TMI Blog2010 (6) TMI 485X X X X Extracts X X X X X X X X Extracts X X X X ..... - - ITA No. 7381/Mum/02 & WTA No. 42/03 & 38/Mum/03 - - - Dated:- 30-6-2010 - PRAMOD KUMAR ACCOUNTANT MEMBER J. N.V. VASUDEVAN JUDICIAL MEMBER J. Assessee by : Shri Arvind Sonde Shri S.K. Mutsaddi Department by : Shri N.K. Balodia ORDER PER N.V. VASUDEVAN, JM :- ITA No. 7381/Mum/02: This is an appeal by the Assessee against the order dated 16.8.2002 of CIT(A)-VI, Mumbai, relating to A.Y.98-99. 2. Ground No. 1 was not pressed and the same is dismissed as not pressed. 3. Ground No. 2 raised by the Assessee is with regard to the action of the CIT(A) in confirming the action of the Assessing Officer in assessing the service charges of Rs.83,99,300/- received from letting out business centre as Income from House property as against Income from business considered by the Assessee. 4. This issue arose for consideration in Assessee s case in AY 97-98 and this Tribunal in ITA No. 2834/Mum/2001 held that out of the total sum of Rs.83,99,300/- received by the Assessee from letting out business centre a sum of Rs.5,00,000 can be attributed towards services charges for providing various services which was to be assessed under the head income from other sourc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use (3) of sec. 2(ea) of the Act which excludes any house which the assessee may occupy for the purposes of any business or profession carried on by him . 8. The Assessee owned the property at No. 6, 4th floor, Sahas , Veer Savarkar Marg, Prabhadevi, Mumbai-400 025. According to the Assessee the aforesaid property had all facilities of being used as a business centre. The Assessee had entered into an agreement dated 10-10-1995 (titled Agreement for Security Deposit )whereby the Assessee permitted M/S.Hutchison Max Telecom Pvt.Ltd. (referred to as client in the agreement)to use the facilities at the aforesaid property (according to Assessee a business centre) for a period of 9 years on the terms and conditions contained in a separate range of services agreement of 10-10-95. The Assessee received an interest free security deposit of Rs.6,40,00,000/-under this agreement from M/s. Hutchison Max Telecom Pvt. Ltd.. This sum was to be refunded to M/s. Hutchison Max Telecom Pvt. Ltd., by the Assessee on expiry of the period of the agreement or earlier determination of the agreement. The range of services agreement provides that the Assessee would provide air conditioned Executive Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout notice and thereupon, the centre shall be entitled to prevent access to the Client and its employees into the said business centre and call upon the client to remove its belongings therein. Clause-17 of the agreement provides that because of the nature of the business of the client being a sensitive one viz., cellular phone operators/licencees in Mumbai, the client can have its own security also. Clause-20 provides that all the equipments, furniture, fittings and fixtures provided by the Centre shall be in the possession of and in the complete control of the management of the centre. 10. The plea of the Assessee was that it was in the business of providing business centre facilities and in the course of such business it had allowed M/s. Hutchison Max Telecom Pvt. Ltd., the right to use the business centre. According to the Assessee since the property was used for the purpose of business carried on by the Assessee it cannot be considered as asset u/s. 2(ea) of the Act by relying on clause (3) of sec. 2(ea) of the Act which excludes from the definition of asset, any house which the Assessee may occupy for the purposes of any business or profession carried on by him . Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee is in the business of running a business centre and therefore the de jure occupation by the Assessee was for the purpose of a business which he was carrying on. Further reliance was placed on the decision of the Madras Bench of ITAT in the case of Fagun Co. (P) Ltd. Vs. DCWT 45 ITD 117 (Mad) wherein it was held that when activities of Assessee of letting properties was itself its business, the property so let out was itself to be considered as property used for the purpose of its business. It is worthwhile to mention here that this decision will not be relevant as the provisions dealt with by the Madras Bench of ITAT related to the law as it stood in AY 84-85 and 85-86. We have already seen the expression used in Cl(3) of sec. 2(ea) of the Act. It uses the following expression, viz., any house which the assessee may occupy for the purposes of any business or profession carried on by him . The expression which was considered by the Madras Bench of ITAT was building used by the Assessee for the purpose of its business . The law with which we have deal in the present appeal contemplates actual occupation of the property by the Assessee for a business or profession carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e property was given for occupation by M/S. Hutchinson Max Telecom (P) Ltd. The distinction between a license and a lease in law now requires to be considered. Legal position with regard to what would constitute license or lease is that recitals in a document can never be conclusive and one has to look to the substance of the terms agreed upon and not to the nomenclature given to the deed by the parties. It is not however a question of words but of substance. If the effect of the instrument is to give the holder an exclusive right of occupation of the land though subject to certain reservations or to a restriction of the purposes for which it may be used, it is in law a demise of the land itself. The border line, however, between a licence and a lease is often exceedingly thin. If the contract is merely for the use of the property in a certain way and on certain terms while it remains in the possession and control of the owner, it is a licence. There is, however, a marked distinction between a lease and a licence. A lease is 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 le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, 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-writer hardly conceals the real intent. I, therefore, hold that under the document there was transfer a right to enjoy the two rooms and therefore, it created a tenancy in favour of the respondent. 15. In the light of the principles emerging from the above discussion, we have to see the various terms of the agreement by which the property was allowed to be occupied by M/s. Hutchinson Max Telecom (P) Ltd. The first aspect which we notice is that the tenure of the agreement is for a period of 9 years. In licenses generally no fixed tenure is agreed nor is any notice necessary to terminate the relationship. In the agreements referred to above, there is not even a right reserved to terminate the relationship except on failure to pay the charges agreed under the agreement. The Assessee has received an interest free security deposit of Rs.6.4 Crores which is refundable without interest. In a license such high Security deposit would not be paid because the tenure of occupation is uncertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be held that the premises were given on a license basis by the Assessee. We therefore hold that the Value of the the immovable property at No. 6, 4th floor, Sahas , Veer Savarkar Marg, Prabhadevi, Mumbai-400 025, owned by the Assessee has to be included in the net wealth of the Assessee. 16. The next issue that needs to be determined is as to what should be the value of the property. sec. 7 of the Act lays down that the value of any asset has to be determined in accordance with Schedule-III to the Act. Schedule-III Rules 5 to 8 lay down as to how immovable property has to be valued. Rules-3 lays down that the value of immovable property, being a building or land appurtenant thereto shall be the amount arrived at by multiplying the net maintable rent (NMR) by the figure of 12.5. Rule-4 lays down as to how NMR has to be computed. It says that NMR shall be the gross maintainable rent(GMR) as reduced by amount of taxes levided by local authority and a sum equal to 15% of the GMR. Rule-5 lays down as to how GMR is to be computed. Rule-5(i) lays down that where the property is let, the amount received or receivable by the owner as annual rent or the annual value assessed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said figure by reducing therefrom a sum of Rs.5 lacs and then determine the GMR and the value of the assets. To this extent the CIT(A) gave relief to the Assessee in the matter of valuation of property. 19. Before CIT(A), the Assessee had contended that as per the report of a registered valuer the market value of the property is only Rs.5.84 Crores and by applying the provisions of Schedule-III a higher value cannot be attributed to the property. On this objection the CIT(A) held that the registered valuer report was never filed before the WTO and therefore the same cannot be taken cognizance. The CIT(A) also held that if after applying the rules the value of the property is determined then that value has to be applied. 20. Another contention of the Assessee before CIT(A) was that the matter of valuation ought to have been referred to the Departmental Valuation Officer (DVO) by the WTO. On this issue the CIT(A) held that under sec. 16-A of the Act, it was the discretion of the WTO to refer or not make a reference regarding valuation and he cannot be compelled to make a reference to the DVO. 21. The CIT(A) held that under Proviso (iii) to Expln., to Rule 5 Schedule-III to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of a factory and exempt from taxation. If the Assessee charges rent for the quarters within the factory compound the exemption was not available. The payment received by the Assessee was held to be not in the nature of rent as there was no lease in the larger sense of the term and the quarters were occupied by the workers on a leave and license basis. The second decision was a case where in the context of determination of valuation for the purpose of municipal valuation, the Hon ble Supreme Court had observed that the word to let appearing in the context of use of the property on payment of rent can only mean a situation where the property is let. According to the learned counsel for the Assessee the expression used in Rule 5(i) where the property is let , would therefore mean that the said rule can be applied only when there is a lease and the consideration received for letting out is in the form of a rent and not a case where charges are received as in the case of the Assessee. 23. We have considered the argument of the learned counsel for the Assessee and are of the view that the same is without any merit. We have already held while deciding the first issue that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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