Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether A Landlord Is Liable For Capital Gain When He Charges Premium To Tenant For Renting Out Premises?

QUERY: Mr. Landlord gives its premise to tenant for first time charging premium of Rs. 50/- lakh and monthly rent of Rs. 10,000/- per month. Assessee’s contention is that since it continued to be owner premise, whether tax is payable on premium charged?
ANSWER: The Supreme Court in A. R. Krishnamurthy & Another v. CIT [176 ITR 417] has held that “the grant of mining lease was transfer of ‘capital asset’ within the meaning of section 45 of the Income-tax Act, 1961. The cost of acquisition of the land would include the ‘cost of acquisition’ of the mining right under the lease and date of acquisition of the right to grant lease had to be the same as the date of acquisition of the freehold rights. The amount paid by the appellant to purchase the land was for acquiring bundle of rights in the land including the right to grant a lease”.

Hence, grant of right to occupy the premise on the rent by charging a premium of Rs. 50/- lakh would be transfer of a “capital asset” and would be liable to tax, but the position would have been different if the landlord had taken a “deposit” instead of premium.
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Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
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