercedes through a premise owned by it in Mumbai. On 18 December 1999 the taxpayer entered into an agreement with Trent Limited, allowing it to use such premises for the period of 10 years for an upfront non-refundable / non-accountable fee of INR 5 million. The AO held that the retailing business agreement entered into by the taxpayer was a business agreement and the consideration from that was a business receipt.
- The Commissioner of Income-tax (Appeals) [CIT(A)] after considering the precarious financial position of the taxpayer company noted that the agreement with Trent Limited will have impact on the source of income of the taxpayer. Further, the premises under reference constituted a capital asset and any compensation received for part immobilisation or sterilisation of such a capital asset was to be treated as a capital receipt. Accordingly, the CIT(A) held that the amount received by the taxpayer from Trent Limited was to be treated as capital receipt not includible in the taxable income.
Taxpayer’s contentions
