Civil Appeal Nos 61315 of 1975
From the Judgment and Order dated 1881973 of the Madhya Pradesh High Court in MCC No 248 of 1968
ST Desai Joel Pares and AK Verma for the Appellant
SC Manchanda KC Dua and Miss A Subhashini for the Respondents
The Judgment of the Court was delivered by KANIA J
This is an appeal against the judgment of a Division Bench of the High Court of Madhya Pradesh on a reference made to the High Court under Section 661 of the Indian Income tax Act 1922 referred to hereinafter as the said Act
The appeal has been preferred on a certificate of fitness granted by the High Court under Section 66A2 of the said Act read with Article 1331 of the Constitution of India
The relevant facts are as follows The assessee is a Hindu Undivided Family represented by its Karta one RK Palshikar
The years of assessment with which we are concerned are the assessment years 1959 60 to 1961 62
The assessee is the owner of what is known at present as Palshikar Colony  at Indore
This colony covers an area of 3662 acres
The said land originally belonged to an ancestor of the present Karta as agricultural land
The land was in the possession of the tenants and crops like wheat gram and so on were grown on the said land by the tenants
The present Karta wished to develop the land into a housing colony and took steps to evict the tenants
For this purpose he filed a suit in the High Court and on September 24 1957 that suit was decreed
The assessee got plans drawn up for the laying out of the said land as a housing colony in the year 1952 after the assessee was permitted to develop the land into a housing colony
In 1958 the Executive Engineer of 992 Indore approved the revised lay out plan
The assessee then divided the land into plots and developed the land for making it suitable as building sites
The assessee also constructed some roads sewages and water pipe lines and spent a large amount for developing the land
This expenditure was incurred in the accounting period 1958 59 and the subsequent years
The assessee started leasing building sites to various parties from May 1958
The first lease was granted by the assessee demising plot No 12 on May 24 1958
That lease was for a period of 99 years
It was agreed under the lease deed that on the expiration of the said period of lease the lessor by his legal heirs will execute a new lease deed in favour of the lessee or his legal heirs on terms and conditions as would be settled later
The salami  or premium for the said lease was fixed at Rs10312 out of which amount Rs501 was paid in advance and the balance amount of Rs9811 was agreed to be paid before the grant of lease
The agreement of lease was executed on September 15 1959
The annual lease rent of the plot was fixed at Rs75 which was to be paid by the lessee in advance
The lessor reserved his right to take back possession of the land leased if the rent was not paid for two consecutive years and to recover the rent
We are not concerned with the other terms of the lease
In the years 1959 60 1960 61 and 1961 62 with which we are concerned the assessee leased out respectively 329 acres 441 acres and 568 acres divided into many plots out of the aforesaid land and he received by way of salami  or premium Rs145190 Rs206475 and Rs254341 respectively in the said years
The terms and conditions of the other leases were in pari materia with the aforesaid lease dated May 24 1958 in that the leases were for a period of 99 years and provided for the payment of premium or salami 
The question arose whether the assessee was liable to pay capital gains tax on the amounts of salami  or premium received as aforesaid
The contention of the assessee before the Income tax Officer concerned was that no capital gains tax could be levied in respect of the said leases as the land was agricultural land and secondly that Section 12 B of the said Act which provided for the levy of tax on the sale exchange relinquishment or transfer of a capital asset did not come into play as only lease hold rights had been conveyed by the assessee to the lessees under the said leases
Both these contentions were rejected by the Income tax Officer as well as by the Appellate Assistant Commissioner
The assessee preferred an appeal to the Income tax Appellate Tribunal and urged the same contentions which the Tribunal also rejected
993 Arising from the said decision of the Tribunal two questions were referred to the High Court for determination
These questions are as follows 1 Whether on the facts and in the circumstances of the case the land sold by the assessee constituted a capital asset within the meaning of Section 12 B of the Indian Income Tax Act or was agricultural land as defined in Section 24A of the Act 2 Whether the transaction of lease effected by the assessee amounted to a transfer within the meaning of Section 12 B so as to attract liability for capital gains tax The first contention urged by the assessee before the High Court was that no capital gains tax could be levied on the said transactions for the lease of the land as the land was agricultural land and the second contention was that Section 12 B of the said Act did not come into play as only the lease hold rights in the said lands had been conveyed
As far as the first contention is concerned it was conceded before the High Court that as the land was diverted to non agricultural purposes several years ago that contention could not be pressed and it was not disputed that the lands in question constituted a capital assets within the meaning of Section 24A of the said Act
In support of the second contention of the assessee it was urged on behalf of the assessee that the word transfer under Section 12 B of the said Act must be interpreted in a limited and restricted sense and the principle of ejusdim generis should be applied in construing the said word as used in Section 12 B
This contention was rejected by the High Court which took the view that as the lease was for a long period of 99 years the agreement of lease would amount to a transfer of a capital asset within the meaning of Section 12 B of the said Act read with Section 24A thereof
The High Court answered both the questions referred in the affirmative and against the assessee
On an application made by the assessee leave was granted by the High Court as aforesaid to appeal to this Court but only in respect of second question
Before setting out the contentions of the respective parties it will be useful to take note of the relevant portion of Section 12B of the said Act which provides for the levy of tax on capital gains runs thus The tax shall be payable by an assessee under the head Capital gains in respect of any profit or gains arising 994 from the sale exchange relinquishment or transfer of a capital asset effected after the 31st day of March 1956 and such profits and gains shall be deemed to be income of the previous year in which the sale exchange relinquishment or transfer took place
 There are two provisos to the aforesaid sub section but they are not relevant for our purposes
Rest of the provisions of Section 12 B are also not relevant for our purposes
The term Capital asset has been defined in Sub section 4A of Section 2 of the said Act as follows capital asset means property of any kind held by an assessee whether or not connected with his business profession or vocation but does not include i any stock in trade consumable stores or raw materials held for the purposes of his business profession or vocation ii personal effects that is to say movab le property including wearing apparel jewellery and furniture held for personal use by the assessee or any member of his family dependent on him
iiiany land from which the income derived is agricultural income The first contention which was urged before us by Mr Desai learned counsel for the appellant assessee is that in the present case Section 12 B of the said Act can have no application as the land in question was Inam land which must have been granted as a pure gift to the ancestor of the assessee
It was submitted by him that the facts on record show that the land was granted by the Maharaja of Indore as Inam to the concerned ancestor of the present Karta and it was urged by him that in accordance with the usual practice the Maharaja must have given it free
It was submitted that Section 12 B of the said Act is applicable only in case of assets where there was a cost of acquisition
In support of this contention Mr Desai cited some judgments including the decision of this Court in CIT vs Srinivasa  Setty  which was a case pertaining to goodwill
It was on the other hand submitted by Mr Manchanda that it was not open to Mr Desai to raise this contention at all as it did not arise out of the decision of 995 the Tribunal and was not reflected in the questions referred by the Tribunal and particularly in the question in respect of which certificate of appeal has been granted
In our view the submission of Mr Manchanda must be upheld
The question in respect of which certificate of fitness has been granted clearly relates to one controversy namely whether the provisions of Section 12 B of the said Act can be brought to play in this case as the transfer is of lease hold interest in immovable property for 99 years and not an outright sale of transfer of the complete interest of the transferor in the immovable property
The question as to whether Section 12 B can be brought into play where the property sold has not cost anything to acquire as it was gifted or was not urged before any of the Income tax authorities nor before the Tribunal or even before the High Court
That question has not in any way been covered by the decision of the Tribunal or the High Court
In Commissioner of Income Tax Bombay vs Scindia Steam Navigation Co Ltd 1961 42 ITR p 589 four prepositions have been laid down by this Court in this connection and they are as follows 1 When a question is raised before the Tribunal and is dealt with by it it is clearly one arising out of its order
2 When a question of law is raised before the Tribu nal but the Tribunal fails to deal with it it must be deemed to have been dealt with by it and is therefore one arising out of its order
3 When a question is not raised before the Tribunal and the Tribunal deals with it that will also be a question arising out of its order
4 When a question of law is neither raised before the Tribunal nor considered by it it will not be a question arising out of its order notwithstanding that it may arise on the findings given by it
In our view the present case falls squarely within the fourth category namely of cases where a question of law is neither raised before the Tribunal nor considered by it and the aforesaid decision clearly lays down that in such a case the question would not be a question arising out of the order of the Tribunal notwithstanding that it may arise on the findings given by it
Mr Desai sought to rely on the observations in that judgment to the effect that a question of law might be a simple one having its impact at one point or it may be a complex one trenching over an area with approaches leading to different points 996 therein and that such a question might involve more than one aspect but that would not by itself be sufficient to prevent the party concerned from raising it under Section 661 of the said Act
In our view these observations are of no relevance in the case before us as the question sought to be raised by Mr Desai was neither raised before the Tribunal nor considered by it nor does it arise on the judgment of the Tribunal
Merely because a question of law might arise on the facts found by the Tribunal this would not render it a question arising out of the decision of the Tribunal
Moreover it is interesting to note that in the present case there is no finding of fact that the Inam was originally given without consideration although we agree that it must almost certainly have been so
However what the assessee sold was not the agricultural land which was given to the assessee s ancestor under the Inam but land which was developed as housing sites on which development the assessee had spent considerable amounts of money
In our view therefore it is not open to Mr Desai to raise this question at all
The next question which we have to consider is whether the provisions of Section 12 B of the said Act can be brought into play although what was transferred was only lease hold interests in the lands in question
In this connection it is significant that the leases are for a long period of 99 years and in all the transactions of lease premium has been charged by the assessee for the grant of the lease concerned
In Traders and Miners Ltd vs Commissioner of Income Tax Bihar and Orissa 1955 27 ITR p 341 a case decided by a Division Bench of the Patna High Court the assessee let on lease for 99 years a portion of a Zamindari acquired by it
The lease related to the surface right together with nine mica mines located in that area
The consideration for the lease was the payment of a salami  and a reserve rent per year
The Income tax Officer determined the cost to the assessee of the mineral rights and after deducting this amount from the salami he assessed the balance to tax as capital gains under Section 12 B of the said Act
It was held by the Patna High Court that the gains arising from the said transaction were rightly taxed
This decision has been cited without comment by Kanga and Palkhivala in their commentary on the Law of Income tax 7th Edition at page 550 and no contrary case has been cited in the said text book or has been brought to our attention
It is true that the decision of the Patna High Court relates to a case of mining lease but to our mind the principle laid down in that case can well be applied to the case before us
In the first place the lease is for a long period namely 99 years hence it would appear held that under the leases in question the assessee has parted with an asset of an enduring nature namely the rights to possession 997 and enjoyment to the properties leased for a period of 99 years subject to certain conditions on which the respective leases could be terminated
A premium has been charged by the assessee in all the leases
In these circumstances we fail to see how it could be said that the provisions of Section 12 B of the said Act cannot be brought into play
The grant of the leases in question in our view amounts to a transfer of capital assets as contemplated under Section 12 B of the said Act
In the result we find that there is no substance in the appeal and dismiss the same with costs
SL Appeal dismissed


Summary:
The appellants are a Company and its Managing Director
The Company imported two consignments of refined industrial Coconut oil
The ships carrying the aforesaid cargo arrived at the port of destination on 10th September 1982 and 22nd September 1982
The appellant No 1 filed the bills of entry for release of the said cargo in the office of the Assistant Collector of Customs
Instead of release of the cargo notices to show cause were received by the appellant on the allegation that the import of industrial coconut oil was not legal as it was a canalised item
The appellant No I was also called upon to show cause as to why the cargo should not be confiscated under section 111d of the and also as to why he should be not penalised under Section 112 thereof
The appellant showed cause and took the stand that import of industrial coconut oil was not banned under the import policy of the Government for the relevant period
When personal hearing was afforded it was also pointed out that the notices issued by Respondent No 3 were the outcome of bias and that the Joint Chief Controller of Imports and Exports had taken undue interest in the matter
By the adjudication orders dated 17th December 1982 and 20th December 1982 the respondent No 3 came to the conclusion that 953 coconut oil whether edible or not were canalised items and fell within the ambit of Appendix 9 Para 51 of the Import Policy of 1980 81 and that it was also not an item under the o
GL of 1980 81 Policy
It was held that the items that were imported were liable to be confiscated under section 111d of the  but an option was given to redeem the goods on payment of Rs3 crores and Rs2 crores respectively as redemption fines
The appellants filed two Writ Petitions challenging the action of the Collector
The Writ Petitions were heard by a Full Bench of the High Court
Two Judges held that the writ petitions were liable to be dismissed while the third Judge took the view that the action of the Collector was totally untenable and that the writ petitions should be allowed and the order of the Collector should be set aside
The majority of the Judges were also of the view that the quantum of redemption fine should be considered by the Customs Appellate Tribunal
In the appeals to this Court it was contended on behalf of the appellants 1 The import policy of which year would be applicable the period during which the licences were issued or the time when import actually took place
2 Whether coconut oil appearing in para 5 of Appendix 9 of the Import Policy of 1980 81 was confined to the edible variety or covered the industrial variety
3 Whether in the face of the decision of the Board and Central Government as the statutory appellate and revisional authorities it was open to the Collector functioning in lower tier to take a contrary view of the matter in exercise of quasi judicial jurisdiction and 4 Whether the orders of the Collector were vitiated for breach of rules of natural justice and collateral considerations in the making of the order
Dismissing the Appeals  HELD 1
The High Court has come to the correct conclusion that the terms of the Import Policy of 1980 81 would apply to the facts of these cases
957F In the instant case the licences were either of 1980 or 1981 and were revalidated from time to time subject to the condition that items which do not appear in Appendices 26 5 and 7 of the Import Policy of 1982 83 will not be imported957D 2a Whatever may have been the reason for specifying edible and non edible  classification in 1981 82 if coconut oil  takes within its 954 fold all varieties it must follow that in 1980 81 all varieties of coconut oil were included in paragraph 5 of Appendix 9
958H959A b If coconut oil  of the industrial variety was covered by paragraph 5 of Appendix 9 then it would not have been included in Appendix 10 and therefore could not have been imported under OGL
958C c In Appendix 9 no classification of coconut oil is given and therefore all varieties of coconut oil should be taken as covered by the term
958D d When a customer goes to the market and asks for coconut oil to buy he is not necessarily supplied the edible variety
Coconut oil is put to less of edible use than non edible
958E e The STC was not competent to bind the customs authorities in respect of their statutory functioning and if on actual interpretation it turns out that coconut oil  covered what the appellants have imported the fact situation cannot take a different turn on account of the letter of the STC
At the most it may have some relevancy when the quantum of redemption fine is considered by the Tribunal
959C D 3
In a tier system undoubtedly decisions of higher authorities are binding on lower authorities and quasi judicial Tribunals are also bound by this discipline
However what the Court is now concerned with is not disciplining the Collector in his quasi judicial conduct but to ascertain what the correct position in the matter is
959H960A B 4
The observance of Rules of Natural Justice is not referable to the fatness of the stake but is essentially related to the demands of a given situation
The position here is covered by statutory provisions and it is well settled that Rules of Natural Justice do not supplant but supplement the law
960D E Broome vs Cassell  Co  referred to