TMI Blog1983 (9) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... being thereby terminated. The letter further stated that in case the assessee was interested in taking the plot on a permanent lease basis, it should apply to the plot owner in the prescribed form. The plot owner thereafter wrote a letter dated January 21, 1961, wherein the main terms and conditions of the proposed permanent lease were indicated. The period of lease was to be 30 years. Clause 2 provided for payment of premium (ground rent) in lump sum at Re. 1 per sq. ft. and cl. 3 provided that in addition to the above, the permanent lessee was to pay economic rent calculated at the rate of 5% of the total ground rent per annum. Under term 4, the economic rent could be revised at the end of every 15 years and could be increased by 25%. It would appear that the assessee had submitted its plan of construction for approval. However, it was pointed out to it by the plot owner by its letter dated February 6, 1961, that as the assessee had not communicated its acceptance of the terms and applied for permanent lease, its licence dated July 9, 1959, stood terminated and the assessee, therefore, should vacate the plot. The assessee thereafter carried on correspondence and queried the propr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd will be set out fully a little later on. In reply, the assessee contended that the period of the lease should be 30 years from the date of the contract, that is, from May 30, 1962, and not with retrospective effect. It also urged that higher rent at the rate of Rs. 3,125 per annum (as against Rs. 50 per month which it was paying earlier) should also be charged with effect from May 20, 1962. Accordingly, the assessee in its letter dated June 6, 1962, mentioned that it was depositing the first instalment of premium, viz., at Rs. 5,209, and rent for one year, viz., Rs. 3,125, for the period from May 20, 1962, to May 9,1963. In its assessment for the assessment year 1964-65, the assessee claimed, inter alia, this payment of premium amount of Rs. 5,209 under the heading "Rent, rates and taxes." The ITO sought details which were furnished and written submission was handed over. The ITO came to the conclusion that the payment was made for the acquisition of the lease. In the opinion of the ITO the assessee had acquired a capital asset and the premium paid by the assessee for the grant of lease was capital expenditure. It was accordingly disallowed. The same position continued in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember accordingly proposed that the appeal ought to be dismissed on this point. As the two members of the Bench differed in their opinion on this plea, the point of difference was referred to the President under s. 255(4) of the I.T. Act, 1961. The President agreed with the judicial member's opinion that the so called premium was nothing but advance rent. The President referred to the plot owner's earlier letter in which it had bracketed the premium with ground rent. Further, according to the President, as the so-called premium was linked with the area of the plot and the annual rent again linked with the premium, all these would seem to suggest that both the payments were to be considered as part and parcel of rent although different nomenclature had been applied by the parties to the two payments. In the result, the assessee succeeded in its appeals and got relief against the disallowance in respect of the payments made towards the premium amount of Rs. 62,500. Aggrieved by this decision of the Tribunal, the Revenue has claimed the reference in which the above question has been referred to us. Mr. Joshi on behalf of the Revenue referred us to a decision of the Supreme Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a matter of fact, no formal lease was executed and all that had been done was that the lessor extracted more moneys from the assessee which the assessee was constrained to agree to pay in order to protect its business. Finally, considerable reliance was placed on term No. 9 and it was submitted that having regard to the term, it was impossible to conclude that the assessee had acquired an asset of enduring nature. In other words, the argument was that if the plot owner could seek back possession of the plot of land from the assessee at any time, then the so-called acquisition of the leasehold rights for 30 years was just chimerical since the assessee's occupancy could be ended at any time, even within a short spell of one or two years or whenever the plot owner deemed fit to do so. Term No. 9 was also relied on since it provided for refund of a proportion of the premium amount. Our attention was also drawn to the fact that ultimately the plot owner agreed to take the amount in annual instalments and it was suggested that this confirmed that the payment was by way of additional rent and no more. We may now set out fully the said term No. 9 on which great reliance has been placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) to give them to some one else. Thus, we are unable to accept the contention that merely because there is an additional provision for re-entry contained in this term that the assessee did not secure any tenure or certainty of tenure under the lease. The terms and conditions of such agreement have to be construed in their entirety. The lease itself or the terms, since no formal document was executed, provided that the parties contemplated that the lessee was to be undisturbed for 30 years, the stipulated rent was also to be undisturbed for 15 years and even at the end of the said period it could not be enhanced by more than 25%. There was a separate term providing for payment of premium and it would appear to us that the method of calculation of the same with reference to the area or the fact that the rent was to be determined at a percentage of the premium can have no relevance to the question. There is no material to suggest that the assessee did not acquire further certainty of tenure or rent by reason of these terms which were accepted by it in the correspondence. In our opinion, further, the fact that instead of a lump-sum payment as originally contemplated, the plot owner all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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