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TMI Blog2012 (7) TMI 524X X X X Extracts X X X X X X X X Extracts X X X X ..... signed were not existing on the date of the agreement and therefore these agreements were not valid lease agreement. 3. In view of the above, your application seeking approvals u/s 10(15A) of the Income Tax Act, 1961 in respect of four lease Agreements is hereby rejected." 3. By order dated 29th October, 2009, the said petitioner was informed that their application has already been rejected by the Central Board of Direct Taxes on 7th August, 2009. 4. The writ-petitioner Kingfisher Airlines Pvt. Ltd. in W.P.(C) No. 6429/2011 has impugned order dated 28th June, 2010 passed by the Central Board of Direct Taxes, inter alia, recording as under:- "3. Under Section 10(15A) of the I.T. Act, exemption can be granted only in such a case in which a valid lease agreement was signed before 1.4.2007. Further the provisions of the Transfer of Property Act, the existence of the property is must for a valid lease agreement. Therefore in this case, since the aircraft was not in existence on the date of singing of the Agreements, the agreement cannot be said to be a valid lease Agreement. 4. In view of the above mentioned facts and circumstances of the case, I am directed to convey that your app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2007. Explanation.-For the purposes of this clause, the expression "foreign enterprise" means a person who is a non-resident;" 8. The aforesaid Section was inserted with effect from 24th January, 1989. Initially it was only applicable and confined to payments made to acquire an aircraft on lease. Subsequently, by Finance Act, 1995, benefit under the said section was extended to leases of aircraft engine. Finance Bill, 1997, proposed omission/deletion of Section 10(15A) with effect from 1st April, 1997. However, the Finance Act, 1997 when passed restricted the exemption under Section 10(15A) to agreements entered into prior to 1st April, 1997. The Finance Act, 1999 amended Section 10(15A) with effect from 1st April, 2000, benefit was not extended to agreements entered into between 1st April, 1997 and 31st March, 1999. In other words, benefit was again extended to agreements after 1st April, 2000. By Finance (No.2) Act, 2004, a proviso is inserted to Section 10(15A) to restrict benefit to such agreements entered into on or before 1st April, 2005. This was to become applicable with effect from 1st April, 2006. Finance Act, 2005, however, amended the proviso and extended the benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad assigned their rights to its subsidiaries, namely, Osprey Aircraft Leasing Limited (Fifteen) and (Sixteen) with whom the petitioner subsequently entered into agreements dated 28th March, 2007. 12. The petitioner vide letter dated 26th March, 2007 filed on 29th March, 2007 made an application for grant of approval under Section 10 (15A) of the Act in respect of the two agreements with Osprey Aircraft Leasing Limited (Fifteen) and Osprey Aircraft Leasing Limited (Sixteen). As per the terms and conditions of the said agreements, the leasing company was to finance upto 15% of the PDP reference price in the purchase agreement to be paid in accordance with PDP schedule agreed between Airbus and the petitioner. The financing cost was to be calculated at three months' USD LIBOR plus 2.5% margin. The lessee i.e. the petitioner was liable to pay PDP financing cost at delivery of each aircraft. It is noted that the aircrafts were scheduled to be delivered in future. The lease period was to be commenced from the date of delivery of the aircraft and was for a period of 72 months. 13. It is an accepted position that the aircrafts were granted registration certificate on 14th May, 2009, 5th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents and no doubt that the said contracts are agreements. However, the issue in question is whether these are agreements to acquire aircraft on lease and satisfy the requirement of Section 10 (15A) as the aircrafts were to be manufactured to be inducted/leased in future on or after 1st April, 2007. A lease, as understood in law, requires transfer of interest/right in the property by the owner to a third person. A lease cannot be created in favour of a third person unless the good/property is transferred to the lessee and the lessee is in a position to use and utilize the said good/property. When goods are not in existence, good/property cannot be transferred to lessee. There is a clear distinction between a lease or a sale and an agreement to sell/lease in respect of a good, which will come into existence in future or an agreement to enter into a sale/lease in future. 18. Our attention was drawn to Section 5 of the Transfer of Property Act, 1882, which reads: "5. "Transfer of property" defined.- In the following sections "transfer of property" means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods." 21. An aircraft is a "good". It is a moveable property. 22. Section 4 stipulates that when the property i.e. goods are transferred to a buyer, the contract is called a sale, but when the transfer of property is to take place at a future time, the contract is called an agreement to sell. The agreement to sell becomes a sale when the time lapses and the conditions are fulfilled. Section 6 states that future goods can be made subject matter of a contract of sale, but as per sub-section (3) the contract operates as an agreement to sell. 23. Thus, as per Sections 4 and 6 of the Sales of Good Act, 1930, there cannot be any sale till the property in the good is transferred to the buyer. Therefore, the goods must be in existence, for the title in goods cannot be transferred without they i.e. the goods, being in existence. Future goods, which are to be manufactured, can be made a subject of agreement to sell as title in the said goods cannot be passed till they are manufactured and come into existence. Future goods include potential future goods. In legal sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h it may be that in some cases the right of enjoyment secures to the lessee the ownership of the usufruct (See Dan Singh Bisht versus Firm Janki Saran Kailash Chander Dhampur, AIR 1948 Allahabad 396). A lease is not a mere contract, but it is a transfer of interest that creates a right in rem. The estate which is transferred entitles the lessee to use the said estate and what remains with the owner is the residuary interest. However, there cannot be a lease of a property which is not in existence and is still to be manufactured because till the time property is manufactured, there cannot be any transfer of interest. If the subject matter "good" or the property is only not in possession of the lessor but the property to which he may never establish title, the so called lease will be construed as an agreement to lease upon happening of a contingency (See Mohendra Nath Mookerjee vs. Kali Proshad Johuri, (1903) ILR 30 Calcutta 265). 26. In the present case, there was no lease but only a possibility or an expectancy as the property or goods in question were not in existence on the date of the so called agreements. The agreements cannot be treated as leases but only as agreements for le ..... X X X X Extracts X X X X X X X X Extracts X X X X
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