TMI Blog1978 (2) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... alia, as follows : " And Whereas the Lessee has agreed to take a lease for the said period of 84 years of the said messuages, tenements or dwelling houses, land, hereditaments and premises No. 26, Prosonno Coomar Tagore Street, commonly known as 'Tagore Castle' together with the land thereto belonging particularly described in Schedule 'A' hereunder written and delineated in the Map or Plan hereunto annexed and therein enclosed by Red lines including the additions and alterations thereto upon rent hereby reserved and upon terms and conditions hereinafter appearing. Now This Indenture Witnesseth that in consideration of the rent hereby reserved and of the covenants herein contained and on the part of the Lessee to be observed and performed the Lessor doth hereby grant a lease unto the Lessee to commence immediately on the execution of these presents all those in messuages, lands, hereditaments and premises No. 26, Prosonno Coomar Tagore Street, commonly known as 'Tagore Castle' in the town of Calcutta particularly described in Schedule 'A' hereunder written and delineated in the Map and Plan hereto annexed and therein enclosed by Red lines (hereinafter for the sake of brevity ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,281-2-0 (Rupees Four thousand two hundred eighty-one and annas two) and in respect of the occupier's share Rs. 4,281-2-0 (Rupees Four thousand two hundred eighty-one and annas two only) per annum. 3. The Lessee shall have the option to erect from time to time during the term of these presents at its own cost upon the demised premises in a substantial and workmanlike manner with good materials of the several kinds in accordance with the plans, elevations, sections and specifications according to the choice of the Lessee and sanctioned by the Corporation of Calcutta and under the inspection of a competent supervisor to be selected mutually buildings with all necessary out offices, out buildings, boundary walls, sewers, drains and to spend upon such work such sums as the Lessee may in its absolute discretion think proper but such sum or sums to be expended by the Lessee shall not be less than the sum of Rupees Five Lakhs only in the aggregate and to allow the Lessor's Surveyor to verify such expenditure if required to his satisfaction. 4. If the Lessee constructs any new structures and/or building as mentioned in the preceding clause 3 hereof the said structures and/or building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee shall prior to any assignment of its lease give notice thereof to the Lessor in writing containing the name and address of the assignee and furnish other necessary particulars concerning such assignment notwithstanding anything hereinbefore contained the Lessee shall subject to the conditions and covenants herein contained be entitled to sublet or underlet the demised premises or any part thereof and/or grant sub-lease or sub-leases in respect of the demised premises or any portion or portions thereof for a certain term not exceeding or beyond the term hereby created. 13. And the Lessee will at all times during the said term insure and keep insured from loss or damages by fire or other accident the demised premises as aforesaid up to the amount of Rs. 3,00,000 (Rupees Three lakhs) in the joint names of the Lessor and the Lessee in Concord of India Insurance Co. Ltd. of 8, Clive Row, or any other company to be approved of mutually in Calcutta aforesaid and will from time to time whenever requested by the Lessor produce the premium receipt. 14. In case the demised premises shall be destroyed or damaged by fire or other accidents the Lessee shall immediately thereafter lay ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shi Sadan together with the leasehold land appertaining thereto measuring 8,332 sq.ft., for the residue of the unexpired period of the said lease dated the 21st September, 1954, together with the benefits, rights, liberties, privileges thereunder and subject to the payment of a monthly rent of Rs. 51 in respect of the said 8,332 sq.ft. of land on which Sashi Sadan stood and further subject to payment of owner's share and occupier's share of municipal taxes relating to Sashi Sadan. It would also be appropriate at this stage to set out the relevant clauses of the said deed of assignment. The said deed recited as follows : " The Deed of Assignment made this 6th day of August One thousand nine hundred and sixty-two between S. B. (House Land) Limited, a private limited company incorporated under the Indian Companies Act, and having its registered office at No. 2, Ganpat Bagla Road, in Calcutta, hereinafter called the Transferor (which expression shall unless excluded by or repugnant to the context be deemed to include its successors) on the One Part And Srimati Kiron Debi Khaitan, wife of Lalit Kumar Khaitan, residing at No. 4, Queen's Park in the town of Calcutta, hereinafter c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and from the same for ever release and discharge the Transferee as well as the said structure and building hereby transferred together with the sub-leasehold land appertaining thereto) the transferor doth hereby transfer unto the Transferee by way of sub-lease All That the said two storied pucca structure known as Sashi Sadan and used as cold storage together with the sub-leasehold land appertaining thereto and measuring 8,332 square feet be the same a little more or less situate lying and being a portion of premises No. 26, Prosonna Kumar Tagore Street in the town of Calcutta and more fully described in the Schedule hereunder written and shown in the Plan hereto annexed (hereinafter referred to as the said premises) To Have And To Hold the same unto the transferee for the residue now unexpired of the said term of the said lease dated 21st September, 1954, together with the benefits, rights, liberties, privileges thereunder, and subject to the payment of rent mentioned hereinafter to the transferor in respect of the sub-leasehold premises being 8,332 sq. ft. of land appertaining to the said structure known as Sashi Sadan." This gave the transferee the following rights : " 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the month for which such rent shall become due commencing from the 6th day of August, 1962. (c) The transferee shall also pay the owner's and occupier's share of municipal taxes of the said structure hereby transferred. " The Schedule to the said document described the property as under : " All that two storied structure known as Sashi Sadan and used as cold storage and situated on sub-leasehold land measuring 8,332 square feet more or less being portion of premises No. 26, Prosonna Kumar Tagore Street, Calcutta, in Sutanutty in the North Division in the town of Calcutta and delineated in the plan hereto annexed therein bounded with the red border or howsoever otherwise the said structure or any part thereof is or are or at any time heretobefore were or was situate called, known, numbered or distinguished." In the original assessment made by the ITO under s. 143(3) of the I.T. Act, 1961, the ITO had not considered the income from the said Sashi Sadan in the hands of the assessee. Subsequently on the basis of the note prepared by the IAC, Range-VII, the ITO was of the view that since the assessee was the owner of Sashi Sadan, the annual income therefrom should have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t since it had sold the superstructure called Sashi Sadan and had sub-let the land by the deed of assignment dated 6th August, 1962, the assessments, as originally made by the ITO were in order and, therefore, the inclusion of income from Sashi Sadan under s. 22 of the I.T. Act, 1961, in each of the years under reference was bad in law. The AAC, however, in his order dated 15th October, 1973, rejected all the contentions of the assessee and upheld the order of the ITO. Being aggrieved by the said order of the AAC, the assessee went up in further appeal before the Tribunal and, after elaborate discussion, the Tribunal held that the assessments under s. 147(b) of the I.T. Act were valid. The Tribunal, further, on the construction of the two documents were of the opinion that the assessee was the owner of the superstructure known as Sashi Sadan and the income therefrom was liable to be included in the assessee's total income. The Tribunal in its order, inter alia, discussed as follows : " 14. Now coming to the deed of assignment dated 6-8-62 it is pertinent to note that all along in the said deed the term used is 'sub-lease' and not sale of the superstructure known as Sashi Sada ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment proceedings under clause (b) of section 147 of the Income-tax Act, 1961, had been validly initiated by the Income-tax Officer for the assessment years under reference ? 2. Whether, on the facts and in the circumstances of the case and on a true construction of the lease agreement dated September 21, 1954, and the deed of assignment dated August 6, 1962, the Tribunal was right in holding that the assessee was the owner of the superstructure known as Sashi Sadan and, as such, the income therefrom was liable to be included in the assessee's total income for all the years under reference, under section 22 of the Income-tax Act, 1961 ?" The first question, as we have noticed, is directed against the reopening of the assessment. Clause (b) of s. 147 of the I.T. Act, 1961, authorises the ITO to reopen the assessment, if in spite of the fact that there has been no omission or failure on the part of the assessee, as mentioned in cl. (a) of s. 147, the ITO has, in consequence of information in his possession, reason to believe that the income chargeable to tax has escaped assessment for that assessment year. Large number of decisions both of the High Courts and of the Supreme Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be pertaining to either of these premises, but he submitted that there could not be any new information which could lead to the formation of the belief contemplated under cl. (b) of s. 147 on the conclusion or the deduction made from those premises. But, if on certain information, the ITO comes to the belief that the opinion formed by him previously was wrong or incorrect then though that would be a change of opinion, yet such change of opinion, in our opinion, would still be supported by the information received. The process of reasoning or inductive lead, as counsel for the assessee suggested, is a process inevitable in the formation of the belief and if the information, internal or external, throws any light on the process of reasoning then that information justifies the change of opinion and such change of opinion would not fall within the mischief of " mere change of opinion " condemned by the courts. This position, in our opinion, is clearly brought out in the judgment of the Bombay High Court in the case of CIT v. H. Holck Larsen [1972] 85 ITR 467, where Chandrachud J. made the following observations at page 479 of the report : " What is obligatory in order to apply se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st amplitude and comprehended a variety of factors. Nevertheless, the Supreme Court observed, the power under this section, however wide it might be, was not plenary because the discretion of the ITO was controlled by the words " reason to believe ". Information might come from external sources or even from the materials already on record or might be derived from the discovery of new and important or fresh facts and, according to the Supreme Court, s. 34(1)(b) of the Indian I.T. Act, 1922, would apply to, (a) where the information was as to the true and correct state of the law derived from relevant judicial decisions, (b) where in the original assessment the income liable to tax had escaped assessment due to oversight, inadvertence or a mistake committed by the ITO, (c) where the information was derived from an external source of any kind, such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of original assessment, and (d) where the information might be obtained even from the record of the original assessment from an investigation of the materials on the record or the facts disclosed therefrom or f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the acquisition and sale of the properties in question constituted a trade and the profits therefrom were taxable. In the High Court, the appellant contended further that the Crown could not rely on discovery unless the Inspector concerned gave evidence before the Commissioners to show what had been discovered. It was held by the Court of Appeal that there was evidence to justify the Commissioners' conclusion that the appellant was trading and the Inspector had made the requisite discovery that income which ought to have been assessed had not been assessed. After setting out the relevant section which permitted the revenue to act if the surveyor or the Board " discovers or discovered ", Lord Denning M.R. observed at page 474 of the report as follows : " Mr. Marcus Jones says that this case does not come within the word discover in either of these sections. He relied on Anderton Halstead Ltd. v. Birrell [1931] 16 TC 200 (KB), at page 208 where Rowlatt J. said that a change of opinion was in his view not enough : The word " discover " does not, in my view, include a mere change of opinion on the same facts and figures upon the same question of accountancy, being a question of op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of certain facts coming to the knowledge of the ITO would be acting on information as contemplated under cl. (b) of s. 147 of the I.T. Act, 1961. It may in this connection be noted that in the section as it stood in 1922 the word " information " was not there and the section empowered the ITO to reopen the assessment for any year where income chargeable to tax had escaped assessment. No conditions or limitations on the power of the ITO were at all laid down under the section. It was thereafter by the Indian I.T. (Amend.) Act, 1939, that the expression " definite information " was introduced within the section. The word " information " was then qualified by the word " definite " and a further condition was imposed that the ITO had to discover that income chargeable to tax had escaped assessment. Thereafter by the Income-tax and Business Profits Tax (Amendment) Act, 1948, the section was recast and only information was required for the ITO to act in terms of cl. (b) of s. 147 of the Act. In view of the aforesaid history and in view of the expression used in the Act with which we are concerned it would not be proper to say that drawing new inference from the old facts would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt observed that the term " information " in s. 34(1)(b) of the Indian I.T. Act, 1922, really meant knowledge. Therefore, if there is new knowledge or new information and such knowledge leads to a change of opinion, then, in our opinion, as was observed by the court in the case of CIT v. H. Holck Larsen [1972] 85 ITR 467 (Bom) that would not be a case of mere change of opinion but it would be a change of opinion supported by or in consequence of the knowledge received by the ITO and such a change of opinion will not be outside the scope of cl. (b) of s. 147 of the I.T. Act, 1961. As, in this case, there was such an information or knowledge that the original ;assessment might have been wrong and the ITO because of that information hid to re-examine the facts of this case and formed the belief that the income had escaped assessment, in our opinion, it cannot be said that the proceedings were not validly initiated. In the premises, the question No. 1 referred to this court must be answered in the affirmative and in favour of the revenue. This leads us to the second question which is the main controversy on the merits of this case. The question is, whether the assessee was the ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " demised premises ". According to one, indisputably the structures to be built on the leasehold land by the lessee would come within the purview of the " demised premises ". According to the other, the first definition of the " demised premises " as set out in the recital portion, it is, however, doubtful whether the expression " demised premises " would include the structure or structures built on the leasehold land by the lessee. It is, however, clear that cl. (b) of the lease speaks of the obligation to pay rent notwithstanding that the demised premises or the building erected thereon may be destroyed or demolished. In that clause the expression " demised premises " certainly does not cover the structures to be built on subsequently by the lessee in pursuance of the lease. Under the said lease, on the expiry of the term, that is to say, 84 years or earlier determination, the lessee took upon himself the obligation to peaceably and quietly yield up the demised premises together with the buildings to be erected thereon and all additions and alterations thereto and all other buildings at any time erected or standing on the " demised premises " together with all fixtures in such re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and measuring 8,332 sq. ft." and the object is to allow the transferee to " hold the said two-storeyed structure known as Sashi Sadan and being a portion of premises No. 26. Prasanna Kumar Tagore Street, unto the transferee for the residue of the unexpired term of years created by the lease dated 21st September, 1954, and subject to the terms and conditions therein ". Incidentally we may note that counsel for the assessee made a point that while in the deed, that is, the headlease with Maharaja Probirendra Mohan Tagore, the expression used was " to hold " indicating thereby that a lease was being created; in the habendum clause of the instant deed of assignment the expression used on this aspect was " to have and to hold ". Counsel, therefore, sought to urge that while by the lease the lessee was holding only but was not having in the instant deed of assignment the transferee was having it and also holding it. We are of the opinion that much cannot be made of such terminological differences between these two documents. Indeed, the recital portion of the present deed says that the document was being executed for the purpose of " to hold " and not " to have and to hold ". Nothing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferee to pay the monthly sum of Rs. 51 is reiterated together with the obligation to pay the owner's and occupier's share of the municipal taxes of the said superstructure transferred. In the background of the head lease, therefore, it appears to us that the transaction, read in its entirety, indicates a desire to convey the property, that is, the superstructure in question, by way of sub-lease rather than a conveyance of the property by way of sale. In this connection it would be appropriate to remember that assignment can be both by way of lease or sale. Therefore, the use of the expression as " the deed of assignment" does not conclude the matter. Under cl. (j) of s. 108 of the Transfer of Property Act it is provided that a lessee may transfer absolutely or by way of mortgage or sub-lease the whole or any part of his interest in the property and any transferee of such interest or part may again transfer it. The lessee shall not by reason of such transfer cease to be subject to the liabilities attached to the lease. Lease as defined in s. 105 of the Transfer of Property Act means as follows: "105. A lease of immovable property is a transfer of a right to enjoy such propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght not have been included in the expression " demised premises " in the context of cl. 13 of the document of 21st September, 1954. It is, however, clear that the obligations and the rights flowing from such obligations as contemplated in cl. 8 of the document of 21st September, 1954, had not been parted with by the deed of assignment. Similarly, the right or the option to have the renewal has not been parted with in the deed of assignment. Counsel for the assessee contended that on expiration the property would have to be vested in the lessor and, therefore, thereafter it would be given on lease again if the option clause is exercised and renewal is made to the lessee. But exercise of an option of renewal does not transfer any property. (See the observations of the Supreme Court in the case of R. Kempraj v. Burton Son Co. P. Ltd., AIR 1970 SC 1872, at page 1875). But this right, which the lessee had, and a valuable right in our opinion, of exercising the renewal was not parted with by the deed of assignment and that right of the ownership of the superstructure remained with the transferor. Then again under cl. 4 of the lessee's obligations under the head lease it appears that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the owner of a thing may be all but eaten up by the dominant rights of lessees, mortgagees, and other encumbrances. His ownership may be reduced to a mere name rather than a reality. Yet he none the less remains the owner of the thing, while all the others own nothing more, than rights over it. " This decision was reversed on the point of registration in the case of Raghunath v. Kedarnath, AIR 1969 SC 1316. The Supreme Court was not concerned with this aspect of the matter. Our attention was also drawn to the decision of the Judicial Committee in the case of Abhiram Goswami v. Shyama Charan Nandi [1909] LR 36 IA 148; ILR 36 Cal 1003 (PC) and reliance was placed on the observations at page 166. There Sir Andrew Scoble for the Judicial Committee observed as follows : " Sir Robert Finlay, in his able argument for the respondents, contended that a mokurari lease is tantamount to a conveyance in fee simple, and that the lessee must therefore be treated as a purchaser within the meaning of the Limitation Act. But the distinction between the two transactions has been well pointed out by Jenkins J. in his judgment in the case of Kally Dass Ahiri v. Monmohini Dassee [1897] ILR 24 Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is the owner of the property and is not dependent on whether the assessee has the right to receive the income thereof. This point is clearly settled by the decision of the judicial Committee in the case of CIT v. Dewan Bahadur Dewan Krishna Kishore [1941] 9 ITR 695, where the judicial Committee dealing with s. 9 of the Indian I.T. Act, 1922, which is a similar provision, emphasised that the words were " property of which he is the owner " and that cannot be read as to mean " of which annual value he is the owner ". The decision of the Supreme Court in the case of R. B. lodha Mal Kuthiala [1971] 82 ITR 570 was given in the facts and in the circumstances of the case and in the light of the provisions of the Pakistan (Administration of Evacuee Property) Ordinance. There analysing the relevant provisions of the said Ordinance, the Supreme Court had come to the conclusion that s. 6 of the said Ordinance provided that the property should vest and it shall be deemed always to have vested in the custodian. The effect of the Ordinance read in its proper perspective was to make the custodian the owner both in law and in fact and, therefore, in that context it was observed by the Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property computed in the manner prescribed. That liability does not depend either on the power of the owner to earn the income therefrom or on the power or capacity of a person to let it out or his own power to receive rent or income from the bona fide annual value." Reliance for this may also be placed in the observance in the case of Sir Currimbhoy Ebrahim Baronetcy Trust v. CIT [1963] 48 ITR 507 at page 512 (Bom). In view of the fact that we have come to the conclusion that by the document in question there has been a transfer by way of lease and not a sale divesting the transferor of all its rights of ownership, the assessee remained the owner of the property in question and was, therefore, liable to be assessed. Counsel for the revenue contended that this aspect of the matter was not agitated before the Tribunal and should not be allowed to be agitated here. But as this aspect of the matter appears to us to be another legal aspect of the matter we allowed the assessee to raise this contention. In the view we have taken, however, the question No. 2 is answered in the affirmative and in favour of the revenue. SUDHINDRA MOHAN GUHA J.--I agree with My Lord and want to add a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure and essence of the transaction, taken as a whole, not merely the words used in the deed or the ostensible appearance of the sale. The conclusion shall be the cumulative effect of the totality of the circumstances emerging from the agreement. It should be remembered that in a sale there is an absolute transfer of all rights in the property sold, but in a lease there is a partial transfer or divesting of the rights left in the transferor which are called the reversion. It is noticed that under cl. 4 of the deed of lease dated 21st September, 1954, a newly constructed structure would belong absolutely to the lessee on the expiration or sooner determination of the terms of the lease. So, the lessee or the assessee did not have the absolute proprietary right in " Sashi Sadan ", though it had constructed the same at its own cost. In other words, the lessee had not acquired any better or superior right than that of leasehold. Again, under para. 12 of the deed of lease, the lessee, subject to conditions and covenants, was entitled to sub-let or under-let the demised premises or any part thereof and/or grant sub-lease in respect of the demised premises or any portion or portions there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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