Finance Act, 1975

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Chapter III

Anti-avoidance

Amendment of section 80 of Income Tax Act, 1967 .

19.— Section 80 of the Income Tax Act, 1967 , is hereby amended—

(a) by the insertion after “lessor” in the definition of “premium” in subsection (1) of “or to a person connected with the immediate or superior lessor”,

(b) by the substitution for subsection (2) of the following subsection:

“(2) (a) In ascertaining, for the purposes of this Chapter, the duration of a lease, the following provisions shall have effect:

(i) where any of the terms of the lease (whether relating to forfeiture or to any other matter) or any other circumstances render it unlikely that the lease will continue beyond a date falling before the expiration of the term of the lease and the premium was not substantially greater than it would have been (on the assumptions required by paragraph (b)) if the term had been one expiring on that date, the lease shall not be treated as having been granted for a term longer than one ending on that date, and

(ii) where the terms of the lease include provision for the extension of the lease beyond a given date by notice given by the lessee, account may be taken of any circumstances making it likely that the lease will be so extended, and

(iii) where the lessee, or a person connected with him, is or may become entitled to a further lease or the grant of a further lease (whenever commencing) of the same premises or of premises including the whole or part of the same premises, the term of the lease may be treated as not expiring before the term of the further lease.

(b) Paragraph (a) shall be applied by reference to the facts which were known or ascertainable at the time of the grant of the lease, or, in relation to tax under section 83 (4), at the time when the contract providing for a variation or waiver of a kind referred to in the said section 83 (4) is entered into; and in applying the said paragraph (a)—

(i) it shall be assumed that all parties concerned, whatever their relationship, act as they would act if they were at arm's length; and

(ii) if, by the lease or in connection with the granting of it—

(I) benefits were conferred other than vacant possession and beneficial occupation of the premises or the right to receive rent at a reasonable commercial rate in respect of them, or

(II) payments were made which would not be expected to be made by parties so acting if no other benefits had been so conferred,

it shall be further assumed, unless it is shown that the benefits were not conferred or the payments made for the purpose of securing a tax advantage in the application of this Chapter, that the benefits would not have been conferred nor the payments made had the lease been for a term ending on the date mentioned in paragraph (a).”, and

(c) by the insertion after subsection (4) of the following subsection:

“(5) Where an inspector has reason to believe that a person has information relevant to the ascertainment of the duration of a lease in accordance with the preceding provisions of this section, the inspector may by notice in writing require him to give, within twenty-one days after the date of the notice or such longer period as the inspector may allow, such information relevant to the ascertainment of the duration of the lease on the matters specified in the notice as is in his possession.”,

and the definition of premium in the said subsection (1), as so amended, is set out in the Table to this section.

TABLE

“premium” includes any like sum, whether payable to the immediate or a superior lessor or to a person connected with the immediate or superior lessor;