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TMI Blog2012 (5) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... ement dated 29-4-1970 entered into by the 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 Rs. 15,32,704/-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 set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 (Bras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR 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. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 5 lakhs. Legal Position 9.1 The Hon'ble Supreme Court in the case of R N Kapoor (supra) brought out the distinction between Lease and License in the following words: "There is a marked distinction between a lease and a licence. Section 105 of the Transfer of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and laid down that the intention of the parties was the real test for ascertaining the character of a document. 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 conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High 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 (AIR 1959 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 of 11 months with one more option to renew for further period of 11 months. The very fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stent 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 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty, the agreement would be construed not as a mere licence but as a lease. Decision: 10.1 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 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 Pruthis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 M. Appukutty (supra) 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 principles established in the above said decision is not correct. In the case of M.N. Clubwala (supra) 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 appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 S.A. Builders Ltd. v. CIT [2007] 288 ITR 1/158 Taxman 74, 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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