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Capital gain on lease and sub-lease

Whether transfer of lease hold right in a property by an assessee by way of a sub-lease to another person would amount to transfer, attracting capital gain?

Facts of the case: - the assessee has taken on lease an immovable property under lease agreement for a period of 22 years and it was further renewable. The assessee had further sub-leased the property for 20 years. The assessing officer holds that transfer of lease by the assessee in favor of sub-lease would amount to transfer of a capital asset, attracting capital gain.

Held: - transfer by way of lease is treated as transfer of a capital asset, on the principle that the lease creates the interest in the land and, it extinguishes the right of the transferor. Whether the owner himself transfers by way of lease or lessee transfers by way of sub-lease, the principle remains the same as in either action there is extinguishment of rights. Thus, the transaction of lease and sub-lease involved in the same instant case, was the transfer within the definition of section 2(47) of income tax act, assessable for capital gains [CIT vs. Sujatha Jewellers (2007) 160 taxman 183/290 ITR 631(Mad.)

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