Income Tax Appellate Tribunal - Delhi
Bharat Hotels Ltd. vs Deputy Commissioner Of Income-Tax on 17 April, 1995
Equivalent citations: [1995]53ITD450(DELHI)
ORDER
Manzoor Ahmed Bakhshi, Judicial Member
1. Appellant is a company and its appeal for assessment year 1987-88, for which the previous year ended on 31-12-1986, is directed against the order dated 7-9-1994 of CIT (Appeals)-XV, New Delhi. The dispute is relating to assessment of Rs. 10.28 crores assessed as income of the assessee out of the receipts shown as deposits from the sub-licensees.
2. Assessee had filed the return of income on 13-4-1988 declaring income of Rs. 36,350. The assessment was originally made on 30-3-1990 at an income of Rs. 8,65,57,166. A sum of Rs. 8,63,37,963 was included in the assessed income as profits from transferring the right to use space in the shopping-cum-commercial building known as World Trade Centre (hereinafter called as WTC). The Assessing Officer held that the so-called shop deposits were the revenue receipts of the assessee for the year under appeal as WTC was completed during the year and the space was allotted to the users. For computing the income of the assessee in respect of this source of income, the expenditure incurred by the assessee on construction was deducted from the total receipts by way of shop deposits.
3. Assessee appealed to the CIT (Appeals), who vide order dated 20-3-1991 in Appeal No. 38/90-91 set aside the assessment to be framed de novo in accordance with law. The Assessing Officer accordingly passed a fresh assessment order vide order dated 30-3-1993.
4. The relevant facts are that in March 1981, Delhi Automobiles (P.) Ltd. (DAPL) entered into an agreement with New Delhi Municipal Committee (NDMC) by virtue of which DAPL was granted a licence to enter and occupy a plot of land measuring about 6 acres at Barakhamba Lane, New Delhi. The licence was granted on the following terms :
(i) an annual licence fee of Rs. 1,45,000 was payable by DAPL as a consideration for the licence;
(ii) the licence was for a period of 99 years, from the date of agreement;
(iii) the said plot of land was to be used for constructing a building with a life of 100 years, to house a five-star hotel and other business appurtenant to furtherance of tourism in India;
(iv) the company was to operate and run a five-star hotel and the shopping-cum-commercial complexes throughout the period of licence, for 99 years;
(v) the licence agreement required DAPL to set up another public limited company and transfer the licence mentioned above to the proposed company within the time limit specified in the agreement.
5. As provided in the licence agreement, a company by the name of Bharat Hotels Limited (BHL), i.e., the assessee was formed. Through an agreement between DAPL and BHL executed on 18-6-1981, all rights, title and interest arising out of the licence deed dated 11-3-1981 were transferred to the assessee. On 22-4-1982, assessee entered into a direct agreement with NDMC by virtue of which assessee was given the direct licence in respect of the land in question at Barakhamba Lane, New Delhi. As per the agreement executed between DAPL and BHL in June 1981, referred to above, it had been agreed between the parties that out of the shop deposits collected by DAPL from prospective occupiers of space in WTC, 25 per cent would be retained by DAPL. Besides DAPL had been granted sub-licence for approximately 1,40,000 sq. ft. space in the proposed hotel which was earmarked for shopping-cum-office-cum-commerical area. This was described as consideration for transfer of licence by the DAPL to the assessee and by way of goodwill. However, subsequently as a result of dispute between Suri Brothers, this part of the agreement was revoked and 25 per cent of the deposits retained by DAPL was returned back to the assessee.
6. As per the licence granted by NDMC, the assessee was authorised to occupy the plot of land, construct a building to accommodate a five star hotel including shopping-cum-commercial space and to operate the same for a period of 99 years. The said agreement also allowed the assessee to raise finances against the commercial complex and to grant sub-licence in respect of office-cum-shop space, car parking and cycle stand etc. Assessee offered the space to the outsiders on the terms and conditions specified in the offer letter. The sub-licensees were required to execute a formal agreement with the assessee and were also required to make a lump sum deposit which was refundable to the sub-licensees on termination or determination of the sub-licence agreement. Assessee claimed that the amounts received as shop deposits were refundable and could not be termed as trading receipts as assessee had not traded in any properly and that in any case, the amount received by way of deposits were refundable. The Assessing Officer rejected the contention of the assessee for the following reasons :
(a) the receipts of money by the assessee is integrally linked to the right of sub-licensee to use the space in WTC. The assessee has received the money from persons to whom it has allotted space and granted the right to use the said space through a sub-licence agreement;
(b) the sub-licensee cannot demand the money back at his free will. If any sub-licensee wants the money back, it has to vacate the space allotted to it;
(c) The occasion for refund of security deposit arises only when sub-licensee vacates the space of his own free will or the assessee terminates the sub-licence in certain exceptional circumstances. In normal circumstances, the assessee cannot evict the sub-licensees and, therefore, (he occasion for refund does not arise.
(d) It is also seen that the amount of security deposit is related to the area of space allotted/allotable. This means more area more deposits and less deposit for less area.
(e) During the period the sub-licensee is in occupation of the space, the assessee has full and free user of money without any interference from the sub-licensees. This is irrespective of the accounting treatment given.by the assessee to such money.
(f) In any case if a particular space falls vacant the assessee can sub licence the said space again and obtain a fresh security deposit. The vacant space is, therefore, under possession and control of the assessee so long it remains vacant.
(g) The assessee cannot argue that these security deposits are a financial arrangements, i.e., these are funds received on loan against the security of building and land, because the assessee was short of funds for completion of its project. This is so, because in terms of its licence agreement with NDMC, the assessee can raise loans on the security structures/buildings/fixtures and fittings and the plot of land only from Indian or foreign licensed banks or from financial institutions and that too if NDMC does not object.
7. The Assessing Officer has further held that most of the sub-licensees in their books of account have not shown the so-called security deposits as refundable to them. They have reflected these amounts in the respective balance sheets as fixed assets under the head 'Building'. The Assessing Officer has further referred to the treatment given by Mrs. Ritu Suri and Kumari Sharda Suri, the family members of the Directors of the company, who have shown the lease rent from leasing of their respective space as income under the head 'Income from House Property'. Mrs. Ritu Suri in her wealth-tax return for assessment year 1990-91 has shown this space as immovable property.
8. Referring to the contention raised on behalf of the assessee that Roger Enterprises, one of the sub-licensees had not claimed to be the owners of the space and had not claimed any depreciation in respect of the premises, the Assessing Officer pointed out that the said sub-licensee had originally disclosed the space as capital asset and claimed depreciation. However, on the advice of Shri R. Ganeshan, the learned counsel for the assessee who also happens to be adviser for that concern, changed the nomenclature of the entries in the books of account as per the Assessing Officer.
9. The Assessing Officer accordingly held that the security deposit was a part of the quid pro quo. The assessee having allowed the use of the space in WTC and collected the shop deposits from the sub-licensees, the said security deposits were refundable only when space was handed over voluntarily by the sub-licensee or the sub-licensee was evicted under exceptional circumstances as provided in the agreement. According to the Assessing Officer, the assessee was having full and free user of the money without any hinderance or restriction from the sub-licensees.
10. In appeal in the first round before the CIT(Appeals), assessee had made following points :
(i) it had no legal right in the plot and that the building also vests in NDMC ;
(ii) it had received moneys from persons to who occupancy rights have been granted. These moneys were to remain with the assessee during the subsistence of the sub-licence agreement;
(iii) the granting of sub-licence only confers right to occupy and exploit the allotted space;
(iv) the assessee has submitted that it was not the owner of the land or the building and, therefore, it could not transfer what it did not own.
(v) The assessee has also claimed that the sub-licensee is a creditor of the company and, therefore, the shop deposits cannot be treated as income;
(vi) The assessee has mentioned that in terms of Indian Registration Act, there can be a transfer only if it is registered;
(vii) The assessee has also claimed that though the property is physically occupied by the sub-licensee, the same has to be held to be occupied by the assessee;
(viii) The assessee asserts that the right to use space in a immovable property is not property in the eye of law;
(ix) Finally, the assessee has stated that the sub-licence agreement has to be read as a whole and clauses cannot be read in isolation.
11. On making de novo assessment, the Assessing Officer, however, rejected the above contentions on behalf of the assessee, by holding that there was distinction between the immovable property and other properties and that the immovable property could be transferred under a registered instrument but the other properties such as right to occupy or enjoy properties could be transferred without registerring the documents under the Indian Registration Act. The Assessing Officer further observed that it was not necessary for the assessee to be the owner of the building or superstructure. Assessee had several rights as enumerated in the licence agreement. According to the Assessing Officer, assessee had a right to sub-licence the space in the shopping-cum-commercial complexes. The sub-licensees had been given the right to further sub-licence to third persons though that required the consent of the assessee. The Assessing Officer held that by reading the agreement as a whole, the contentions raised on behalf of the assessee were not acceptable. In para 9.1 onwards, the Assessing Officer has attempted to distinguish the facts in the case of the assessee and those of DAPL Divya International and Diksha Holdings. Referring to the decision of the Delhi High Court in the case of C.J. International v. NDMC, the Assessing Officer held that NDMC had initiated a proposal for evicting C.J. International from the plot of land and the entire superstructure and secondly, NDMC had served a notice on C.J. International requiring it to pay the arrears of licence fee, damages and interest. It was accordingly held that issues before the Hon'ble High Court of Delhi were not at all relating to the assessability of the moneys received in lieu of transfer of rights to use the space. According to the Assessing Officer, the facts in the case of C.J. International and those in the case of assessee in any case are different insofar as in the case of C.J. International, there was no separate building for a shopping-cum-commercial complex. It was accordingly held that the two cases are not comparable. The learned Assessing Officer has referred to the observation of the Hon'ble High Court in the case of C.J. International where a comparison was sought to be made with the arrangement between NDMC and BHL as under :
Rights of the parties even otherwise arise out of contractual obligations and any comparison with BHL is not only misplaced but thoroughly inappropriate.
It was accordingly held that the decision in the case of C.J. International of the Hon'ble High Court of Delhi was irrelevant and inapplicable to the facts of this case. Reference has been made to the decision of the Bombay High Court in the case of Shree Nirmal Commercial Ltd. (hereinafter SNCL) v. CIT [1992] 193 ITR 694 and the similarities with the case of the assessee highlighted. It has been held that in the case of SNCL the so-called deposits were held by the assessee-company as long as the members/shareholders were in occupation of the floor area allotted to them. In the case of the assessee the deposit could be refunded only on the termination of the sub-licence agreement.
12. It was further held that in both cases though irrespective of nomenclature, moneys were available to SNCL and the assessee during the period the space was occupied and the money was to be returned only when the space was vacated. In the case of SNCL, the right to occupy space was granted after collecting specified amount of deposits from the members. In the case of assessee also, the right to occupy the space was granted upon receiving what the assessee called refundable security deposits. The Bombay High Court in the case of SNCL has held that reference in the balance sheet of the assessee as non-refundable deposits did not partake the character of a loan or an amount which have to be returned. The said observation of the Bombay High Court as per the Assessing Officer was valid in the facts and circumstances of the assessee's case also.
13. In the case of SNCL supra, the Bombay High Court has held that under the cover of taking deposits SNCL has sold the occupancy rights and notwithstanding the nomenclature "deposits", it was a trading receipt. In the case of the assessee, the facts are similar and according to the Assessing Officer, the amount received though termed as deposits were in fact trading receipts of the assessee. The Assessing Officer further observed that the licence of the assessee could be terminated by NDMC only in the event of breach of a contract. Within the period of licence, the assessee had the right to sub-licence the space. The sub-licensee acquired the right to occupy the space and use the space for specified purposes. In lieu the sub-licensee paid a lump sum payment called shop deposits. The sub-licence was for a period of 99 years, which is the period of the licence of the assessee. The shop (deposits would remain with the assessee for the entire period of 99 years unless the sub-licence is terminated or cancelled. During the period, the money remains with the assessee. It has full and complete enjoyment of money without hinderance from the sub-licensees. The sub-licensee cannot demand the money back at his free will. If he wants the money back the corresponding space will have to be vacated and handed over to the assessee. The quantum of the deposits was linked to the area made available to the sub-licensees. The Assessing Officer further held that the sub-licence could be terminated only when there was a breach of contract and in the absence of the same, neither the assessee nor the sub-licensees could be evicted. It was further observed by the Assessing Officer that the sub-licensee had the right to transfer the un-expired portion of the sub-licence to others and earn profits thereon or to allow third party to use the premises and earn rental income thereon though with the consent of the assessee. Assessing Officer had referred to the one instance in the case of Mrs. Ritu Suri. who is the sub-licensee of the assessee and who had given her space on a monthly rent of Rs. 14,000 to a public company. According to the Assessing Officer, the security deposits collected by the assessee was not a debt and as such the amount was assessable as a trading receipt. The findings of the Assessing Officer may thus be summarised as under :
(1) The WTC is an integral part of business of assessee, who has invested its resources for the construction of superstructure housing WTC.
(2) The shopping-cum-commercial space in WTC is a valuable space, in the commercial sense of term because it is located in a prime area of the city.
(3) This valuable space is available with the assessee for commercial exploitation for 99 years.
(4) The assessee has a right to sub-licence the valuable space in WTC for 99 years.
(5) Accordingly, the assessee has in fact granted sub-licence to various persons for 99 years.
(6) As a consideration for granting sub-licence, the assessee has, inter alia, collected a lump sum payment.
(7) While the sub-licensees enjoy the space for upto 99 years, the assessee retains lump sum payment and has complete and unhindered enjoyment of the money during the entire period of sub-licence.
(8) The sub-licensees can be evicted only in exceptional circumstances.
(9) The lump sum payment, irrespective of nomenclature given to it by the assessee, is a part of quid pro quo for allowing right to use space in WTC.
(10) It is, therefore, wrong to call this lump sum payment as a deposit that this payment called deposit is not in the nature of debt or liability notwithstanding the entries in the books of account of assessee.
(11) It is also incorrect to claim that the lump sum payment is refundable. It has to be returned only in the event the sublicensee vacates the space. There can be and there have in fact been occasions when the sub-licensees have transferred the unex-pired portion of sub-licence directly from third party and collected suitable consideration in lieu thereof.
The Assessing Officer accordingly held the receipts of Rs. 18,66,42,654 as consideration received from sub-licensees for allotment of space area of 160724 sq. ft. in WTC. The said amount has been held to be a trading receipt as consideration received for granting sub-licence to various persons. The Assessing Officer, however, allowed a deduction which was calculated as under :
Total area in WTC 215813 sq. ft.
Total cost of construction
as on 31-3-1990 Rs. 11,24,47,973
11.24,47,973 x 160724
The cost for 160724 sq. ft. _____________________
215813
= Rs. 8,37,44,204
= (18,66,42,654 less 8,37,44,204)
Assessable profits = Rs. 10,28,98,450
The profits were accordingly assessed at Rs. 10,28,98,450. Interest income was assessed at Rs. 19,090 and the total income of the assessee was assessed at Rs. 10,29,07,540.
14. Assessee appealed to the CIT (Appeals), who vide impugned order held that assessee had engaged itself in purchasing, acquiring, constructing and letting out on lease shopping arcade, shops, etc., as a business and that the transfer of office-cum-shops space in WTC had been undertaken by the assessee as an organised business activity and the receipts in the name of deposits were the trading receipts of the assessee. The CIT(Appeals) observed that the deposit received from the sub-licensees were not refundable at all. On the basis of enquiries made from some of the sub-licensees, the CIT (Appeals) observed that the amount paid by them was considered as a purchase price for the space and in their respective balance sheets they have declared the space as fixed assets.
15. Referring to the contentions raised on behalf of the assessee that refunds had been granted to some of the sub-licensees, the learned CIT(Appeals) held that in most of the cases, the deposit has been transferred in the name of the nominees. Assessee had given opinion of the former Chief Justice of India Shri Y.V. Chandrachud and that of Shri N. Palkhiwala in support of the contention that the deposits received by the assessee were not taxable as income. The CIT(Appeals) has rejected these opinions on the ground that the said opinions were based on the assumptions that the moneys received by the assessee were refundable deposits. The learned CIT(Appeals) observed that the receipts of the assessee were neither deposits nor refundable and that the moneys in fact received by the assessee were by way of consideration for the sale of the space and superstructure called WTC of which the assessee was the owner. The learned CIT(Appeals) has relied upon the decision of the Bombay High Court in the case of Shree Nirmal Commercial Ltd. (supra) and held that the facts of that case were akin to the facts of assessee's case.
The learned CIT(Appeals) held that refundability of the deposits was of no consequence as per the sub-licence agreement the deposits could not be refunded after execution of the agreement except under exceptional ci rcumstances.
16. Assessee had pleaded before the CIT(Appeals) that in the case of C.J. International Ltd. (supra), the facts were para materia the same as in the case of the assessee and the Hon'ble Delhi High Court had decided the issue in favour of the company. Rejecting this contention the learned CIT(Appeals) concurred with the view of the Assessing Officer and held that the issue before the Hon'ble High Court of Delhi was different and that the issue involved in the case of the assessee regarding taxability of the moneys received as consideration of rights to use space in WTC was not before the Hon'ble High Court. Referring to the decisions in the case of Diksha Holdings and Divya Internationals, the learned CIT(Appeals) held that the arrangements between DAPL and other companies were essentially a financing arrangements and the decisions of the Tribunal in those cases would be inapplicable. The CIT(Appeals) accordingly upheld the treating of deposits of Rs. 18,66,42,654 as trading receipts and taxing it in the relevant assessment year when the WTC started operations.
17. Assessee is in appeal before us. Ground Nos. 1 to 17.4 relate to the assessability of a sum of Rs. 10,28,98,450 as income of the assessee. Ground No. 18 is relating to the assessment of interest amounting to Rs. 19,090 which is dismissed as not pressed.
18. The learned counsel for the assessee Shri R. Ganeshan reiterated the contentions raised before the revenue authorities. It has been vehemently argued that assessee was neither the owner nor a lessee of the building. According to the learned counsel, assessee had no ownership rights in respect of the building which was vested in the NDMC. In this connection, our attention was drawn to the agreement between DAPL and NDMC and subsequent agreement between assessee and the NDMC. It was pointed out that assessee has not been assessed to house tax as the company is not the owner of the property. The learned counsel explained the circumstances under which the assessee had been allotted the land and allowed to raise construction of the Five Star hotel and a commercial complex. The assessee, according to the learned counsel, was allowed to raise finances against the commercial complex, parking space and cycle shed. Assessee had invested some money of its own, borrowed some money from financial institutions and also raised finances from the prospective sub-licensees. Assessee, according to the learned counsel, was not engaged in the real estate business. Our attention was drawn to Clause 30 of the sub-licence agreement by virtue of which assessee was duty bound to refund the deposits received from the sub-licensees. Our attention was also drawn to the decisions of the Tribunal in the cases of Divya International and Diksha Holdings. According to Shri Ganeshan, the finding of the learned CIT(Appeals) that assessee was in fact a lessee of the NDMC in respect of the property was erroneous as the said finding was contrary to the agreements between the assessee and the NDMC. As per the agreement, according to Shri Ganeshan, assessee was merely a licensee and there was no justification for the CIT(Appeals) to record a finding in para 22 of his order that assessee was the lessee of the property. Our attention was drawn to the definition of the "Licence" under Section 52 of the Indian Easement Act, 1882 (Act No. 5 of 1882). According to Shri Ganeshan, Section 60 of the said Act provided for the circumstances under which the licence could be revoked. The learned counsel also referred to the judgment of the Delhi High Court in the case of C.J. International (supra) and the agreement between the assessee and NDMC in support of the contention that the superstructure constructed by the assessee on the land was belonging to the NDMC and vested in NDMC and not with the assessee. Shri Ganeshan further contended that the premises had been declared as a public premises within the meaning of Public Premises (Eviction of Unauthorised Occupants) Act, 1971. Shri Ganeshan contended that the finding of the CIT(Appeals) that assessee was a lessee of the property and not the licensee was contrary to the decision of the Delhi High Court in the case of C.J. International (supra). Referring to the details relied upon by the Assessing Officer and the CIT(Appeals), the learned counsel contended that the said decisions were inapplicable to the facts of this case.
19. With regard to the observation of the revenue authorities that some of the sub-licensees have shown the deposits as capital asset in their respective balance sheets and some had disclosed the income as 'Income from house property' where some claimed depreciation, the learned counsel contended that the conduct of the sub-licensees cannot take place of the law. Shri Ganeshan pleaded that in several cases assessee had refunded the deposits to the sub-licensees, whose sub-licences had been terminated. In several cases, the deposits have been transferred in the names of the nominees of sub-licensees. Shri Ganeshan further pointed out that in the case of Indian Oil Corporation, a deposit of Rs. 9 crore had been received for a portion of the property as security deposit. In order to secure the deposit the Indian Oil Corporation demanded the mortgage of the property. A special permission was sought from NDMC which was granted and accordingly the property mortgaged to the IOC as security for the refund of the deposit. This necessitated execution of supplementary agreement between assessee and NDMC on 16-8-1984. The learned counsel further pointed out that the hotel building (Holiday Inn) and WTC was one project of the assessee and the assessee was not the owner either of the Hotel or of the WTC.
20. Shri Ganeshan vehemently argued that assessee had been allowed to grant sub-licences and raise finances for the construction of the hotel building. Assessee undoubtedly has got the finances from the sub-licensees without payment of any interest. Assessee, according to Shri Ganeshan, was paying taxes on the income derived from the hotel building in which the finances generated from the sub-licensees were invested.
Therefore, assessee was paying taxes on the benefits derived in respect of the deposits by way of utilising the said deposits in the construction and running of the hotel. There was, according to the learned counsel, no justification for the revenue to treat the deposits as trading receipts of the assessee. Referring to the decision of the Bombay High Court in the case of SNCL (supra), the learned counsel contended that there was important distinction between the facts of that case and those of the assessee's case. In the case of SNCL the deposits were non refundable and the amounts had in fact been received as a consideration for transfer of the space. Whereas in the case of assessee, there were no ownership rights which could be transferred to the sub-licensees. Moreover, the security deposit was refundable to the sub-licensees on the termination of the sub-licence agreement or on termination of lease. Information regarding the refund of the deposits and the transfer to the nominees was furnished before us during the course of the hearing.
21. Shri Ganeshan contended that the finding of the revenue that assessee had in fact carried on business in transferring the space to the sub-licensees was misconceived as two conditions are essential, according to the learned counsel, for the construing a transaction as business. One is that there must be goods and the second is that there must be a profit motive. Reference was made to the decision of the Delhi High Court in the case of Bharat Development (P.) Ltd. v. CIT [1982] 133 ITR 470 regarding the meaning of 'word' business.
22. Shri Ganeshan pointed out that house-tax was not to be paid by the assessee as assessee was not the owner of the property. However, as a matter of abundant caution a clause was provided in the sub-licence agreement that in case any house-tax was levied, the sub-licensee would be responsible to pay the same. Shri Ganeshan relied upon the decision of the Delhi High Court in the case of D.S. Bist & Sons v. CIT [1984] 149 ITR 276 in support of the contention that re-writing of an agreement was not permissible. The learned counsel contended that there was no finding of collusion between assessee and NDMC. Assessee had not transferred any ownership rights to the sub-licensees as it had none of its own. Reference was also made to the Special Bench decision of the Tribunal in the case of Detective Devices (P.) Ltd. v. ITO [1987] 22 ITD 9 (Hyd.), where the deposit in the case of gas cylinders was held not to constitute income. Relying upon the decision of the Delhi High Court in the case of P.C. Gulati, Voluntary Liquidator, Panipat Electric Supply Co. Ltd. v. CIT [1972] 86 ITR 501, Shri Ganeshan contended that receipt accruing to the assessee must not have any ambiguity attached to it so as to be assessed as income of the assessee. If the deposits would have been income of the assessee, the same could not be returned. Since assessee had obligation to return the deposits on termination or determination of sub-licence agreements, the said deposits could not be treated as income of the assessee. Reliance was also placed on the decision of the Supreme Court in the case of CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524, in support of the contention that where a receipt is subject to litigation, no income can be said to have accrued to the assessee. Reliance was also placed on the decision of the Supreme Court in the case of CIT v. A. Gqjapathy Naidu [1964] 53 ITR 114 in support of the contention that there must be no ambiguity attached to a receipt in order to be held as income. Shri Ganeshan sought to distinguish the decision of the Bombay High Court in the case of Shree Nirmal Commercial Ltd. (supra) on the following grounds:
(a) In the case of SNCL, assessee had leasehold rights whereas in the case of the appellant assessee was having a licence only;
(b) In the case of SNCL, share money was not refundable whereas in the case of the appellant the deposit was refundable;
(c) In the case of SNCL, the deposit carried interest whereas in the case of the appellant, no interest was payable on the deposits;
(d) In the case of SNCL, property entirely vested in Shree Nirmal whereas in the case of the assessee, the ownership of the property vested in NDMC;
(e) In the case of SNCL, occupants had paid house-tax whereas in the case of the appellant, no house-tax was charged;
(f) In the case of SNCL, the agreement conferred absolute rights on the shareholders whereas in the case of the appellant sub-licence was granted subject to various limitations;
(g) In the case of SNCL, shareholders occupied the premises as a matter of right whereas in the case of the appellant, assessee had also a right in the premises; to the exclusion of sub-licences;
(h) In the case of SNCL, there was no occasion for the shareholders to surrender the property whereas in the case of the appellant, the sub-licensee had to surrender the property on determination of the sub-licence;
(i) In the case of SNCL, the owner was not responsible for the acts of occupier whereas in the case of the appellant, the property had been declared as public premises under the Public Premises (Eviction of Unauthorised Occupant Act, 1971) Act No. 40 of 1971.
23. It was accordingly pleaded that the decision of the Bombay High Court in the case of Shree Nirmal Commercial Ltd. (supra) was inapplicable to the facts of the assessee's case. Shri Ganeshan further contended that assessee had not carried on any business nor had received any consideration. Shri Ganeshan further contended that refundable sums could not be treated as income as none had accrued to the assessee.
24. Without prejudice to the contentions raised on behalf of the assessee that no sum on account of the deposit was assessable to tax, the learned counsel contended that the computation made by the Assessing Officer was totally incorrect. Referring tq para 19.1 of the assessment order, the learned counsel contended that no basis has been indicated by the Assessing Officer for arriving at the figure of Rs. 18,66,42,654. With reference to the balance-sheet, the learned counsel contended that the total amount received by the assessee till the end of the previous year relevant to assessment year 1987-88 was Rs. 16,91,50,527. This included a sum of Rs. 4,68,62,625 in respect of World Trade Tower, construction of which had not been completed by the end calender year 1987. A sum of Rs. 6,74,62,500 included in the aforesaid amount was from Indian Oil Corporation in respect of which possession had been given by the assessee in the calender year 1985. A sum of Rs. 2,45,41,947 was on account of advances in respect of the premises, the possession of which was given in the subsequent years. According to Shri Ganeshan, the deposits in respect of the premises of which the possession was given during the calender year 1986 which is the previous year for the assessment year 1987-88, was Rs. 3,02,83,455 only. Even if the finding of the Assessing Officer relating to assessability of the deposit is upheld, the amount of Rs. 3,02,83,455 less deduction on account of cost of construction, alone would be assessable to tax in the year under appeal. This, according to the learned counsel, is on the basis of the principle laid down by the Bombay High Court in the case of Shree Nirmal Commercial Ltd. (supra).
25. At this stage, the learned counsel filed copy of the assessment order in the case of C.J. International in support of the contention that the Department has not assessed similar deposits in that case and therefore, a different view in the case of the assessee would not be warranted.
26. Ground No. 19 is relating to Section 217. The learned counsel contended that assessee had not paid any advance-tax and the provisions of Section 217 were inapplicable. According to the learned counsel, under Section 209A assessee was required to file statement of advance-tax by 15-6-1986 on the basis of the last assessed income or on the basis of the last returned income, in respect of which tax Under Section 140A had been paid, whichever was higher. Assessee was not required to file the statement of advance-tax. When there was no obligation to file statement of advance-tax on the basis of last assessed income/last returned income in respect of which tax Under Section 140A was paid, whichever was higher, Sub-section (4) of Section 209A has no application. Reliance in this connection was placed on the decision of the Bombay High Court in the case of Patel Aluminium (P.) Ltd. v. K.M. Tawadia, ITO [1987] 165 ITR 99.
27. The learned counsel for the Department Shri G.C. Sharma on the other hand, contended that assessee had acquired a valuable right in the property by entering into an agreement with NDMC. Assessee had been permitted to construct the property on the land allotted by NDMC and was also allowed to give part of the premises on sub-licence. Thus assessee was having transferable rights in which they have traded by treating such rights as stock-in-trade and with a profit motive. Shri Sharma contended that neither under the Income-tax Act or nor under the Transfer of Property Act, immovable property was defined. Therefore, it was necessary to take recourse to Section 3(26) of the General Clauses Act. When NDMC give licence to the assessee, benefit relating to the land had been transferred to the assessee, contended Shri Sharma. Assessee was allowed to transfer the benefits in the shape of sub-licences to others. The interest which assessee was having in the property was capable of being transferred. According to Shri Sharma, assessee had entered into an agreement with NDMC for the purposes of acquiring the rights in the land for the purposes of business. The activities of business are inherent in the agreement between the assessee and the NDMC and in the subsequent activities of the assessee. Shri Sharma contended that as per the agreement between the assessee and the sub-licensees, there was a clear camouflage in description relating to the licence as well as relating to the deposit. Relying upon the decision of the Supreme Court in the case of Associated Hotels of India Ltd. v. R.N. Kapoor [1960] 1 SCR 368, Shri Sharma contended that it was necessary to go into the substance of the agreement between the parties in order to arrive at the conclusion as to whether there was a licence or lease between the parties. In that case, their Lordships of the Supreme Court came to the conclusion that notwithstanding the description in the agreement of the licence between the hotelier and Shri R.N. Kapur, there was in substance a lease between the parties. Shri Sharma contended that the distinction between the licence and the lease has been identified by their Lordships of the Supreme Court in the aforementioned decision at page 383. Relying upon the decision of the Supreme Court in the case of Tara Kishewar Thakurji v. Bardas Dey & Co. AIT [1979] (SC) 1669, Shri Sharma contended that right to carry on mining operations was held to be right to enjoy an immovable property. In that case also, their Lordships of the Supreme Court held that considering the substance of the agreement between the parties, there was a mining lease and not a licence between the parties as described in the agreement. Relying on the same judgment, the learned counsel for the revenue contended that right to enjoy immovable property was a valuable right and transferable right. Therefore, assessee had transferred the right to occupy and enjoy the property to the sub-licensees for a consideration. Shri Sharma contended that though the amount received by the assessee for the transfer of the rights in the property have been described as deposits and claimed to be loans to the assessee, it is not so when the terms and conditions of the agreement are taken into account. Assessee is not paying any interest to the sub-licensees in respect of the so-called deposits. Shri Sharma further contended that it was not a gift to the sub-licensees from the assessee. The amount of deposit was non-refundable. The receipts were incidental to the carrying on of the business of the assessee. Shri Sharma pointed out that as per the agreement between the assessee and the sub-licensees, there was no option left to the sub-licensee to terminate the agreement. The instances of termination cited on behalf of the assessee were with mutual consent and were perhaps for mutual benefit. Referring to Clause 38 of the agreement, Shri Sharma contended that the refund provided thereunder was relating to the security deposit which was a different deposit than the deposit made by the sub licensees for acquiring the rights in the property. Shri Sharma contended that the refund of the deposit on the determination of the licence or termination was merely hypothetical. It was further pointed out that there was no possibility of refund of the deposit except after the expiry of the term of licence, which is 99 years. Shri Sharma pointed out that there was no clause in the agreement enabling the sub- licensees to terminate the agreement. The contingency of the refund was remote. Shri Sharma at this stage pleaded that though as to whether there was a licence or a lease between the assessee and the NDMC and the assessee and the sub-licensees, was immaterial in sofaras it is a matter of fact that assessee was having transferable rights in respect of the property which have been transferred to the sub-licensees yet Shri Sharma contended that transferring of enjoyment of rights of possession and user of the property for a period of 99 years cannot be a licence. It was clearly a lease. A permission to hold a fair or grazing of catties laying of tents on the immovable property would amount to sub-licence whereas on the contrary allowing any person to enjoy the rights of the properties in exclusion to the owner, of such rights would amount to the leasing of the property. Shri Sharma contended that assessee had itself argued that part of the property in question had been mortgaged to the Indian Oil Corporation. If assessee has no rights in the property how could it mortgage the property to the Indian Oil Corporation. According to Shri Sharma the 'interest in the property' was the stock-in-trade of the assessee. Assessee had not only given the right to do something in the premises but also transferred the rights in respect of the property subject to certain limitations. Referring to the agreement between the assessee and the sub-licencees, Shri Sharma contended that the amount received by the assessee was against the transfer of rights and not as a form of security. Shri Sharma contended that the so-called deposit was not to be forfeited in the event of breach of agreement by the assessee. The agreement would be terminated and assessee would get back the rights subject to the condition of returning the money paid by the assessee at the time of acquiring the rights. Shri Sharma further invited our attention to the offer letter to the sub-licensees where the sub-licenssees were required to make the payments to the assessee in phased manner. There was no mention of any refund of the deposit by virtue of this offer letter. According to Shri Sharma, the agreement executed between the assessee and the sub-licensees was clearly a colourable device to avoid payment of taxes. Shri Sharma contended that one has to go to the substance of the agreement and once the agreement is read as a whole, according to Shri Sharma, it is clear that the amount could not be refunded to the sublicensees except at the time of determination of the licence which was to happen after the expiry of 99 years. Shri Sharma invited our attention to the various clauses of the agreement and pointed out that the purchaser had acquired the rights in the property. Most of the allottees had claimed depreciation in the property. The refund was not to be granted to the sublicensees as a matter of right. Though the agreement provides for refund on termination of the agreement, there is no provision for termination except when there was a breach by the sub-licencees. Reliance was placed on the decision of the Karnataka High Court in the case of CIT v. S. Kannan [1994] 210 ITR 585 in support of the contention that if a device was adopted by the assessee for avoidance of taxes, the revenue was entitled to go behind it and examine the true nature of the transaction. Shri Sharma contended that there was no other consideration other than the so-called deposit received by the assessee for transferring the rights of the assessee to the sub-licensees. The other charges described in the agreement were more or less equal to actual expenses incurred by the assessee in connection with services, electricity, etc. Reliance was placed on the Supreme Court decision in the case of Punjab Distilling Industries Ltd. v. CIT [1953] 35 ITR 519 and that of Bombay High Court in the case of Shree Nirmal Commercial Ltd. (supra). Reliance was also placed on the decision of the Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1975] 87 ITR 542 in support of the contention that notwithstanding the fact that assessee had not shown the receipts as taxable in the books of account, the trading receipts could be assessed to tax. Shri Sharma contended that even if Clause 30 of the agreement was interpreted in plain terms, the amount described as deposit would not be a debt owed as the said amount was not payable for a period of 99 years. Distinguishing the decision of the Special Bench of the Tribunal in the case of Detective Devices (P.) Ltd.'s (supra), the learned counsel contended that in that case gas was the commodity in which the assessee was trading. The price recovered for the supply of gas was held taxable. An extra amount had been collected by the assessee for providing the cylinders for the supply of gas. The said amount was held to be security as the transaction of supplying cylinders was held to be separate, independent of the supply of gas. Shri Sharma relied upon the decision of the Tribunal in the case of Century Hotels (P.) Ltd. v. ITO [1983] 3 ITD 185 (Bangalore) in support of the contention that where the amount of deposit was refundable only on termination of lease, the Department was right in assessing the deposit as a revenue receipt. It was accordingly contended that the appeal of the assessee may be dismissed and the so-called deposits held to be trading receipts of the assessee.
28. With regard to the quantification of the assessable amount Shri Sharma fairly conceded that there was a mistake in the quantification of the amount. Shri Sharma conceded that the quantification was to be done on the basis of the principles laid down by their Lordships of the Bombay High Court in the case of SNCL (supra). Shri Sharma pointed out that the deposits received in respect of the premises of which the possession was given during the previous year relevant to assessment year 1987-88 alone would be assessable in the year under appeal. Shri Sharma, however, contended that assessee was not entitled to any deduction on account of cost of construction of property. According to Shri Sharma, the department has wrongly allowed the deduction to the assessee and the Tribunal was empowered to withdraw the deduction allowed to the assessee.
29. We have given our anxious considerations to the rival contentions. Assessing Officer has assessed a Sum of Rs. 10,28,98,450 as income from business, but Shri G.C. Sharma, the learned counsel for the revenue having conceded that only such amounts as relate to the allotted space in respect of which possession has been given during the previous year relevant to the assessment year under appeal alone would be assessable, the real dispute is reduced to the assessment of Rs. 3,02,83,455 less the corresponding cost of construction. The assessable amount would be thus in the range of about Rs. 2 crores only. This figure is, however, subject to verification by the Assessing Officer, if necessary.
30. The issues before us broadly speaking are three-fold :
(a) We have to consider as to whether the agreement between NDMC and the assessee was a lease agreement or an agreement for grant of licence. Similarly, we have to consider as to whether the agreements between the assessee and the allottees were for the transfer of leasehold rights or were merely sub-licence agreements.
(b) Whether the sub-leases or sub-licences, as the case may be, granted to the allottees were in the course of business of the assessee.
(c) If it is held that the sub-leases or sub-licences were in the course of business, whether all the receipts in the course of the said business are assessable to tax as revenue receipts and in particular whether the amounts described as deposits in the aforesaid agreements made by sub-licencee with the assessee are part of the trading receipts and assessable to tax as revenue receipts.
31. We shall first consider as to whether the agreement between the assessee and the NDMC was an agreement granting leasehold rights or was merely a grant of licence. In order to consider this issue, we may usefully refer to some important decisions of the Hon'ble Supreme Court. In the case of Associated Hotels of India Ltd. 's case (supra), there was an agreement between the landlord and Shri R.N. Kapur granting the latter lease and licence to use and occupy the space allotted in the ladies and gents cloak room at the Hotel Imperial, New Delhi for yearly payment of Rs. 9,600. A dispute arose between the parties and their Lordships of the Supreme Court were required to consider as to whether there was a lease granted by the Imperial Hotel, New Delhi to Shri R.N. Kapur or was there a mere licence. The facts of the case where summarised by their Lordships as under:
Two rooms at the Hotel Imperial were put in possession of the respondent for the purpose of carrying on his business as hair-dresser from May 1, 1949. The terms of the document was, in the first instance, for one year, but it might be renewed. The amount payable for the use and occupation was fixed in a sum of Rs. 9,600 per annum, payable in four instalments. The respondent was to keep the premises in good condition. He should pay for power and electricity. He should not make alterations in the premises without the consent of the appellants. If he did not pay the prescribed amount in the manner agreed to, he could be evicted therefrom without notice and he would also be liable to pay compensation with interest. He could transfer his interest in the document with the consent of the appellants. The respondent agreed to pay the amount prescribed whether he carried on the business in the premises or not. Shortly stated, under the document the respondent was given possession of the two rooms for carrying on his private business on condition that he should pay the fixed amount to the appellants irrespective of the fact whether he carried on his business in the premises or not.
On these facts, their Lordships of the Supreme Court held as under :
There is marked distinction between a lease and a licence. Section 105 of the Transfer of Property Act defines a lease of immovable property as a transfer of a right to enjoy such property made for a certain time in consideration for a price paid or promises. Under Section 108 of the said Act, the lessee is entitled to be put in possession of the property. A lease is therefore a transfer of a interest in land. The interest transferred is called the leasehold interest. The lessor parts with his right to enjoy the property during the term of the lease and it follows from it that the lessee gets that right to the exclusion of the lessor. Whereas Section 52 of the Indian Easements Act defines a licence thus :
Where one person grants to another, or to a definite number of other persons, a right to do or continue to do in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property, the right is called a licence.
Under the aforesaid section, if a documents gives only a right to use the property in a particular way or under certain terms while it remains in possession and control of the owner thereof, it will be a licence. The legal possession, therefore, continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose. But for the permission, his occupation would be unlawful. It does not create in his favour any estate or interest in the property. There is, therefore, clear distinction between the two concepts. The dividing line is clear though sometimes it becomes very thin or even blurred.
32. Their Lordships further held that at one time it was thought that the test of exclusive possession was infallible and if a person was given exclusive possession of a premises, it would conclusively establish that he was a lessee. But there was a change and the recent trend of judicial opinion is that although a person who is let into exclusive possession is prima facie considered to be a tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy. Their Lordships further laid down the following propositions for resolving the controversy :
(1) To ascertain whether a document creates a licence or a 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 considered to be a tenant, but circumstances may be established which negative the intention to create a lease.
33. Applying these tests in the case of Sh. R.N. Kapur, their Lordships held that Shri Kapur had been given exclusive possession of the space untrammelled by the control and free from the directions of the landlords. The covenants of the agreement between the parties were found to be such as are usually found or expected to be included in a lease deed. Their Lordships further held that the right of Shri Kapur to transfer his interest under the document although with the consent of the landlord was destructive of any theory of licence. It was further held that the intention of the parties was clearly manifest and that a real intention was concealed in the document by using the clever phrasology. It was accordingly held that there was a transfer of a right to enjoy the two rooms and, therefore, it created a tenancy in favour of Shri Kapur.
34. In the case of Sohan Lal Naraindas v. Laxmidas Raghunath Gadit [1971] 3 SCR 319, their Lordships of the Supreme Court held, a licence confers a right to do or continue to do something in or upon immovable property of grantor which but for the grant of the right may be unlawful, but it creates no estate or interest in the immovable property of the grantor. A lease, on the other hand, creates an interest in the property demises.
35. The intention of the parties to an instrument must be gathered from the terms of the agreement examined in the light of surrounding circumstances. The description given by the parties may be evidence of the intention but is not decisive. The crucial test for each case is whether the instrument is intended to create or not to create an interest in the property, the subject-matter of the agreement. If it is in fact intended to create interest in the property, it is a lease, if it does not, it is a licence. In determining whether the agreement creates a lease or a licence, the test of exclusive possession though not decisive, is of significance. Their Lordships noted that Laxmidas, being the respondent in that case, had been put in exclusive possessiqn of the loft and Shri Sohan Lal being the plantiff in that case, had not reserved possession of any part of the loft or right of entry therein. Their Lordships, considering the facts and circumstance of the case held that an attempt had deliberately made to camouflage the real nature of the agreement by reciting in several clauses that the agreement was for leave and licence and to emphasise it was also recited that the defendant was not to have any right as tenant or subtenant in respect of the loft. Their Lordships of the Supreme Court referred to Section 52 of the Easement Act which defines a licence as under :
Section 52 of the Easements Act: Where one persons grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right be unlawful and such right does not amount to an easement or an interest in the property, the right is called a licence.
36. Section 105 of the Transfer of Property Act which defines lease has also been referred to, which we reproduce hereunder :
Section 105 of the Transfer of Property Act : A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transfer or by the transferee, who accepts the transfer on such terms.
Their Lordships held that a licence confers a right to do or continue to do something in and upon immovable property of grantor which but for the grant of the right may be unlawful, but it creates no estate or interest in the immovable property of the grantor. A lease, on the other hand, creates an interest in the property demised.
37. Their Lordships further held that the intention of the parties to an instrument must be gathered from the terms of agreement examined in the light of surrounding circumstances. The description given by the parties may be evidence of the intention but is not decisive. The use of the words "appropriate to the creation of a lease" will not preclude the agreement operating as a licence. A recital that the agreement does not create a tenancy is also not decisive. The crucial test in each case is whether the instrument is intended to create or not to create an interest in the property. If it is in fact intended to create an interest in the property, it is a lease, if it does not, it is a licence. In determining whether the agreement creates a lease or licence, the test of exclusive possession though not decisive, is of significance.
38. In the case of Mrs. MM Clubwala v. FidaHussain Saheb AIR 1965 (SC) 610, their Lordships of the Supreme Court held that whether an agreement creates, between the parties, relationship of landlord and tenant or merely that of licensor and licensee, the decisive consideration is the intention of the parties. This intention has to be ascertained on consideration of all the relevant provisions in the agreement. In the absence of a formal document, the intention of the parties must be inferred from the circumstances and conduct of the parties. Similarly, where the terms of the documents are not clear, the surrounding circumstances and the conduct of the parties have to be borne in mind for ascertaining the real relationship between the parties. The fact that the premises are in exclusive possession of a person would not make him a lessee. If, however, exclusive possession to which a person is entitled under the agreement with a landlord is coupled with the interest in the property, the agreement would be construed not as a mere licence but as a lease.
39. In the case of B.V. D'Souzav. Antonio Fausto Fernandes [1989] (SC) 1860, their Lordships of the Supreme Court held "For ascertaining whether a document createsea licence or a lease, the substance of the document must be preferred to the form. It is not correct to say that exclusive possession of the property is irrelevant but at the same time it is not conclusive. The other test, namely, intention of the parties and whether the document creates any interest in the property or not, are important considerations.
40. On the facts of this case, their Lordships held as under :
Although the document has been described as an agreement of leave and licence and the parties as the 'Licensor' and the 'Licensee', its provisions unmistakably indicate that the appellant was being let in as a tenant on the mostly rental of Rs. 1,350 (besides water and electricity charges) to be paid regularly on or before the 5th day of each consecutive month. By a clause, it was agreed that the appellant 'shall not sub-let, under-let or part with possession of the premises to any stranger nor shall he keep the premises vacant for more than 3 months without the consent of the licensor', that is, the respondent. The question of executing a sub-lease or sub-letting can arise only by a tenant. If a licensee inducts any person in the property as his tenant, it cannot be described as sub-letting. In another clause it is stated that on the expiry of the period, the deed 'shall be renewable thereafter at the will of the licensee" and in the event of the licensee not desiring to renew, 'shall give one month's notice in writing'. These terms are not consistent with the respondent's case of licence and indicate that an interest in the property was created in favour of the appellant in pursuance of which he was put in possession with a right of renewal.
It could not be contended that if the parties themselves have chosen to describe the transaction as a licence, Court cannot make out a different case for them.
41. The principles emerging from the afore-mentioned decisions of the Supreme Court are as under :
(a) The distinction between a lease and a licence is that in the case of a lease, right is transferred in the immovable property to enjoy such property for a certain time in consideration for a price paid or promised. The lessee is entitled to be put in possession of the property to the exclusion of the lessor. The lease is, therefore, transfer of interest in land.
(b) Whereas in the case of a licence, a right is given to the licensee to use the property in a particular way under certain terms while it remains in possession and control of the owner. In the case of a licence, legal possession continues with the owner of the property but the licence is permitted to make use of premises for a particular purpose.
(c) Exclusive possession prima facie is to be considered to be a lease. Nevertheless circumstances may negative any intention to create a tenancy.
(d) That substance of the agreement must be preferred to the form to ascertain the intention of the parties.
(e) Whether a document creates lease or licence the intention of the parties is crucial and the same must be ascertained from the document and surrounding circumstances.
(f) If the document creates an interest in the property, it is a lease.
(g) The phraseology of lease or licence used by the parties in the agreement is of no consequence if the intention of the parties gathered from the surrounding circumstances is to the contrary.
42. Now let us test the case of the assessee in the light of aforementioned principles of law. In this case, an agreement has been executed between the NDMC on 22nd April, 1982 granting a licence to the assessee w.e.f. 1 lth March, 1981 for a period of 99 years. The licence was granted to use the plot of land measuring 6.0485 acres (approximately) in commercial complex at Barakhamba Lane, New Delhi for the construction and commission of 5-Star Hotel Building latest by 31 st December, 1984 in full and in all respects for the purpose of housing a hotel of decent standard and other business appurtenant to the furtherance of tourism in India to be run by the licensee on licence basis on the terms and conditions mentioned in the licence deed at an annual licence fee of Rs. 1,45,00,000. The deed was described as a licence deed. The assessee being the licensee agreed to abide by any of the terms and conditions of the licence/lease agreement which may be executed by the Licensor NDMC in writing. As per Clause 5 of the agreement, it was agreed that the land for the construction and commission of 5-Star Hotel would continue to be on lease with the licensor (i.e., NDMC) in whom the building so constructed will also vest and the period of licence would be for 99 years but the licensees, namely, Bharat Hotels Ltd. shall have the right to raise loans on the security of structures, buildings, fixtures and fittings etc. which shall be put up by the licensees aforesaid on the said licensed plot from....
Clause 6 provides that the licence would be liable for termination if the licensee commits any breach of terms and conditions. It was, however, provided that the licensor would communicate in writing to the licensee about the breach, if any and it would be open to the licensee to show that there had in fact been no such breach. Clause 11 of the agreement provides that licensee shall not be at liberty in any way to sub-let, under-let, encumber, assign or transfer their rights and interest or part with possession of the land and the building thereon or any part thereof or share therein to any person directly or indirectly without the previous written consent of the licensor. But the licensees shall have the right to sub-licence the property as stipulated in Clause 29 of this agreement. Clause 13 of the agreement provides that the licensee shall have a bare licence only. Clause 14 which, in our view, is very material for determination of the issue is as under :
Nothing contained in these documents shall be construed as a demise in law of the said land hereby agreed to be demised or any part thereof so as to give to the licensees, M/s Bharat Hotels Ltd. any legal right, title or interest therein. The licensees shall only have a licence to enter upon the said land for the purpose of building and executing works thereon as hereinafter provided and for running a Five Star rating prescribed by the Government of India, Deptt. of Tourism.
43. Clause 15(xii) provides as under :
The licensees M/s Bharat Hotels Ltd. will pay all rates, taxes, charges, claims and out-goings chargeable against an owner or occupier in respect of the said land and any building or erection to be built thereon and in respect of the business to be carried thereon during the entire period of licence except the House-tax as building will vest in the licensor, New Delhi Municipal Committee for all intents and purposes. The exemption of house-tax in respect of the building will be subject to the prior approval of the Delhi Administration.
44. Clause 15(xii) provides as under :
The licensees, M/s Bharat Hotels Ltd. will as soon as the said building to be erected on the said plot of land is roofed insure at the cost of the licensees and keep insured the same under written intimation to the licensor from time to time in the joint names of NDMC and the licensees, M/s Bharat Hotels Ltd. against damage by fire, riots, civil commotion, earthquake, electric fire and flood etc. in some well established....
45. Clause 18 of the agreement provides as under :
The licensor shall have a pre-emptive right to purchase the property built on the site after deducting the market value of the land at the market price then prevalent.
46. Clause 24 of the agreement provides as under :
That the accommodations/buildings to be constructed on the licensed space shall at all times vest in the licensor together with all fittings, fixtures and other installations....
47. Clause 26 of the agreement provides as under :
The allotment will be made on licence basis and the licensed premises including building to be constructed will be a public premises within the meaning of the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 or such Acts, as may be enforced from time to time in this behalf.
48. Clauses 29 and 30 of the agreement provide as under :
29. The licensees shall run the Five Star Hotel themselves. However, the licensees may allow sub-licensees within the period of licence for running car parking, cycle, scooter stand for parking and shopping arcade, banks offices (within the shopping arcade) etc. The licensees shall be further responsible for the conduct of various sub-licensees and observance of rules and regulations etc. The licensees shall be further responsible to ensure that the sub-licensees shall not get any right over and above the rights and privileges of the licensees.
30. Save as provided in the preceding para, the licencees during the tenure of the licence shall not transfer, assign or part with the building any portion thereof permanently or temporarily to anybody else.
49. Clause 38 of the agreement reads as under :
The licensees shall not display any name-board, Neon sign Board or advertisement board in any part of the building or in the open space allotted to them without obtaining prior permission of the licensor in writing.
50. Clauses 40, 41 & 42 of the agreement provide as under :
40. In any case, if any of the powers to revoke the licence shall have become exercisable but the same if for any reason not exercised, non-exercise thereof shall not constitute a waiver of any of the conditions and the powers to be exercisable in the event of any future case of default and the liability of the licensees for past and future defaults shall remain unaffected besides other rights and some remedies of the licensor.
41. In. the event of licence having been terminated earlier in the terms of the relevant clauses, the licensees shall vacate the premises in a peaceful manner and clear all the dues of the licensor forthwith.
42. In the event of breach of the terms and conditions of the licence, the licensor shall terminate and revoke the licence. On the revocation being made, it shall be the due/of the licensees to quit and vacate the premises without any resistance and obstruction and give the complete control of the premises to the licensor.
51. Clause 47 provides as under :
Any servant quarters constructed by the licensees shall not without the written permission of the licensor or such officer as may be authorised in this behalf be occupied.
52. Clause 49 provides as under :
All arrears of licence fee and other payments due in respect of the premises hereby demised shall be recoverable in the same manner as arrears of land revenue under the provisions of the Punjab Land Revenue Act, 1887 (Act XVII of 1887) and any Amending Act for the time being in force.
53. On consideration of the terms and conditions of the agreement in the light of the ratio laid down by their Lordships of the Supreme Court in the cases referred to above, we find that some of the terms of the agreement are likely to create an impression that the agreement was a lease agreement. Such clauses, for example, are Clause 5 (refer para 42 of this order) giving a right to the Bharat Hotels Ltd. to raise loans on the security of the structure constructed. Clause 11 (refer para 42 of the order) providing that the licensee shall not be at liberty in any way to sub-let, assign, transfer their rights and interest or part with possession of land without written consent of the licensor. Clause 15(xv)(refer para 43 of the order) providing for insurance of the structure by the licensee. Clause 18 (refer para 45 of the order) the licensor having pre-emptive right to purchase the property. Clause 30 (refer para 48 of the order) providing a right to grant sub-licences.
54. However, there are various other clauses of the agreement which strongly give the impression that the intention of the parties was not to create a lease but a licence. Such clauses are Clause 5 and Clause 6 (refer para 42 of the order) providing that the land for the construction and commission of the Five Star Hotel would continue to be on lease with the NDMC in whom the building constructed would also vest and that the licence would be liable for termination if the licensee commits any breach of terms and conditions of the agreement. Clause 13 which provides that the licensee shall have a bare licence only. Clause 14 (refer para 42 of the order) specifically providing that nothing contained in the documents shall be construed as a demise in law to give to the licensee any legal right, title or interest in the land. Clause 15(xii)(refer para 43 of the order) which provides that the building vests in the licensor and the licensee will not be liable to pay any house-tax in respect of the property. Clause 24 (refer para 46 of the order) providing that accommodations/building to be constructed on the licensed space shall at all times vest with the licensor together with all fittings and fixtures and other installation. Clause 26 of the agreement providing that the land and the building to be constructed would be a public premises within the meaning of Public Premises (Eviction of Unauthorised Occupants) Act, 1971. Clause 29 of the agreement (refer para 48 of the order) which provides that the licensee would be responsible for the conduct of various sub-licensees and observance of rules and regulations and that the sub-licensee will not get any right over and above the rights and privileges of the licensee. Clause 30 providing that the licensee during the tenure of the licence would not transfer, assign or part with the building permanently or temporarily to anybody else. Clause 38 restricting the display of name boards etc. without the permission of the licensor in writing. Clauses 40, 41 & 42 providing for termination and revocation of the licence. Clause 49 providing for recovery of the arrears of licence fee and other payments due as arrears of land revenue.
55. When we analyse two sets of the conditions referred to above, keeping in view that phraseology used in the agreement may be deceptive, the dividing line may seem to be very thin and even blurred. However, the fact that the agreement is between the assessee and the NDMC and not between the two private parties should give an edge against allegation of camouflage by the parties in using the phraseology in the agreement. In the absence of any material, there cannot be presumption of collusion between the NDMC and the assessee. Keeping that in view, the substance of the agreement will clearly stand out to be an agreement of licence and not an agreement of lease as the intention of the parties seems to be abundantly clear for not transferring the interest in land. Moreover, a similar agreement has been executed by NDMC with another party, namely, C.J. International Hotels Ltd. The Delhi High Court had the occasion to consider the terms and conditions of the agreement between NDMC & C.J. International Hotels [in Suit No. 1193 of 1990 in IA No. 2957 of 1990 order dated 16th October, 1990]. The learned Judge of the Delhi High Court held that Section 60 of the Easements Act was inapplicable as there was a contract between the parties that the building would vest in the licensor. When there is a contract to the contrary between the parties, Section 60 of the Easements Act as per the Hon'ble High Court would be inapplicable. It was further held that although a licence may be prima facie irrevocable either because it is coupled with a grant or interest or because the licensee has erected works of permanent nature, there is nothing to prevent the parties from agreeing expressly or by necessary implications that licence should be revocable. The Hon'ble High Court further held that as per provisions of Section 60 of the Easements Act, ordinarily when acting under the terms of the licence, a licensee makes a permanent structure, the licence is irrevocable but parties can contract otherwise and if the contract conferring licence provided that the licence could be terminated under certain circumstances even though the licence had made a permanent structure, Section 60(b) would not be a bar for the licensor to terminate the licence in accordance with the contract.
55A. Considering the terms and conditions of the licence deed between the NDMC and the assessee, surrounding circumstances coupled with the decision of the Delhi High Court in the case of C.J. International Hotels Ltd. and the principles laid by the Hon'ble Supreme Court in aforementioned cases, we hold that there was no intention for the transfer of interest in the land in favour of the assessee by NDMC. The agreement between the assessee and NDMC was thus not an agreement of lease but only a licence.
56. Now applying the same analogy to the agreement between the assessee and the sub-licensees, one cannot reach to a different conclusion as terms and conditions of the agreement between the...and binding upon the sub-licensees. In this connection, reference may be made to Clause 4 of the sub- licence agreement which is reproduced below :
That the sub-licence hereby granted shall always be subject to and consistent with, the terms and conditions of the original Licence Deed dated 22-4-1982 executed between Bharat Hotel and NDMC and such other terms and conditions as may further be agreed by and between the said Bharat Hotel and NDMC.
It has also been specifically provided that in the event of termination or determination of licence by NDMC, the sub licence agreement between the assessee and the sub-licensees would get terminated or determined.
57. Clause 7(b) of the sub-licence agreement is very relevant, in our view, for the purposes of determination of the intention of the parties. This clause reads as under :
7(b) If at any time hereafter the agreement of licence dated 22nd April, 1982 between Bharat Hotels and NDMC is converted into an agreement of lease or freehold property and on that account Bharat Hotel is obliged to pay certain additional levies, taxes, cesses or further amount of money over and above the amount of Rs. 1,45,00,000 (Rupees one crore and forty-five lakhs) which is presently being paid by Bharat Hotel to NDMC as licence fee on the date of this agreement, in that event the sub-licensee agrees to pay such additional levies, taxes, cesses or further sums calculated on the basis of proportionate area forming the subject-matter of this agreement and simultaneously also assume in its favour the altered rights. The building is at present exempt from house-tax etc. In case it is levied subsequently, the sublicensee shall be liable to pay such taxes to Bharat Hotel proportionately.
58. It is clear from the above clause that the parties never intended to grant lease in favour of the allottees, If the intention of the parties would have been to grant sub-lease then Clause 7(b) would not have found place in the agreement between the parties.
59. Clause 31 of the agreement is also relevant which reads as under:
That notwithstanding anything contained herein, it is agreed and understood between the parties hereto that the stipulated space shall at all times remain under the overall control and supervision of Bharat Hotel and it shall retain dominion over the said stipulated space and shall at all times have the right to direct the mode and manner of user of the said stipulated space so as to more effectively provide for facilities and amenities expected of a Five-star Luxury Hotel.
60. Clause 34 of the sub-licence agreement is also relevant which reads as under :
That the Sub-Licensee hereby acknowledges, recognises and agrees that he/she/it is merely a sub-Licensee and this agreement does not constitute/confer any right of tenancy/sub-tenancy or any other right in the stipulated space in his/her/its favour and the Sub-Licensee further hereby undertakes not to create or purport to create any right or to grant or purport to grant any other right whatsoever other than those specifically granted herein in favour of his/her/its nominee.
Admittedly the sub-licence is for a period of 99 years and the sub-licensees have the right to transfer the sub-licences to nominees though with the consent of the assessee. However, assessee could not transfer any interest in the property as none was transferred to them by NDMC. Therefore, we are of the considered view that the agreements between the assessee and the allottees are agreements for the grant of sub-licences and that these agreements do not create any interest in the property. We, therefore, reject the contention raised on behalf of the revenue that the agreement between the assessee and the sub-licensees were lease agreements and not sub-licence agreements.
61. We, however, find merit in the contention raised on behalf of the revenue that assessee had the right of occupation and right of running of business for a specified period in the property. Assessee was authorised to transfer this right of occupation and right to use the space to others by means of granting sub-licences. This is also authorised by the agreement between the assessee and the NDMC.
Therefore, by entering into sub-licence agreements with the allottees though there is no transfer of interest in the land or the structure in favour of the licensees yet the assessee has transferred the right of occupation and right of carrying on the business in the allotted space, to the sub-licensees.
62. A question arises as to whether the transfer of right of occupation etc. was done as an organised activity and as an activity of business. It is not disputed that assessee had entered into an agreement with NDMC for allotment of the land for the purposes of carrying on the business. The business of assessee was to construct 5-star hotel, which also included the construction of commercial space. The construction of the property and its exploitation for running a Hotel, it is not disputed is the main business of the assessee. Providing accommodation to others for running the business in the complex is incidental and ancillary to the main business of the assessee. It is clear from the sub-licence agreements that assessee had recovered licence fee and service charges from the allottees. In addition to this, deposits have been received for allotment of space. But for the deposits recovered from the allottees assessee has in fact reflected all other receipts from the allottees as its business receipts. Thus the contention raised on behalf of the assessee that the receipts in connection with the allotment of space were not in the course of business activity is accordingly unfounded.
63. We would now proceed to consider the nature of the different receipts in the course of assessee's business activities. There are various types of transactions in business. But for the purposes of resolving the present controversy, it would be sufficient to refer to three types of transactions in a business :
(1) First type of transaction would be a simple transaction of sale of goods or sale of other property;
(2) Second type of transaction in business would be leasing or subleasing of goods or property; and (3) Third type of transaction of business would be granting of a licence or a sub-licence in respect of business premises.
64. In the case of first type of business i.e., sale of goods or transfer of property, any consideration received by whatever name called having direct nexus with the sale would be a trading receipt. In this type of transaction even if refund is promised for return of packing material such as empty bottles in the case of Punjab Distilling Industries Ltd. (supra) that will not affect the character of the receipt as being a trading receipt. In some cases the recovery of excise duty such as in the case of McDowell & Co. Ltd. (supra) or recovery of sales-tax as in the case of Chowringhee Sales Bureau (P.) Ltd. (supra) could also be part of the turnover as the liability to pay taxes is that of the seller and the recovery made by the seller of goods as consideration for sale by whatever name called would be part of trading transaction and taxable as income.
65. The second type of transaction which we consider is a leasing transaction. In this type of business, assets are provided on lease against agreed payments. Apart from periodic payments, more often than not, security Is demanded for the grant of lease of goods or other properties. In such cases, though the entire receipts on account of leasing of goods or other property and the security are in the course of business yet every receipt cannot be termed and treated as a trading receipt. In this transaction the refundable security deposit received by the lessor would not form part of his trading receipts.
66. On the other, if the lessor receives a lump sum amount for grant of licence with or without periodic payments, the amount so received would be a business receipt and taxable as income. Therefore, it is clear that in such types of transactions every receipt would not be taxable. Taxability of the receipt would always depend on the nature of the transaction and the nature of the receipt. In leasing contracts if the deposit is refundable it cannot be treated as part of trading receipt. The terms of the agreement between the parties, in our view, would be decisive in determining the nature of the receipt in every business transaction.
67. Even in the case of first type of transaction i.e., sale of goods or property, the intention of the parties regarding a receipt has got to be taken into consideration for determining the nature of the receipt. In Punjab Distilling Industries Ltd. 's case (supra), the amounts received as an empty bottle deposit account were held to be trading receipts on the ground that there was no certainty attached to the transaction of sale for the return of bottles and the refund of the deposit. Had there been certainty for the return of the bottles and refund of the deposit, the amounts recovered as empty bottles deposits would not have been treated as trading receipts as such receipts would be purely security deposits and not a part of the price for the liquor and bottles. In that, case it was found by their Lordships of the Supreme Court that assessee had in fact recovered the cost of the bottles and that there was no obligation for the customers to return the bottles. Thus it is clear that even in business transaction, the nature of the receipts has got to be examined and the intention of the parties to be gathered from surrounding circumstances. The position in the case of granting sub- licences would not be different.
68. Let us examine the nature of the receipt of the assessee described as deposits for grant of sub-licences. Assessee has received a deposit on the basis of the space allotted from each licensee. This deposit is refundable on termination of the agreement or on determination. No interest is payable by the assessee to the sub-licensees on these deposits. The sub-licence can be terminated in the event of a breach of the terms and conditions of the agreement by the sub-licensee. The sub-licence agreement would be determined on the expiry of the licence granted by the NDMC in favour of the assessee. The other possibility of termination which is not described in the agreement is mutual consent. There is no other possibility of refund of this deposit.
69. Assessee has also recovered security deposit on account of providing services to the assessee. There is no dispute about the non-assessability of this security deposit recovered by the assessee on the basis of three months' licence fee. etc. This amount has not been taxed by the revenue.
70. Assessee has also recovered licence fee and fee for other services. These amounts have been reflected by the assessee as part of its business receipts. In the written submissions before the Tribunal assessee has also admitted these receipts to be as business receipts. Therefore, the contention raised on behalf of the assessee that the transaction of granting sub-licences to the allottees and the amounts recovered from such allottees would not be business receipts, as already held by us, is unfounded.
71. Now the question for our consideration is as to whether the deposit received by the assessee in the course of the business is a part of the business receipt and taxable as a revenue receipt. In order to resolve this controversy it would be useful to refer to the relevant decided cases.
72. In the case of K.M.S. Lakshmanier & Sons v. CIT [1953] 23 ITR 202 (SC) the assessee was sole selling agent for yarn manufactured by a textile mill and they distributed yarn to customers under forward contracts in respect of which they obtained from their customers advances of moneys which were adjusted towards the final payment of purchase price at the time of delivery of goods. From 5th May, 1944 the assessee changed this arrangement. They treated the amount as advance payments in relation to each contract and kept them under the heading "contracts advance fixed deposit account". Under this arrangement, a customer had to pay the price of the bale in full and the deposit would be returned to him on the completion of the delivery under the contract. In December 1944, assessee changed the head of the account into 'security deposit account'. From 14th February, 1945 the assessee again modified the arrangement. They demanded from a customer as security deposit a certain sum which was to be held by them as security for the due performance of the contracts by the customer so long as he is dealing with them by way of forward contracts. The price was to be paid by the customer in full against delivery in respect of each contract without any adjustment out of the deposit which carried an interest of 3 per cent p.a. During the accounting period 13th May, 1944 to 12th April, 1945, the question arose whether the amounts received by the assessee constitute "borrowed money" within the meaning of Rule 2A of Schedule" II of the Excise Profits Tax, 1940. It was held as under :
That the transaction between the assessee and a customer after 14th February, 1945 had all the essentials of a contract of a loan and therefore, the deposits received after that date constitute borrowed money for the purposes of Rule 2A.
Their Lordships at page 582 held, "the amount deposited by a customer was no longer to have any relation to the price fixed for the goods to be delivered under a forward contract - either in instalments or otherwise. Such price was to be paid by the customer in full against delivery in respect of each contract without any adjustment out of the deposits, which was to be held by the appellants as security for the due performance of his contract by the customer so long as his dealing with the customer by way of forward contracts due, the appellants paying interest at 3 per cent in the meanwhile and having as appeals from the course of dealing between the parties, the use of money for their own business. It was only at the end of the "business connection' with the appellants that an adjustment was to be made towards any possible liability arising out of the customers default. Apart from such a contingency arising, the appellants undertook to repay the equivalent amount at the termination of the dealings. The transaction had thus all the essential elements of a contract of a loan".
(ii) The deposits received by the assessee from 5th May, 1944 to 14th February, 1945 were held to be more of the nature of the trading receipts than of security deposits. The said deposits were held not to be regarded as borrowed money for the purposes of Rule 2A.
73. In the case of Punjab Distilling Industries Ltd. [supra], the assessee carried on business as a distiller of country liquor. After the war, difficulty was felt in finding bottles in which the liquor was to be sold. A scheme was devised whereby the distiller was entitled to charge the wholesaler a price for the bottle in which the liquor was supplied at rates fixed by the Government which he had to repay when the bottles were returned. In addition to the Government scheme, assessee took from the wholesaler certain further amounts described as security deposits without Government sanction and entirely as a condition imposed by itself for the sale of its liquor. The moneys described as security deposit were also returned as and when the bottles were returned. In this case, the entire sum taken in one transaction was refunded when 90 per cent of the bottles covered by it were returned. The price of the bottles received by the assessee was entered by it in its general trading account whereas the additional sum was entered in the general ledger under the heading "bottles return security deposit account". The question was as to whether assessee could be assessed to tax on the balance of the amounts out of the additional sums left after the refunds were made. It was held by their Lordships of the Supreme Court that in realising the additional amount described as security deposit, assessee was really charging an extra price for the bottles and the additional amount was actually a part of the consideration for the liquor and was part of the price of what was sold; it did not make any difference that the additional amount was entered in a separate ledger termed as "empty bottles return deposit account"; what was the consideration for sale does not cease to be so by being written up in the books in a particular manner, nor did the fact that the price of the bottles was refunded as and when the bottle,s were returned and the additional sum was repaid in full when 90 per cent of the bottles were returned, would also not affect the question.
74. Their Lordships further held that as the wholesalers were clearly under no obligation to return the bottles, the additional sums taken were not security deposits and the fact that they were described as such was alone not sufficient to create an obligation to return the bottles; there could be no security given for the return of the bottles unless there was a right to their return; that the additional amount taken were an integral part of the commercial transaction of sale of liquor in bottles and when these were paid, were the moneys of the assessee and remained thereafter the money of the assessee, they were assessee's trading receipts; and thereafter the balance of these additional sums left after the refunds made were assessable to tax.
75. These principles were reiterated by the Supreme Court in the case of Punjab Distilling Industries (supra). Their Lordships held that the amounts collected by the assessee-company by way of empty bottles return security deposit account before and after the amendment of the Punjab Excise Rules were trading receipts. "The rules did not create a right in the distiller to the return of the bottles. Further all that the rules did was to empower the distiller to take a deposit but the deposit had to be taken under a contract. The amounts deposited by the wholesalers were actually taken under a trading contract to constitute a trading receipt of the assessee".
76. In this case the Punjab and Haryana High Court had taken the view that as a result of the amendment of the rule made under the Punjab Excise Act, 1914, which came into effect from 1st April, 1948, the charges collected after that date were not covered by the earlier judgment as the amended rule made the ratio decidendi of the judgment inapplicable to the charges collected after that date. Their Lordships further held that it was compulsory for the licensee to return at least 90 per cent bottles issued to him by the licensed distiller.
77. "The licensed distiller at the time of issue was empowered to demand security and confiscate the security to the extent falling short of 90 per cent of the limit".
78. Their Lordships at page 82 observed that the liquor passed through the three stages before it reached the consumer; first distiller sold it to a wholesaler. Then the wholesaler to a retailer and the retailer to the consumer. If the rules created obligation on a wholesaler to return the bottle to the distiller then the rules would provide for a return of the bottle to the wholesaler by the retailer and to the retailer by the consumer; without such rules it would be difficult to require the wholesaler to return the bottle to the distiller.
79. In the case of McDowell & Co. Ltd. (supra), the assessee was a manufacturer of liquor and holder of D-2 licence. They sold liquor to buyers who themselves paid the excise duty thereon directly and the department sought to include the excise duty in the assessee's turnover. The High Court held that the excise duty which was payable by the assessee but had, by an amicable arrangement, being paid by the buyer was actually a part of the turnover of the assessee and was, therefore, liable to be included for determining its liability for sales-tax under the A.P. General Sales-tax Act, 1957. Their Lordships of the Supreme Court, affirming the decision of the High Court held, in the hands of the buyer, the cost of liquor was what was charged by the appellant under its bill together with the excise duty which the buyer had actually paid on the seller account. The consideration for the sale was thus the total amount and not what was reflected in the bill. Excise duty though paid by the purchaser to meet the liability of the appellant, was part of the consideration for sale and was includible in the turnover of the appellant.
80. In the case of Shree Nirmal Commercial Ltd. (supra) the objects of the assessee-company included, inter alia, right to purchase or to obtain land on lease from the Govt. and to build and construct houses. In pursuance of the objects, the company obtained a lease of a piece of land belonging to the Government of Maharashtra with the intention of constructing a building or buildings which could be used as commercial premises. In order to raise finances for the construction, the company devised a scheme. Under the scheme, the shareholders of the company were to enter into a standard form of agreement with the assessee-company which would confer on them the right of occupation of specified floor space in the building, either by themselves or by their nominees. As per the agreement, the shareholder had to make non-refundable deposits with the company. In consideration of the agreements, the members who had purchased the shares and made the requisite deposits were allotted specified floor area in the building, on a proportionate basis. In addition to the deposits required from them, the members were also required to pay what was styled as compensation at such rates as the directors might, from time to time, determine. On these facts the Tribunal held that the building was not constructed by the assessee by way of investment and that it was a business venture. It further held that, under cover of taking the deposits, the appellant-company had in fact sold the occupancy right of the floor area and, that, notwithstanding the nomenclature "deposit" and the apparent grant of interest thereon, the deposits in question partook the character of trading receipts.
81. In reference under Section 256(1) the Bombay High Court held as under :
(i) that having regard to the manner in which non-refundable deposits were taken from the shareholders, the shareholders were allotted floor space area which they were not only entitled to occupy but were also entitled to assign to others on payment of compensation and to transfer their occupancy rights by sale of shares and the purpose for which the compensation was charged, the whole transaction was, in reality, a sale of floor space by the assessee-company to its shareholders. The assessee-company had kept with itself only the right of the management of property as a whole, the compensation being charged by way of reimbursement of the expenses which were likely to be incurred. After parting with the right of occupancy of the floor area to every member, what remained with the assessee was merely ownership in the technical sense of the word. The residuary rights of ownership which remained with the assessee-company were negligible and of dubious value. The residuary ownership rights were incapable of being let out. The charge under Section 22 failed and the deposits had to be treated as trading receipts;
(ii) that the assessee would be entitled to deduct the entire cost of construction from the trading receipts for the purpose of determining the profits, if any, resulting from the transaction;
(iii) that the whole exercise could be carried out only upon the completion of the transaction and the allotment of floor space area.
82. In the case of Hindustan Housing & Land Development 'Trust Ltd. (supra) certain lands belonging to the respondent-company which carried on the business of dealing in land and maintained its accounts on mercantile system were first requisitioned and then compulsorily acquired by the State Government. The Land Acquisition Officer awarded a sum of Rs. 24,97,249 as compensation. On an appeal preferred by the respondent-company, the Arbitrator made an award fixing the compensation at Rs. 30,10,873 and directing payment of interest of 5% from the date of acquisition. The Arbitrator also awarded an annual sum for the period of requisition. Thereupon, the State Government preferred an appeal to the High Court. Pending the appeal, the State Government deposited in the Court Rs. 7,36,691 being the additional amount payable under the award on April 25, 1956 and the respondent was permitted to withdraw that amount on 9th May, 1956 only on furnishing a security bond for refunding the amount in the event of appeal being allowed. On receiving the amount, the respondent credited it in its suspense account on the same day. The question was whether a sum of Rs. 7,24,914 (the balance having been already taxed) could be taxed as the income of the respondent for the assessment year 1956-57 on the ground that it became payable pursuant to the Arbitrator's award. The Tribunal held that the amount did not accrue to the respondent as its income during the relevant previous year ending on March 31, 1956 and therefore, was not taxable in the assessment year 1956-57. On a reference, the High Court affirmed the decision of the Tribunal. On an appeal to the Supreme Court, the decision of the High Court was affirmed. It was held that although the award was made by the Arbitrator on July 29, 1955, enhancing the amount of compensation payable to the respondent, the entire amount was in dispute in the appeal filed by the State Government and the dispute was regarded by the Court as real and substantial because the respondent was not permitted to withdraw the amount deposited by the State Government without furnishing a security bond for-refunding the amount in the event of appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal were allowed in its entirety the right to payment of enhanced compensation would have fallen altogether. The extra amount of compensation of Rs. 7,24,914' was not income arising or accruing to the respondent during the previous year relevant to the assessment year 1956-57. Their Lordships of the Supreme Court at pages 529 & 530 quoted with approval the following observation of the Gujarat High Court in the case of Topandas Kundanmal v. CIT [1978] 114 ITR 237 :
... the legal position which emerges is that there is no liability in praesenti to pay an enhanced compensation till it is judicially determined by the final court since the entire question, namely, whether the offer made by the Land Acquisition Officer is inadequate and the claimant is entitled to an additional compensation and if yes, at what rate is in flux till the question is set at rest finally, we do not think that any enforceable right to a particular amount of compensation arises. The offer made by the Land Acquisition Officer, by his award, if not accepted by a claimant would not result automatically in a liability to pay additional compensation as claimed by a party aggrieved. There is no doubt a liability to pay a compensation as offered by the Land Acquisition Officer. But that is far from saying that the liability to pay additional compensation or enhanced compensation as claimed by a party aggrieved. If there is an existing liability, the mere fact that the payment is postponed to the future would not detract that liability from becoming a debt but the liability to pay unliquidated damages or additional compensation which are inchoate or contingent would not create a debt.
83. In the case of Detective Devices (P.) Ltd. (supra), assessee-company was a dealer in liquified gas. It had supplied cylinders to customers by entering into an agreement under which a refundable amount of Rs. 100 per cylinder termed as deposit for supplying gas, were collected from various parties. A question arose as to whether these deposits constitute borrowed money or trading receipts of the assessee. The Special Bench of the Tribunal held that there was neither any sale nor extinguishment of any ownership rights in cylinders and hence there was no transfer within the terms of Section 2(47). In para 30 of the order, the Tribunal held that the deposit collected by the assessee was about twice the cost of the cylinder and in case the cylinder was not returned, the forfeiture of an amount equal to the cost could be construed as sufficient penalty. It was further held that the mere fact that the possibility of person giving up the gas connection is remote, does not alter the nature of the payment when made because at the time of the payment, it was nothing but a deposit.
84. In the case of Century Hotels (P.) Ltd. (supra) the assessee-company had its main object of running hotels and restaurant. In April 1974 it entered into an agreement with two parties to acquire on permanent lease an immovable property on payment of monthly rent and a lump sum of Rs. 10 lakhs. On the very same day it executed another agreement with the company leasing out in perpetuity a portion of the property and similar agreement was executed in May 1974 with yet another party leasing out the balance property. In both the cases the consideration fixed was monthly rent plus deposit amount aggregating Rs. 18 lakhs and the deposit was refundable only on the termination of the lease a contingency which could happen only if the rent was not paid for three continuous years even after giving due notice. The Assessing Officer held that such a contingency could never arise and that the transaction was in reality a business venture in which the assessee made a clear profit of Rs. 8 lakhs. The contention of the assessee that the property was leased out due to fear of its acquisition by the Municipal Corporation and that the transaction was not pre-planned, was rejected. The CIT(A) had confirmed the addition. The Tribunal held as under :
from the narration in the three lease deeds, it. was clear that they were permanently leased and under nq circumstances either the assessee would get back the security deposit of Rs. 10 lakhs or would be required to refund the deposit received from its lessees. The Department was thus right in holding that the deposit received by the assessee was actually sale proceeds.
85. In the case of Chowringhee Sales Bureau (P.) Ltd. (supra), assessee was a private company dealing in furniture. It also acted as an auctioneer. In respect of the sales effected by it as auctioneer, the assessee realised in addition to the commission, Rs. 32,986 as sales-tax. This amount was credited separately in its account books under the head "Sales-tax collection account". The assessee did not pay an amount of sales-tax to the actual owner of the goods nor did it deposit the amount realised by it as sales-tax in the State exchequer because it took the position that the statutory provision creating that liability upon it was not valid, nor was it refunded to the persons from whom it had been collected. In the cash memos issued by the assessee to the purchasers in the auction sales, the assessee was shown as the seller.
86. Their Lordships of the Supreme Court held that the sum of Rs. 32,986 realised as sales-tax by the appellant in its character as an auctioneer forms part of its trading or business receipts.
87. The fact that assessee credited the amount realised as sales under the head "Sales-tax collection" did not make any material difference. It is the true nature and quality of the receipt and not the head under which it is entered in the account books as would prove decisive. If a receipt is a trading receipt the fact that it is not so shown in the account books of the assessee would not prevent the Assessing authority from treating it as trading receipt.
88. On analysis of the afore -mentioned decision, the following position of law emerges :
(i) If an amount is deposited as security to be kept so long as the dealings with the customers continue and is refundable at the end of the business connections and it has no relation to the price fixed for the goods to be delivered, it would be a contract of a loan.
(ii) The nomenclature used by a businessman for the sale consideration is immaterial. Even if the amount is described as security deposit if it is found that the said amount was really extra price for the goods or for packing material, the amount would be assessable as a trading receipt. The security deposit being refundable on the return of the packing material would not alter the character of the receipt if there was no right of the seller for the return of the packing material (bottles) and the refund of the deposit was contingent.
(iii) In each transaction, it would be necessary to find out as to what was the amount charged by the assessee as cost for supply of goods. The mere fact that assessee has an obligation to pay taxes in respect of the transaction which is recovered from the customers would also not alter the character of the receipt. How the assessee reflects the receipts in the books of account or in the bills is also not decisive.
(iv) If it is found that assessee has sold the occupancy right of the floor area for a consideration described as deposit and there was apparent grant of interest in the property, the deposits would partake the character of trading receipts.
(v) If there is an existing liability, the mere fact that the payment is postponed to the future would not detract that liability from becoming a debt. On the other hand, if the liability was inchoate or contingent that would not create a debt.
(vi) The real intention of the parties has to be gathered from the agreements and surrounding circumstances.
In case the amount described as security deposit is not refundable and the same has been received in consideration for the transfer of interest in property, such deposit would be the actual sale proceeds and assessable to tax.
89. Let us now test the case of the assessee in the light of the above legal principles. On the analysis of the sub-licence agreement, copy of which has been made available to us, it is clear that the scheme of the assessee has been two-fold :
(a) Allotment of space in the building on raising finances by way of interest-free deposit which was refundable on termination of the agreement or determination of the licence/sub-licence;
(b) The other part of the scheme was to allow use of space and other facilities in consideration of the following :
(i) licence fee;
(ii) Service charges;
(iii) 20% increase in the service charges after every three years irrespective of escalation in the cost of providing services.
90. There is no dispute about the receipts in the form of licence fee, service charges and the increased service charges to be the business receipts. The disputed question is relating to the assessability of the deposits for allotment of the space. If we go strictly by what is stated in the agreement, there is no doubt that the allotment of space in the World Trade Centre was subject to making of a refundable interest-free deposit. The refund of the deposit was only on termination or determination of the agreement.
91. The second part of the agreement is the user of allotted space during the period of the sub-licence. This was provided in lieu of licence fee, service charges and three Months' security deposit. There is a provision for increase of service charges and licence fee after every three years. Admittedly, the Income-tax Officer has the power to look beyond the terms of the agreement and find out the substance from the surrounding circumstances in order to ascertain the true nature of the transactions. In this connection, the decision of the Supreme Court in the case of McDowell & Co. Ltd. (supra) is an authority in support of the proposition. It is, therefore, to be seen as to whether the deposits received by the assessee for allotment of the space are really the deposits constituting a debt or were these deposits in fact consideration for the transfer of certain rights. In this connection, it is important to note that concept of accepting deposits from the licensees or sub-licensees is not something unusual out of the novel and unique thinking of the assessee. In some of the Five Star Hotels, space for carrying on business is provided to various persons on leave and licence basis on the condition of making a deposit and payment of licence fee and service charges, etc. It is clear that there is a practice of accepting the deposits from the licensees or sub-licensees by the Five-star hotels. There is not a single case brought to our notice by the department where such deposits have been taxed as revenue receipts of the hoteliers.
92. We have also seen the sub-licence agreement of C.J. International Hotels (P.) Ltd., copy of which has been provided to us and it is observed that they have also allotted space on sub-licence basis on the condition of making the deposits by the sub-licensees. Other conditions such as payment of licence fee, service charges etc. are similar as in the case of the assessee. The only notable distinction one could possibly find in the two agreements is Clause 31 of the sub-licence agreement in the case of C.J. International Hotels (P.) Ltd. and Clause 1 in the case of the sub-licence agreement of the assessee. In the case of C.J. International Hotels, the term of sub-licence is for a period of 9 years and 11 months whereas in the case of the assessee, the agreement is for more than 90 years but less than 99 years. However, when we peep deep into the sub-licence agreement of C.J. International Hotels, it is evident that in substance, there is no difference in the two agreements in so far as in the case of C.J. International Hotels, after the expiry of 9 years and 11 months period, it is the sub-licensee and not the licensor, who is having the option to extend the sub-licence for further period of 9 years and 11 months at a time. The extension will go on till the expiry of the lincence of the assessee granted by NDMC continues. C.J. International have no right to refuse renewal of the sub-licence. So in substance C.J. International have also granted sub-licences up to the period of licence granted by NDMC.
93. The Department has not assessed the deposits as revenue receipts in the case of C.J. International Hotels (P.) Ltd. The only justification given by the CIT(A) in the impugned order is that in the case of C.J. International the space provided is in the hotel building and that no separate complex has been constructed whereas in the case of assessee, separate commercial complex has been constructed and space allotted. We have not been able to appreciate the distinction drawn by the CIT(A) in this regard. How can a deposit accepted by a hotelier for allotment of space be treated in a different manner than a deposit accepted by a builder for allotment of the space when the terms and conditions are similar? In the case of Five-star hotels, it is seen that the deposit may continue even beyond 99 years. But in the case of C.J. International as well as in the case of the assessee, the determination of the sub-licence and refund of the deposit to the sublicensee is a reality. The case of the assessee, therefore, stands on a better footing than the Five-star hotels and at par with that of the C.J. International Hotels (P.) Ltd. It is also to be noted that the case of the assessee is not that of the builder (though that would not have made any difference) but also that of a Five-star hotel. The commercial complex is part of the hotel complex permitted by the NDMC.
94. Admittedly the facts in the case of Shree Nirmal Commercial Ltd. [supra] are very near to the facts of the present assessee. There is however a small but very vital distinction in so far as in the case of SNCL the deposits are "non refundable" whereas in the case of assessee the deposits are refundable on termination or determination. The termination of the lease as pointed out elsewhere in this order, may be contingent but determination of the licence is a certainty after the expiry of 99 years from 1-11-1981 i.e., the date of allotment of the licence by the NDMC in favour of the assessee. The NDMC has granted the lease of the land in favour of the assessee for 99 years. Assessee has by virtue of Clause 4 of the sub-licence agreement incorporated a condition that the terms and conditions of the agreement between the NDMC and the assessee shall be binding upon the sub-licensees. The premises including the structure has been declared to be a public premises for the purposes of Public Premises (Eviction of Unauthorised Occupants) Act, 1971. Therefore, there is no doubt that on the expiry of the lease between NDMC and the assessee, the sub-licences would be determined. As such there is no contingency attached to the obligation of the assessee to grant refund to the sub-licensees. Under no circumstances, the liability of the assessee ceases or is reduced. Even in the event of breach of terms and conditions of the agreement, the sub-licence is liable to be terminated but the deposit is not to be forfeited. There is a reference in Clause 38 of the agreement about the forfeiture of the security deposit but that security deposit is different than the deposit under consideration. The security deposit is a deposit which the allottees have to make by virtue of Clause 7(b) of the agreement and is different from the deposit made for allotment of the space. It is, therefore, clear that the refundable deposit received by the assessee was a condition for allotment of the space and the said amount was available to the assessee till the relationship of the sub-licensor and the sub-licensee continues.
95. Applying the principles laid down by their Lordships of the Supreme Court in the cases of K.M.S. Lakshmanier & Sons (supra), Punjab Distilling Industries Ltd. (supra), Hindustan Housing and Land Development Trust Ltd. (supra) and the decision of the Special Bench of the Tribunal in the case of Detective Devices (P.) Ltd. (supra), we hold that there was an existing liability of the assessee to refund the deposits under the sub-licence agreements and therefore, it was a debt. The mere fact that the refund was to be made only on termination or determination of the agreement would not detract the liability from becoming a debt. We, therefore, hold that the deposits received by the assessee which were refundable to the sub-licensees are not the revenue receipts of the assessee assessable to tax. The decision of the Tribunal in the case of Century Hotels (P.) Ltd. (supra) is inapplicable to the facts of this case as in that case the amount of deposit was 'non-refundable'. The decision of the Bombay High Court in the case of SNCL (supra), as already observed, is also inapplicable to the facts of the case as in this case the deposit is refundable unlike in the case of SNCL.
96. There is no doubt merit in the contention raised on behalf of the revenue that the assessee had derived advantage by getting deposits from the sub-licensees. Assessee has got the deposits for utilising the same in the business without any liability of interest. To that extent a benefit is derived by the assessee. The said benefit would be to the extent of interest ordinarily payable on such finances. However, it is clear from facts of this case that the money received as deposits from the sub-licensees have been utilised by the assessee in business. Assessee has neither paid nor claimed any interest in respect of these deposits. If any interest were payable on deposits, assessee would be entitled to deduction corresponding to the liability. In that event income of the assessee would be reduced to that extent. However, by not paying any interest and by not claiming any deduction, the benefit derived by the assessee is in effect taxed in so far as in the final annual results in the books of account, the income of the assessee reflected would be more than the income that would have otherwise been declared. It is thus seen that the benefit derived by assessee on raising finances by way of interest-free deposits stands merged with the income declared by the assessee from business. We are, therefore, of the considered view that no separate addition on account of the benefit derived by the assessee out of the deposits is separately assessable to tax.
97. Since we have held that no part of the deposits is assessable to tax, we do not consider it necessary to deal with the contention raised before us regarding the actual amount assessable in the year under appeal.
98. Before we wind up, we would like to summarise our findings in this appeal as under :
(a) That there has been no transfer of interest in land or immovable property by the NDMC in favour of the assessee. The agreement between the NDMC and the assessee was an agreement for grant of licence and that it did not create a lease in favour of the assessee.
(b) There has been nd transfer of interest in land or other immovable property from assessee in favour of the sub-licensees. The agreement between the assessee and the sub-licensees do not create any lease or sub-leases in favour of the sub-licensees.
(c) That the activity of construction of a hotel complex, running of hotel is the main business of the assessee. The allotment of space on sub-licence basis in the said complex being incidental and ancillary to the business activities of the assessee forms part of assessee's business.
(d) That the deposits received by the assessee for allotment of space from the sub-licensees is for maintaining the relationship between the assessee and the sub-licensees during the subsistence of the agreement.
(e) Licence fee, service charges and increased service charges for user of the space form part of business receipts of the assessee.
(f) That the deposits received by the assessee being refundable on termination or determination of the sub-licences do riot partake the character of the revenue receipts and accordingly the same are not liable to tax.
99. The addition of Rs. 10,28,98,450 is accordingly deleted.
100. The only other issue involved in this appeal is relating to the levy of interest under Section 217. Interest under Section 217 is chargeable where on making the regular assessment, the Assessing Officer finds that any such person as is referred to in Clause (a) of Sub-section (1) of Section 209A has not sent the statement referred to in that clause or the estimate in lieu of such statement referred to in Sub-section (2) of that section; or (b) that any such person as is referred to in Clause (b) of Sub-section (1) of Section 209A has not sent the estimate referred to in that clause. Section 209A makes it obligatory for every person whose current income is likely to exceed the amount specified in Sub-section (2) of Section 208 of each financial year on or before the date of which the first instalment in the case of regular taxpayers and on or before the date on which the last instalment of advance-tax is due in the case of such assessees who have not been previously assessed. Section 209A(a) provides the manner in which the advance-tax payable is to be computed by the existing taxpayers whereas Clause (b) of Section 209A provides for computation of advance-tax in the case of assessees not previously assessed.
101. In this case the last assessed income and the last returned income in respect of which tax under Section 140A had been paid, whichever was higher, was a negative figure. On (hat basis, no advance tax was payable by the assessee. In the case of Patel Aluminium (P.) Ltd. (supra), the assessee had been assessed to nil income for the previous assessment year. It was held by their Lordships of the Bombay High Court that since the provisions of Section 209,(1) did not make the petitioner liable to payment of advance-tax, there was no obligation upon the assessee to send a statement referred to in Section 209A(1). Applying the ratio laid down by their Lordships to the Bombay High Court referred to above, we hold that assessee was not liable to interest under Section 217. The same is accordingly deleted.
102. In the result, appeal of the assessee is partly allowed.