Income Tax Appellate Tribunal - Mumbai
P.N. Amersey-Huf, Mumbai vs Assessee on 29 February, 2012
ITA No.1879 of 2009
PN Amersey-HUF Mumbai
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" Bench, Mumbai
Before Shri B. Ramakotaiah, Accountant Member and Shri V. Durga Rao, Judicial Member
ITA No. 1879/Mum/2009
(Assessment Year: 2005-06)
P.N. Amersey-HUF Income Tax Officer Prop. of Amersey Industries & 16(1)(4) Exports, CS No.180/1 Arvind House Matru Mandir Darukhana,Quay Street, Rey road(E) Vs Tardeo Mumbai 400 010 Mumbai PAN No: AAAHP 6321 H
Appellant Respondent
Appellant by: Shri Farrokh.V. Irani
Respondent by: Shri D. Prabhakar Reddy, DR
Date of Hearing: 02/02/2012
Date of Pronouncement: 29/02/2012
ORDER
Per B. Ramakotaiah, A.M.
This is an assessee's appeal against the order of the CIT (A)-16 Mumbai dated 30.12.2008. The main issue in this appeal is whether assessee was holding the rights of premises as a licensee or as a lease holder having tenancy rights, so as to subject it to capital gains tax. The other issue is disallowance of interest.
2. The assessee raised the following grounds:
"1.(a) On the facts and circumstances of the case and in law, the learned CIT (Appeals) has erred in confirming the action of the Income Tax Officer in taxing under section 48 r.w.s 55(2) of the I.T. Act a sum of .1,75,00,000/- `
received by the appellant for surrendering the possessory rights of premises situated at Mathuradas Mills Estate by incorrectly treating the said rights as sub tenancy. (b) The learned CIT (Appeal) has further erred in holding that Agreement dated 29-4-1970 entered into by the
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appellant with Nanu's Metal (Brass) Works in not one of Leave and License but is one for Lease and consequently the appellant had right as a sub-tenant in the said premises.
(c) The learned CIT (Appeals) Income Tax Officer has failed to appreciate that the appellant had only possessory rights in the premises surrendered, which are different from tenancy rights and hence the consideration received for the same is not taxable as capital gain under section 48 r.w.s. 55(2)(a) of the IT Act. 2(a). On the facts and circumstances of the case and in law, the learned CIT (Appeals) has erred in disallowing interest of Rs.15,32,704/- paid on loans borrowed by the appellant.
(b) The learned CIT (Appeals) has further erred in enhancing the disallowance of interest to 15,32,704/- .s R
in place of Rs.8,45,352/- as has been done by the Income Tax Officer".
Facts
3. Briefly stated, assessee is carrying on business in the name and style as "Amersey Industries & Exports" (AIE) as sole Proprietor. The AIE was in possession and occupying the premises at Mathura Mills Estate, Lower Parel, Mumbai. The above premises was owned by the trustees of the Trust settled by one Mr. Karuna Shankar Punjaram. The said trust leased out part of property to M/s Nanu Metal (Brass) Works, a partnership firm dated 31.05.1968 on a monthly rent of Rs. 1415/-. M/s Nanu Metal (Brass) Works granted a license in respect of the above premises to AIE and that the agreement dated 29.4.1970 was for a period of 3 years commencing from 01.05.1970 renewable for a further period of 5 years at a time, the aggregate period of license was not to exceed 23 years, for a monthly license fee of Rs. 5000/-. AIE was in exclusive and continuous use, occupation and possession of the said premises. One Mr. Maneck Davar, purchased the trust property from the owners and landlord subject to existing tenancy/ possessory rights. AIE under the deed of surrender dated 24.03.2005 surrendered its
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possessory title/ rights in respect of the said premises for a sum of Rs. 1.75 crores. It was the contention of the assessee that the possessory rights having been part of license given by M/s Nanu Metal (Brass) Works does not have any cost of acquisition and provisions of section 55(2)(a) of IT Act 1961 does not apply as it does not have any tenancy rights in the property. The Assessing Officer after examining the agreement between M/s Nanu Metal (Brass) Works and the assessee came to the conclusion that the assessee has sub-tenancy rights and therefore, the amount was taxable under the provisions of the Act, wherein the cost of acquisition has to be taken as Nil vide section 55(2)(a). The matter was carried to the CIT (A) who considering the objections of the assessee and legal provisions held that the assessee has tenancy rights, therefore, the amount received from M/s Nanu Metal (Brass) Works was taxable under the provisions of the capital gains. The assessee is contesting the above issue in ground no 1.
4. In the course of appellate proceedings, the assessee filed conveyance deed dated 24/3/2005 between the vendors and the said Maneck Davar as part of paper book from 1 to 21 and prayed for admission of the additional evidence as third party evidence. In the course of arguments the learned Counsel referred to the additional evidence to bring to our notice that the conveyance deed specifically mentions that the assessee has only possessory title/rights in the said property. It was noticed that the assessee not only had an agreement with M/s Nanu Metal (Brass) Works, but also had another agreement with M/s Shantilal L. Thar & Co. Therefore, the agreement with the said company was also directed to be placed on record. The assessee placed the said documents on record vide the letter dated 27.12.2001 and also stated that the assessee has not entered into any other agreements with Mr. Maneck Davar, except the one agreement of surrender in which it
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had received sum of Rs. 1.75 crores. Consequent to that, case was again posted for clarification and the assessee was specifically asked whether the premises occupied on the basis of the 2nd agreement with M/s Shantilal L. Thar & Co was surrendered or not and present position thereof. Consequent to that it was informed that the assessee had other surrender agreements and received a sum of Rs. 4,55,46,575/- from M/s Pyramid Ltd and Rs. 5 lakhs from Shri Maneck Davar for surrendering possessory rights of the premises situated in M.M. Estates, the receipt of which were subjected to assessment in the same manner in assessment year 2006-07. The relevant assessment order of 2006-07 was also placed on record.
Arguments
5. The learned Counsel in his submissions referring to the agreement with M/s Nanu Metal (Brass) Works submitted that the assessee had only a license to conduct the business there and the conveyance deed placed on record in the form of additional evidence also indicate that the assessee had only possessory title/rights. He referred to the recitals in the conveyance deed more so the specific recitals in pages 4 to 6 of the conveyance deed to submit that the assessee had only possessory rights as a licensee but does not have any tenancy rights which are with M/s Nanu Metal (Brass) Works and Shantilal L. Thar & Co. It was his submission that both the Assessing Officer and the CIT (A) erred in holding that the assessee has tenancy rights when in fact not only the agreement between the assessee and M/s Nanu Metal (Brass) Works but also the conveyance deed indicate that the assessee was only a license holder. The learned Counsel referred to various case law relied upon before the CIT (A) particularly the case of CIT vs. M. Appukutty (253 ITR 159) wherein it was held that in respect of transfer of possessory rights there would not be tax on the capital gain as the
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cost of acquisition was Nil. It is also submitted that similar view was taken by the Hon'ble Kolkata High Court in the case of CIT vs. General Industries Society Ltd (262 ITD 1) and further by the Delhi Bench of the ITAT in the case of ACIT vs. Girish Chander Verma (104 TTJ 220). It was submitted that since the assessee is having only possessory rights as licensee and does not have any cost of acquisition, the decision of the Supreme Court in the case of CIT vs.
B.C. Srinivasa Shetty (128 ITR 294) apply and the amount of .1.75 `
crores received cannot be taxed as capital gain.
6. He also further placed on record the decision of the Bombay High Court in the case of Sardar Pruthisingh vs Kanchanlal Purushottamdas Desai dated 8.3.2001 (AIR2001 Bom 255) to submit about the distinction between the leave and license and relying thereon submitted that the assessee is having only a license rights and not as a lease and further referred to the observations that the intention of the parties are to be examined, as observed by the Hon'ble Apex Court in the case of Associated Hotels of India Ltd vs. R.N. Kapoor (AIR 1959SC 1262).He also further relied on the decision of the Hon'ble Supreme Court in the case of M.N.Clubwala vs. Fida Hussain Saheb & Others (AIR 1965 SC 610) dated 3.2.1965 wherein the Hon'ble Supreme Court on interpretation of the agreement between the parties came to the conclusion that the intention of the parties was to bring into existence merely a license and not a lease and the word "Rent" was used loosely for 'fee'. He relied on the above decision to submit that the parameters of the above decision equally apply to assessee's facts of the case. Therefore, Assessing Officer and the CIT (A) have erred in treating the license agreement between M/s Nanu Metal (Brass) Works and the assessee as having tenancy rights.
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7. The learned Departmental Representative however, referred to the various clauses extracted by the Assessing Officer in the assessment order along with the order of the CIT (A) from the agreements to submit that even though the agreement was entered as a license, the fact is that it was a lease agreement. He relied on the fact that the original agreement entered way back in 1970 continued till the property was surrendered, assessee was permitted to make constructions and modifications and repairs to the premises occupied by him subject to permissions from the BMC and other authorities and tenants and that, assessee had not only constructed permanent structures but was in occupation of the entire premises for its business of more than 35 years without any interruption. He further submitted that all the rights which M/s Nanu Metal (Brass) Works had in tenancy as tenants were given to the licensee with enhanced rent. Therefore, the principles established by the Hon'ble Supreme Court in the case of Associated Hotels of India Ltd vs. R.N. Kapoor( AIR1959 SC-1262) will equally apply. He further submitted that the case law relied upon by the learned Counsel of the Supreme Court and the Hon'ble Bombay Court (supra) in fact supported the case of Revenue.
Consideration
8. We have considered the issue, examined the legal position as well as various agreements placed on record. There is no need to extract various clauses in agreement with M/s Nanu Metal (Brass) Works which was elaborately done by the Assessing Officer and the CIT (A) in their orders. But briefly stated, the assessee vide the agreement with M/s Nanu Metal (Brass) Works dated 20.4.1970, and specifically modified to assign further rights to associate concerns of the assessee by the supplementary agreement dated 10.4.1981, had continuous possession of the property. The property which was in possession by this agreement was 11,600 sq. feet
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carpet area in the demised premises. The assessee also was in possession of vacant piece of land admeasuring 4572 sq. feet vide the agreement with M/s Shantilal L. Thar & Co which was also similarly worded and entered into with M/s Shantilal L. Thar & Co. on 18th day of April, 1970. There is also a similar revision of agreement on 10.4.1981, as in the case of M/s Nanu Metal (Brass) Works, for extending the rights to provide for associates/ allied concerns of assessee. The picture is more clear, if we examine the conveyance deed where these factors are mentioned in the recitals from Page 4 onwards:
"AND WHEREAS subsequent to the purchase/acquisition of the said larger property, the said Trust, inter alia, created tenancies in respect of part of the said larger property, with which the Vendors are concerned under this Deed of Conveyance, as under: - (a) Tenancy in favour of one M/s Nanu's Metal (Brass) Works (hereinafter referred to as "the said Nanu's Metal") in respect of a premises admeasuring 27,240 sq.ft. (carpet area) or thereabouts, situated on the ground floor of a structure (in existence since last over 50 years), known as "Spinning Shed" and the building adjoining to the said Spinning Shed, which aid structure is situated on the part of the said larger property (hereinafter referred to as "the said demised premises"), assessed by the Assessor and Collector, Municipal Corporation of Greater Mumbai, G (South) No. 204(1-3), Street No. 1041-C, forming Part of C.S. No. 242 of the Lower Parel Division, at and for the monthly rent of Rs.1,415.07 and permitted increases and presently aggregating to Rs.2,512/-, subject to the other terms and conditions and covenants on the part of the said Nanu's Metal to be paid, observed and performed and which said demised premises are more
particularly described in the Second Schedule hereunder written and shown surrounded by red colour boundary line on the plan annexed hereto and marked as Annexure 'A' hereto and
(b) Tenancy in favour of one M/s Shantilal L. Thar & Co. (hereinafter referred to as "the said Thar & Co.") in respect of vacant piece of land admeasuring
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4,572 sq.ft. or thereabouts, being part of the said larger property (hereinafter referred to as 'the said rented property), at and for the monthly rent of Rs.320/- and permitted increases and presently aggregating to Rs.451/- subject to the other terms, conditions and covenants on the part of the said Thar & Co. to be paid, observed and performed, which said rented property is more particularly described in the Third Schedule hereunder written and shown by pink colour wash on the said plan already annexed hereto and marked as Annexure 'A'.
AND WHEREAS subsequent to the acquisition of the said demised premises, the said Nanu's Mental dealt with the same as under: -
(a) Granted Licence in favour of one M/s Amersey Industries & Exports (hereinafter referred to as "the said Amersey Industries") of portion admeasuring 11,600 sq.ft. (carpet area) or thereabouts of the said demised premises (hereinafter referred to as "the part of the said demised premises"), at and for the monthly licence fee of Rs.5,000/- and on the terms and conditions agreed upon by and between them and more particularly described in the Fourth Schedule hereunder;
AND WHEREAS subsequent to the acquisition of the said rented property, the said Thar & Co. dealt with the same as under: -
(a) Granted licence in favour of the said Amersey Industries in respect of the said rented property, at and for the monthly licence fee of Rs.1,145/- reserved and on the terms and conditions agreed upon by and between them;
AND WHEREAS subsequent to the acquisition of the rented property and pursuant to the express permission being granted by the said Thar & Co., the said Amersey Industries constructed a structure having ground and one upper floor thereon, which said structure is more particularly described in the Fifth Schedule hereunder written and shown by words "Ground + UPP. FLR" on the said plan already annexed hereto and marked as Annexure 'A' (hereinafter referred to as 'the said structure");
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AND WHEREAS in the circumstances aforesaid the said Nanu's Metal and the said Thar & Co., claiming to be the tenants in respect of the said demised premised and the said rented property respectively subject to, inter alia, the possessory title/rights of the said Amersey Industries;
AND WHEREAS the said Amersey Industries is in use, occupation and possession of the said demised premises and the said rented property;" (emphasis supplied)
The above indicates that the assessee has not only possessory rights but other rights including development/ construction rights on property for its business. As seen from the order for 2006-07 it is also noticed that assessee not only had these two properties in question under possession but also in occupation of the premises on the ground floor, 1st and 2nd floor in the structure situated in Mathura Mills Estate which was leased to M/s Munsha Investment Corporation a partnership firm on a monthly rent who also become statutory tenant in respect of the premises. The said Munsha Investment Corporation permitted assessee to use in respect of the above premises to AIE under the agreement dated 14.8.1969 for a monthly license fee of Rs. 14,050/-. The agreement was initially for a period of 3 years commencing from 8.8.1969 renewable for a further period. As already stated the assessee has a separate surrender agreement with Mr. Maneck Davar with reference to the premises held by him by virtue of agreement with M/s Shantilal L.
Thar & Co wherein it has received .5 lakhs. `
Legal Position
9. The Hon'ble Supreme Court in the case of Associated Hotels of India Ltd vs R N Kapoor AIR 1959 SC 1262 brought out the distinction between Lease and License in the following words:
"There is a marked distinction between a lease and a licence. Section105 of the Transfer of Property Act defines a lease of
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immovable property as a transfer of a right to enjoy such property made for a certain time in consideration for a price paid or promised. Under s. 108 of the said Act, the lessee is entitled to be put in possession of the property. A lease is therefore a transfer of an interest in land. The interest transferred is called the leasehold interest. The lessor parts with his right to enjoy the property during the term of the lease, and it follows from it that the lessee gets that right to the exclusion of the lessor. Whereas s. 52 of the Indian Easements Act defines a licence thus:
"Where one person grants to another, or to a definite number of other persons, a right to do or continue to do in or upon the immoveable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a licence."
Under the aforesaid section, if a document gives only a right to use the property in a particular way or under certain terms while it remains in possession and control of the owner thereof, it will be a licence. The legal possession, therefore, continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose. But for the permission, his occupation would be unlawful. It does not create in his favour any estate or interest in the property. There is, therefore, a clear distinction between the two concepts. The dividing line is clear though sometimes it becomes very thin or even blurred. At one time it was thought that the test of exclusive possession was infallible and if a person was given exclusive possession of a premises, it would conclusively establish that he was a lessee. But there was a change and the recent trend of judicial opinion is reflected in Errington v. Errington [[1952] 1 All E.R. 149], wherein Lord Denning reviewing the case in law on the subject summarizes the result of his discussion thus at p.155:
"The result of all these cases is that, although a person who is let into exclusive possession is, prima facie, to be considered to be tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy."
The Court of Appeal again in Cobb v. Lane [[1952] 1 All E.R. 1199] considered the legal position and laid down that the intention of the
parties was the real test for ascertaining the character of a document.
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At p.1201, Somervell, L.J. stated:
"..... the solution that would seem to have been found is, as one would expect, that it must depend on the intention of the parties."
Denning, L.J., said much to the same effect at p. 1202: "The question in all these cases is one of intention: Did the circumstances and the conduct of the parties show that all that was intended was that the occupier should have a personal privilege with no interest in the land?"
The following propositions may, therefore, be taken as well established:
(1) To ascertain whether a document creates a licence or lease, the substance of the document must be preferred to the form;
(2) the real test is the intention of the parties - whether they intended to create a lease or a licence; (3) if the document creates an interest in the property, it is a lease; but if it only permits another to make use of the property, of which the legal possession continues with the owner, it is a licence; and (4) if under the document a party gets exclusive possession of the property, prima facie, he is considered to be a tenant; but circumstances may be established which negative the intention to create a lease. Judge by the said tests, it is not possible to hold that the document is one of licence. Certainly it does not confer only a bare personal privilege on the respondent to make use of the rooms. It puts him in exclusive possession of them, untrammeled by the control and free from the directions of the appellants. The covenants are those that are usually found or expected to be included in a lease deed. The right of the respondent to transfer his interest under the document, although with the consent of the appellants, is destructive of any theory of licence. The solitary circumstance that the rooms let out in the present case are situated in a building wherein a hotel is run cannot make any difference in the character of the holding. The intention of the parties is clearly manifest, and the clever phraseology used or the ingenuity of the document-wrier hardly conceals the real intent."
9.2 In the case of M.N.Clubwala vs. Fida Hussain Saheb & Others (AIR 1965 (SC) 610) dated 3.2.1965, the Hon'ble Supreme Court examined the distinction between the lease and license and held that whether an agreement creates between the parties, the relationship of landlord and tenancy are merely that of
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licensor and licensee the decisive consideration is the intention of the parties. This intention has to be ascertained on a consideration of all the relevant provision in the agreement. In the absence of formal document the intention of the parties must be inferred from the circumstances and conduct of the parties. The facts in the above case were that the appellant owned a market consisting stalls which were occupied by the stall holder. The appellant had been granted a license by the Municipal Corporation under which he was required to discharge certain duties like cleaning as well as disinfecting them and of opening and closing the market at specified time. However, stall holders were not allowed to remain in occupation of sales beyond the closing and were required to pay certain rent for each day of occupation. On the question whether the stall holders were lessee or mere licensee it was held that the stall holders were licensee of the appellant. The intention of the parties was to bring into existence merely the licensee and not a lessee ad the word rent was used loosely for fee. Elaborating on the above it was further discussed vide Para 12 of the above order as under:
"12. While it is true that the essence of a licensee is that it is revocable at the will of the grantor the provisions in the licensee that the licensee would be entitled to a notice before being required to vacate is not inconsistent with a licence. In England it has been held that a contractual licence may be revocable or irrevocable according to the express or implied terms of the contract between the parties. It has further been held that if the licensee under a revocable licence has brought property on to the land, he is entitled to notice of revocation and to a reasonable time for removing his property, and in which to make arrangements to carry on his business elsewhere (see Halsbury's Law of England, 3rd edn.Vol.23,p.431). Thus the mere necessity of giving a notice to a licensee requiring him to vacate notice to a licensee requiring him to vacate the licensed premises would not indicate that the transaction was a lease. Indeed, S.62 (c) of the Indian Easements Act, 1882 itself
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provides that a licensee is deemed to be revoked where it has been either granted for a limited period, or acquired on condition that it shall become void on the performance or non-performance of a specified act, and the period expires, or the condition is fulfilled. In the agreements in question the requirement of a notice is a condition that if that condition is fulfilled the licence will be deemed to be revoked under s. 62. It would seem that it is this particular requirement in the agreements, which has gone a long way to influence the High Court's finding that the transaction was a lease. Whether an agreement creates between the parties, the relationship of landlord and tenant or merely that of licensor and licensee, the decisive consideration is the intention of the parties. This intention has to be ascertained on a consideration of all the relevant provisions in the agreement. In the absence, however, of a formal document the intention of the parties must be inferred from the circumstances and conduct of the parties (libid p.427). Here the terms of the document evidencing the agreement between the parties are not clear and so the surrounding circumstances and the conduct of the parties have also to be borne in mind for ascertaining the relationship between the parties. Again as already stated, the documents relied upon being merely agreements executed unilaterally by the stall holders in favour of the landlords they cannot be said to be formal agreements between the parties. We must, therefore, look at the surrounding circumstances. One of these circumstances is whether actual possession of the stalls can be said to have continued with the landlords or whether it had passed on to the stall holders. Even if it had passed to a person, his right to exclusive possession would not be conclusive evidence of the existence of a tenancy though that would be a consideration of first importance. That is what was held in Errington v. Errington and Woods, 1952-1 K B 290 and Cobb v. Lane, 1952-1 All E R 1199. These decisions reiterate the view which was taken in two earlier decisions. Clore v. Theatrical Properties Ltd and Westby and Co. Ltd 1936- 3 All ER 483 ad Smith and Sony v. Assessment Committee for the Parish of Lambeth (1882) 10 QBD 327 at p.330. Mr.S.T. Desai appearing for the appellants also relied on the decision of the High Court of Andhra Pradesh in Vurum Subba Rao v. Eluru Municipal Council, ILR (1956) Andhra 515 at p.520-4 as laying down the same proposition. That was a case in which the High
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Court held that stall-holders in the municipal market were liable to pay what was called rent to the municipality, were not lessees but merely licensees. The fact, therefore, that a stall holder has exclusive possession of the stall is not conclusive evidence of his being a lessee. If, however, exclusive possession to which a person is entitled under an agreement with a landlord is coupled with an interest in the property, the agreement would be construed not as a mere licence but as a lease. (see Associated Hotels of India Ltd v. R.N. Kapoor, 1960, 1 SCR 368 (AIR1959 SC 1262). In the case before us, however, while it is true that each stall holders is entitled to the exclusive use of his stall from day to day it is clear that he has no right to use it as and when he chooses to do so or to sleep in the stall during the night after closure of the market or enter the stall during the night after 11.00 pm at his pleasure. He can use it only during a stated period every day and subject to several conditions. These circumstances, coupled with the fact that the responsibility for cleaning the stalls, disinfecting them and of closing the market in which the stalls are situated is placed by the Act, the regulations made there under and the licensee issued to the landlords is on the landlords would indicate that the legal possession of the stalls must also be deemed to have been with the landlords and not with the stall holders. The right which the stall holders had was to the exclusive use of the stalls during stated hours and nothing more. Looking at the matter in a slightly different way it would be seem that it could never have been the intention of the parties to grant anything more than a licensee to the stall holders. The duties cast on the landlord by the Act are onerous and for performing those duties they were entitled to free and easy access to the stalls. They are also required to see to it that the market functioned only within the stated hours and not beyond them and also that the premises were used for no purpose other than of vending comestibles. A further duty which lay upon the landlords was to guard the entrance to the market. These duties could not be effectively carried out by the landlord by parting with possession in favour of the stall holders by reason of which the performance by the landlords of their duties and obligations could easily be rendered impossible if the stall holders adopted an unreasonable attitude. If the landlords failed to perform their obligations they would be exposed to penalties under the Act and also
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stood in danger of having their licenses revoked. Could in such circumstances the landlords have ever intended to part with possession in favour of the stall holders and thus place themselves at the mercy of these people. We are, therefore, of the opinion that the intention of the parties was to bring into existence merely a licence and not a lease and the word "rent" was used loosely for 'fee'."
9.3 In the case of Sardar Pruthisingh vs Kanchanlal Purushottamdas Desai in AIR 2001 Bom 255, dated 8.3.2001 the issue involved was whether the document executed by the parties at the time when the respondent was inducted in the suit premises, is in the agreement of leave and license or a deed of lease? In this the Hon'ble High Court considering the document and other circumstance held that the intention of the parties reflected through documents in question and facts and circumstances of the case, it was a lease and not a license. The decision by Hon'ble Bombay High Court vide Para 14 to 19 are as under:
"14. The learned Counsel appearing for the petitioner took me through the oral as well as documentary evidence and pointed out the demerits of the findings recorded by the Lower Appellate Court. He tried his best to highlight the merits of the finding recorded by the Trial Judge. The document, to which my attention was drawn, is the extract of Exh. A, the characteristics of which are already referred to in the opening part of the judgment. The said document, though in a letter form, not only refers to a grant on leave and licence basis at the rate of Rs. 200/- per month inclusive of water charges but promises to pay rent regularly on 10th of each calendar month. The mode of payment of rent and the duration thereof followed by an assurance and promise to pay the rent regularly up to 10th of each calendar month unmistakably indicate that monthly rental of the premises was Rs. 200/- inclusive of water charges to be paid regularly on or before 10th of each calendar month. While recording the payment of advance amount, it has been described as Vent' and immediately in the next clause the duration of the leave and licence is shown to be
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of 11 months with one more option to renew for further period of 11 months. The very fact that the said document was for 11 months is indicative of the fact that it was in the back of the mind of the parties that any document for a duration of more that 11 months would attract the necessity of registration thereof under the Indian Registration Act. Thus, an attempt was made to avoid the registration of document. In the same paragraph the respondent has assured the petitioner that he will not allow anybody to let out or use the premises at any cost. The question of allowing to let out the premises can arise only by a tenant.
15. In the latter part of the document, the respondent has further referred to the payment of Rs. 1,000/- in advance without interest and described the petitioner as landlord. The document further records that the landlord has no objection of his doing business in the aforesaid premises. This particular term is indicative of the creation of the leasehold interest in the property, created in favour of the respondent, in pursuance of which he was put in possession with an option to claim renewal and right to use the premises for business purposes. The establishment of business in the premises creates a goodwill. The uses of the premises for business and development thereof have their own importance. The use of the premises for business and establishment of business therein for a short duration is inconsistent with the normal behaviour of the person taking the premises on leave and licence. The intention of the parties to execute lease cannot be ruled out. All the aforesaid facts, if examined in the light of the terms and conditions set out in the document, arc sufficient to spell out the case of creation of lease.
16. The document relied upon in this case, which is a bed-rock of the controversy, If compared with that of the document set out and interpreted by the Apex Court in Associated Hotel India Ltd. v. R.N. Kapoor. and Sohan Lal Naraindas v. Laxmidas Raghunath Gadit, then one can safely reach to the conclusion that the document in question is nothing but a lease deed. If the approach adopted by the Trial Court in interpreting the document is accepted, It shall defeat the very object of the Bombay Rent Act. It has an effect of permitting the parties to camouflage the real nature of the transaction by resorting to skillful drafting. Such approach is not permissible in law.
17. The surrounding circumstances are also consistent with the deed being one of lease. The notice to vacate the premises was served on the respondent after several months of expiry of the
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terms of the agreement. It is not suggested on behalf of the respondent that there was any relationship between the parties or that they were friends which induced the petitioner to allow the respondent to occupy the premises. The realisation of the charges for use and occupation of the premises was the sole consideration of the transaction.
18. I may point out that both the Courts below have also failed to consider and take into account one more important factor is that the application for ejectment filediiiil1TrialCirtlieTiöO7ihe purpose of court fees and jurisdiction. Obviously, the said valuation was done in pursuance of clause xii o section 6 of the Bo ba Court Fees Act, which specifically deals with the valuation of the suits between the and lord and tenant. The valuation for the court fee and jurisdiction done also indicate that all the while the parties were labouring under the bona fide impression that the dispute between the parties was that of a landlord and tenant. The character of the suit with which the parties approached the Trial Court cannot be ignored.
19. The distinction between leave and licence had been well summarised in Haisbury's Laws of England, Fourth Edition, Volume 27 page 13. In determining whether an agreement creates between the parties the relationship of landlord and tenant or merely that of licensor and licensee the decisive consideration is the intention of the parties. Lord Greene, M. R. had observed this in Booker v. Palmer,. This is a salutary test. The intention here is manifest. In any event this is. a possible view that could be taken. The Apex Court in Venkatlal C. Pittie u. Mis. Bright Bros. (Put.) Ltd.. and MIs. Beopar Sahayak (P) Ltd. v. Vishwa Nath.3 held that where it cannot be said that there was not error apparent on the face of the record, the error, if any, has to be discovered by long process of reasoning and the High Court should not exercise jurisdiction under Article 227 of the Constitution. In this connection the observations made by the Apex Court in Satyanarayan Laxminarayan Hegde v. Malllkarjun Bhavanappa Tirumale. need to be noticed. Where two views are possible and, the Trial Court has taken one view which is a possible and plausible view, merely because another view is attractive, the High Court should not interfere and would be in error in interpreting with the finding of the Trial Court or interfering under Article 227 of the Constitution over such decision".
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9.4 Thus the legal principle that can be deduced from the above cases can be summarized as under:
A) A lease is therefore a transfer of an interest in land. The interest transferred is called the leasehold interest. The lessor parts with his right to enjoy the property during the term of the lease, and it follows from it that the lessee gets that right to the exclusion of the lessor.
B) If a document gives only a right to use the property in a particular way or under certain terms while it remains in possession and control of the owner thereof, it will be a licence. The legal possession, therefore, continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose. But for the permission, his occupation would be unlawful. It does not create in his favour any estate or interest in the property. If, however, exclusive possession to which a person is entitled under an agreement with a landlord is coupled with an interest in the property, the agreement would be construed not as a mere licence but as a lease.
Decision:
10. Considering the principles established by the above, if one examines the agreement between the assessee and the tenants involved therein by M/s Nanu Metal (Brass) Works and also Shantilal L. Thar & Co which also has a bearing on the issue, it is evident that even though the agreement is drafted in such a way with the use of words "license or licensee", the intention of the parties do indicate that it is for creation of tenancy rights.
10.2 There is no dispute with reference to the fact that M/s Nanu Metal (Brass) Works and M/s Shantilal L. Thar & Co were
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having tenancy rights from the trustees. There is also no dispute with reference to the fact that all the rights which have been with the said tenants have been assigned to the assessee (termed as licensee) by the agreement. This is evident from the terms of the agreement itself. In the agreement dated 29.4.1970 between M/s Nanu Metal (Brass) Works and the assessee it was clearly stated as under:
"and where under the lease, they are entitled to make it their own cost, partitions, fitting, fixtures, cabins as may be necessary to allow parts of the said demised premise being occupied by their sub-tenants and/or Licensees.
1.....
2. The Licensees shall use the premises for the purposes for which the lessees are authorized to use and/or the Licensees shall use the demised premises for storage of non-hazardous goods. The Licensees may also use the said premises for business and/or for manufacturing provided however that if on account of user of the said premises for the purposes of business and/or for manufacturing, any taxes are levied by the Bombay Municipal Corporation or other authorities which are not otherwise leviable, the Licensees shall pay such increased taxes.
3...
4...
5...
6. The Licensees shall have the authority to make their own cost partitions, fixtures etc., provided however that they shall not carry out such work which the Licensors are not entitled to do so under the terms and conditions of their lease, and provided that for carrying out such work the Licensees shall obtain the permission from the Bombay Municipal Corporation, if necessary, and in that respect the Licensors agree to sign documents and/or plans if found necessary.
7...
8...
9. It is further agreed that the Licensees shall be entitled to use the said premises for themselves and their
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associates and allied concerns but not exceeding the number such three concerns provided however they shall not be permitted to sublet the said premises. The Licensees will however not assign the right of their occupation to any party, given to them under this agreement without written permission of the Licensors." 10.3 This is also reiterated vide the supplementary agreement as under:
"The party of the second part will use and enjoy the said premises licensed under the aforesaid agreement dated 29th April, 1970 which was subsisting upon 1st February, 1973 for themselves and their associated and allied concerns and shall be entitled to carry on warehousing of other business and/or manufacturing therein, provided however that the party of the second part shall not be entitled to sub-let or to create any sub- license in favour of any party whatsoever in respect of the said premises or any portion thereof" This indicate that all the rights and entitlements which devolved on the tenants were in turn assigned to licensee including the right to construct, repair premises on that. This fact is more visible in the agreement with Shantilal L. Thar & Co which is also incidentally named as license agreement wherein the licensee (i.e. the assessee) were permitted to construct garages and other constructions as are listed in schedule Annexure and to make use of the said land for the purpose of parking their vehicles and cars and use of such land for the purpose instantly to their business. The schedule indicates as under:
To Build:
1. Garages
2. Gas Cabin
3. Storage Tanks
4. Lift well
5. Brick Well
6. Staircase with Canopy
7. Asphalt the area
8. Electric lights
9. Watchman's cabin with sanitary block
10.Boring Well
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Even the agreement with Shantilal L. Thar & Co. effective from April, 1970, further reinforced by the supplementary agreement dated 10.4.1981 (incidentally on the same day as that of M/s Nanu) it is very clear that the assessee was occupying the premises for its business and the use of premises for the purpose of business and development there has its importance, as observed by the Hon'ble Bombay High Court in the above referred case of Sardar Pruthisingh vs Kanchanlal Purushottamdas Desai in AIR 2001 Bom 255, dated 8.3.2001. If compared with that of documents set out and interpreted by the Apex Court in Associated Hotels of India Ltd and others, then one can safely reach to the conclusion that the agreement in question is nothing but, lease deed. 10.4 It is also a fact that the assessee is continuously in occupation of the property, has the rights to construct and even using the entire premises of the Mills compound by way of three agreements on record, one with M/s Nanu Metal (Brass) Works (2) with M/s Shantilal L. Thar & Co and (3) with M/s Munsha Investment Corporation (referred in assessment order for assessment year 2006-07) almost from the same period till the premises was vacated by him/surrendered to the respective buyer(s).
10.5 The Assessing Officer and CIT (A) not only elaborately extracted the clauses but also discussed at length why this is not a license agreement but only a lease agreement. There is no need to extract them in this order but suffice to say that we agree with all the reasons given therein to hold it as a leased agreement.
10.6 In the present case the assessee is in continuous possession of the property, was continuously conducting the business from the premises, in fact had right to construct buildings therein for the purpose of business subject to permission from the
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tenants and the authorities and further he had undertaken to pay increased tax, if any, on the said premises. All these factors including the fact that the assessee undertook not to sublet the premises to others do indicate that the assessee is keeping the premises only as a sub-tenant with tenancy rights. As rightly observed by the Hon'ble Bombay High Court in the case of Sardar Pruthisingh vs Kanchanlal Purushottamdas Desai in AIR 2001 Bom 255, the question of allowing to let out the premises can arise only by a tenant.
10.7 Another factor which also can be viewed, but may not be material for deciding the issue, is that the landlord/vendor has only received a consideration of Rs. 75 lakhs for sale of the trust property, whereas the assessee for surrendering his possessory title/ other rights (as mentioned in the agreement itself) has obtained Rs. 1.75 lakhs (plus Rs. 5 lakhs from Mr. Maneck Davar by virtue of two agreements. Of course since all parties are same, how the amounts are apportioned for vacating two premises under occupation under two different agreements can only be explained by the assessee). The fact is that the amount received by the assessee was more than the amount received by the vendors per se. This also indicates that there is a right in the said property to the assessee and not mere a license holder as contended. Considering all the above aspects, we have no hesitation in affirming the orders of the Revenue authorities that the assessee is having property as a sub tenant and his tenancy rights were surrendered to the buyer. Therefore, provisions of section 55(2) are applicable.
10.8. The case law relied upon by the assessee in the case of CIT vs. M.Appukutty 253 ITR 159 is not applicable for the reason that the act was amended subsequently. The said decision was rendered for the assessment year 1987-88 when the provisions of section 55(2) were not on statute. Therefore, reliance on the
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principles established in the above said decision is not correct. In the case of M.N.Clubwala vs. Fida Hussain Saheb & Others (AIR 1965 (SC) 610) also relied on by the Counsel, the facts are entirely different from that of assessee. The facts in the above referred case are that the appellants were holding the license to a market constituting of stalls which were licensed to various stall holders. The ownership rights were that the appellant and stall holders were conducting their business only for a fixed period and that to they did not have the right to stay in the premises beyond the business hours. Further, the maintenance and cleaning of the market was the responsibility of the appellant (owner) and there is no permission given to keep the goods in the said premises. Accordingly considering those facts, the Hon'ble Supreme Court held that the arrangement is only a license agreement and not lease. Other decisions laid upon are also not applicable as considered above on the facts of the case.
11. Therefore, respectfully following the principles laid down by the decisions of the Hon'ble Supreme Court (Supra) and Hon'ble Bombay High Court in the case of Sardar Pruthisingh vs Kanchanlal Purushottamdas Desai in AIR 2001 Bom 255, we hold that assessee is having substantial rights as tenant (sub-tenant) vide the agreement and not mere license holder and the amount is correctly brought to tax by the Revenue authorities and therefore, assessee's contentions in Ground No.1 does not require any consideration. Accordingly Ground No.1 is rejected.
12. Ground No.2 pertains to the issue of disallowing the interest of Rs. 15,32,704/- on the amounts borrowed by the assessee. The Assessing Officer while completing the assessment noticed that the assessee has advanced borrowed funds interest free. Therefore, invoking the provisions of section 36(1)(iii) disallowed an amount of Rs. 8,45,352/- out of the claim of Rs.
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15,32,704/-. The CIT (A) however, enhanced the amount to the entire amount claimed on the reason that the business of the earlier years has not continued during the year and assessee has not explained why loans were required in this year.
13. It was the submission of the learned Counsel that the assessee continued to be in the business. It was submitted that the assessee was doing the export business in the earlier years whereas this year it was job work done in the same manner but no export activity. In fact business income resulted in loss of Rs. 2,57,817/-, but the business has not stopped and the assessee is in the business. It was further submitted that the CIT (A) erred in giving the finding that there is no business in the year which was carried on earlier for which loans were obtained. The learned Departmental Representative however, relied on the orders of the Assessing Officer.
14. We are unable to understand the logic of the CIT (A) in enhancing the disallowance. It was the submission before him that assessee has old interest free loans as well as interest bearing loans and new loans taken during the year were advanced for business purposes. The assessee further submitted that the labour charges received were to the tune of Rs. 1.26 crores to Rs. 1.75 crores in the earlier three years and the business was done with M/s Milton Skin wear Pvt. Ltd and Miltons Pvt. Ltd. It was also further submitted that the assessee has credit balances, reserves and current liabilities to the extent of Rs. 4.05 crores and investment in fixed assets and current assets to the tune of Rs. 1.75 crores. It was further submitted that the relying on the decision of the Supreme Court judgments in the case of SA Builders (288 ITR 1), the entire amount advanced is for the purpose of business. These aspects were not considered by the CIT (A) in its correct perspective and enhanced the amount. We are of the opinion that the nexus of the
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borrowed funds to that of utilization is to be re-examined by the Assessing Officer so as to determine whether any of the borrowed funds were diverted for non- business purposes. Therefore, in the interest of justice, we restore the issue to the file of the Assessing Officer and direct him to examine and give his findings whether the amounts borrowed on interest were advanced for non business purposes and if so, disallow the amount to the extent of diversion under section 36(1)(iii). The orders of the Assessing Officer and the CIT (A) on this issue are accordingly set aside and the issue to that extent is restored to the file of the Assessing Officer to examine afresh after giving due opportunity to the assessee and decide the disallowance, if any, as per facts and law. Ground No.2 is considered as allowed for statistical purposes.
15. In the result, assessee's appeal is partly allowed.
Order pronounced in the open court on 29th February, 2012.
Sd/- Sd/-
(V.Durga Rao) (B. Ramakotaiah) Judicial Member Accountant Member
Mumbai, dated 29th February, 2012.
Vnodan/sps
Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, " " Bench, ITAT, Mumbai
By Order
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Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
Page 26 of 26
From: surendra basal <surendrabasal@hotmail.com>
To: yahoo group meerut <icai_circ_meerut_ca@yahoogroups.com>
Sent: Monday, 21 January 2013 3:54 AM
Subject: RE: {Amresh's CA's} HUF CREATION
Dear friends,
Question always arises about HUF because many of us could not get our mind set clear on this very concept of taxing family introduced in india since britisher's time. Make clear certain things in mind about it. HUF never been created by the deed or agreement of certain parties. It's a birth right. As soon as a family got created a HUF got created. And everyone know that the creation of family start with marriage so date of marriage can be the date of creation of HUF. Although many Court of Law have differant version on this issue since past time. Some court decision says that date of creation of HUF shall be the date of marriage and many says the birth of a son (now even a daughter after the amendment in Hindu succession act in 2006) shall be the date of creation of HUF. This differantiation in opinion is based on a very fundamental concept of HUF which says that two coparcenor is required to have a HUF and another thought says that a HUF can be a valid HUF even with a single coparcener. As such no corpus is required for a HUF to be a valid HUF. If a natural family is there HUF is very much there.
I am not able to search a judgment of Bombay tribunal in which they stated that date of creation of HUF is the date on which we are eligible to get Child i.e Date of Marriage.
Regards
CA Surendra Jain
Surendra Sunita&Co.
Chartered Accountants
205, Sapphire House
Sapna Sangita Road,
Indore-452001
(O)0731-4215968 (M) 9826378371
To: ICAI_CIRC_MEERUT_CA@yahoogroups.com
From: cachetan003@yahoo.co.in
Date: Sun, 20 Jan 2013 03:28:25 +0800
Subject: Re: {Amresh's CA's} HUF CREATION
Dear Sir,
You cannot create HUF. It is created when there is a "boy" or "girl".
Thank You.
Regards,
CA Chetan Dilipkumar Agrawal
Chetan Dilipkumar Agrawal & Associates,
Shop no.- 13, Tamne Complex,
Nageshwarwadi,
Nirala Bazar Road,
Aurangabad- 431001
Mo.- 9422778561
Sent: Friday, 4 January 2013 5:06 PM
Subject: {Amresh's CA's} HUF CREATION
From: nitin_chaudhary_1986 <fca.nitin1986@gmail.com>
To: ICAI_CIRC_MEERUT_CA@yahoogroups.com
Dear Professional Colleagues,
New Year Greetings...!!!!
Current provision:
(Any hindu individual male can create HUF as soon as he gets married to a hindu female. Its not necessary to have children to create HUF.)
My query :
1.) Since when did this provision came into force?
2.) Earlier to this provision whether having a Kid was mandatory ?
3.) And whether that kid had to be a baby BOY or baby GIRL ?
4.) What impact does the amendment on September 2005, the Hindu Succession Act, 1956 has on the HUF from taxation point of view?
Thanks & Best Regards,
CA.Nitin Choudhary,
Indore
New Year Greetings...!!!!
Current provision:
(Any hindu individual male can create HUF as soon as he gets married to a hindu female. Its not necessary to have children to create HUF.)
My query :
1.) Since when did this provision came into force?
2.) Earlier to this provision whether having a Kid was mandatory ?
3.) And whether that kid had to be a baby BOY or baby GIRL ?
4.) What impact does the amendment on September 2005, the Hindu Succession Act, 1956 has on the HUF from taxation point of view?
Thanks & Best Regards,
CA.Nitin Choudhary,
Indore
__._,_.___
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