A lease of mineral rights for 99 years is a transfer of a capital asset within the meaning of Section 12B of the Income-tax Act, and Section 12B is constitutionally valid as it falls within the ambit of item 55 of List 1 of the 7th Schedule of the Government of India Act.

1. In this case the assessee company had purchased, on 16-5-1934, six pies share in the Zamindari of Masnodih Gaddi from one Tufani Singh for a sum of Rs. 40,000. On 3-3-1938, the assessee company similarly purchased 3 annas 9 pies share of the same Zamindari for Rs. 1,27,500 from Christian, Mica Company.

2. There are 120 Mica mines located in the portion of the zamindari acquired by the assessee company. On 7-12-1946, the assessee company executed an indenture of lease in favour of Kedarnath Singh for a consideration of Rs. 92.000 and a reserve rent of Rs. 3,000 per year. The lease was granted for 99 years and comprised an area of 325 acres of the zamindari. The lease related to surface right together I with nine mica mines located in the area demised.

The Income-tax Officer determined that the cost of the mineral right with respect to the nine mines transferred to the company would be Rs. 12,562, on a proportionate basis.

3. After deducting this amount from the Salami of Rs. 92,000 which the Company received from Kedarnath Singh the Income-tax Officer found that the assessee company had made a capital gain of Rs. 79,438 and taxed this amount under Sec.12B, Income-tax Act. The assessee preferred an appeal to the Appellate Assistant Commissioner but the appeal was dismissed.

4. A further appeal was taken to the appellate Tribunal who took the view that the cost price of the nine mines would be Rs. 20,000 and the assessee was liable to be taxed only on the amount of Rs. 72,000. It was argued before the Tribunal on behalf of the assessee that the transaction was not hit by Sec.12B of the Act, but this argument was rejected by the Tribunal. It was contended on behalf of the assessee that Sec.12B of the Act was constitutionally invalid, but this contention also was rejected by the Tribunal. At the instance of the assessee the Tribunal has submitted the following questions of law for the opinion of the High Court:

"(1) Whether the indenture dated 7-12-46 was a sale or transfer of a capital asset within the meaning of Sec.12B(1), Income-tax Act? and (2) whether Sec.12B, Income-tax Act imposing income-tax on capital gains was ultra vires?"

The first question argued in this case is whether the transaction of lease dated 7-12-1946, was a transfer of a capital asset within the meaning of Sec.12B, Income-tax Act. The argument put forward by Mr. Dutta on behalf of the assessee is that a transaction in the nature of a lease would not amount to a transfer of a capital asset and the amount of the Salami received by the assessee company was not taxable under the provisions of Sec.12B of the Act.

5. The question at issue depends on the proper interpretation of Sec.12B

(1), which is in the following terms: "The tax shall be payable by an assessee under the head Capital gains in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after the 31st day of March, 1946, and before the 1st day of April, 1948; and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer, took place......"

The expression "capital asset" is denned In Sec.2(4A) of the Act as:

"property of any kind held by the 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, moveable property; and (III) any land from which the income derived is agricultural income."

6. It should be noticed in this context that Sec. 6 of the Act has also been amended by including therein an additional head of income and that additional head is "Capital gains". The contention advanced on behalf of the assessee is that a "transfer of a capital asset" referred to in Sec.12B should be interpreted to mean a permanent. and out and out transfer of title and a lease of mineral asset even for a per