JUDGMENT

KULDIP SINGH, J. :— The question in this appeal is whether the grant of a mining lease for a period of ten years by the assessee can give rise to a capital gain taxable under S. 45 of Income-tax Act, 1961.

2. The assessee, a body of individuals, purchased two pieces of land in the year 1966 measuring 14.55 acres at a price of Rs. 27,260/- By an instrument of lease-cum-licence dated 10th September, 1970 they granted a mining lease in favour of M/s. Sri Krishna Tiles and Potteries (Madras) Private Limited (hereinafter called the Company), an allied concern of the assessee. The lease was for a period of 10 years and the lessee had to pay a premium or salami of Rs. 5 lakhs in addition to the payment of royalty of Rs. 12 per hundred cubic ft. of clay extracted subject to a minimum of Rs. 60,000/- per year.

3. The Income-tax Officer construed the lease- deed as transferring a lease-hold interest in the land in favour of the company and came to the conclusion that the transfer was assessable to capital gains tax. For the purpose of computing the extent of tax the Income-tax Officer assessed the market value of the entire land at Rs. 8 lakhs. Since the leasehold interest was transferred for a sum of Rs. 5 lakhs, he valued the lease-hold interest at 5/8th of the sale price of the entire land. On that basis the Income-tax Officer computed the cost of acquisition of the lease-hold interest at Rs. 17,040/-. being 5/8th of Rs. 27,260/-. Thereafter deducting Rs. 17,040/- from the sale consideration of Rs. 5 lakhs, he treated the sum of Rs. 4,82,960/- as long term capital gains.

4. The assessee preferred an appeal to the Appellate Assistant Commissioner. The Appellate Commissioner held that the value of the right to excavate the land in terms of money is included in the purchase price paid by the assessee for the land. He rejected the argument of the assessee that the cost of acquisition of the said assets could not be determined. He then proceeded to consider the cost of acquisition of such right and differing with the Income-tax officer held that on the facts of the case the cost for the purpose of ascertaining the capital gains would be the total price of the land paid by the assessee, that is, Rs. 27,260/-. On all other points he upheld the order of the Income-tax Officer.

5. The assessee preferred an appeal to the Tribunal. The Tribunal observed that the entire ownership of the property means the ownership of a bundle of rights and a limited interest which can be severed and disposed of for a specified period in the form of lease or mortgage or the like is part of that bundle. According to the Tribunal the purchase price paid by the assessee for the land includes therein a component of purchase price attributable to various kinds of interests embedded in the said land. The Tribunal confirmed the order of the Appellate Commissioner and dismissed the appeal.

6. Arising from the said decision of the Tribunal, the following two questions were referred to the high Court for determination:

(i) Whether, on the facts and in the circumstances of this case, the instrument of lease dated September 10, 1970 effected the transfer of a capital asset within the meaning of section 45 of the Income-tax Act, 1961 and, accordingly, liable to capital gains tax?

(ii) Whether, on the facts and in the circumstances of the case the Tribunal is right in law in holding that the cost of leasehold right is capable of valuation and, as such, capital gains can be computed?

7. The High Court opined that the right conferred on the lessee under the lease deed was also a capital asset in the hands of the assessee-lessor. By giving a liberal meaning to the word "transfer" in Section 2(47) of the Act the High Court held that there was a transfer of capital asset for a consideration of Rs. 5 lakhs under the instrument dated 10th September, 1970. It was further held that the rights of owner of a land include a right to grant the lease for exploiting the land. The High Cour