Income Tax Appellate Tribunal - Delhi
Delhi Automobiles (P.) Ltd. vs Income-Tax Officer on 5 March, 1991
Equivalent citations: [1991]37ITD142(DELHI)
ORDER
K.C. Srivastava, Accountant Member
1. These are cross-appeals, one by the assessee and the other by the Department against the order of the CIT (Appeals) relating to the assessment year 1982-83. For the sake of convenience both the appeals are being disposed of by this common order.
2. The major ground in this appeal relates to the treatment of Rs. 1 crore as consideration for the transfer of a capital asset, and thus being subjected to the charge of capital gains tax. The relevant facts are as under:-
3. The assessee-company was mainly carrying on business in automobiles. In 1976 the New Delhi Municipal Committee (hereinafter referred to as "the N.D.M.C", for short) finalised the lay-out for development of a commercial complex at Barakhamba Lane, New Delhi. In that lay-out a hotel site with sufficient green area around had been earmarked for the purpose of putting up a Five Star Hotel. The N.D.M.C. called for offers for this Hotel site. It was stated that the land could continue to be on lease with the N.D.M.C. and a licence would be given for a period of extending from 33 years to 99 years for the construction of the Hotel, which would be in the possession and enjoyment of the licensor, and annual license fee was also contemplated. After some discussion, the assessee-company offered a license fee of Rs. 28,11,000 on the terms and conditions to be mutually agreed upon. Later on the proposed area was increased and the license fee was also proportionately increased. The N.D.M.C. asked the assessee to deposit the advance license fees. In March 1977 the assessee informed the N.D.M.C. that the payment of increased tender price was acceptable to them on the terms and conditions contemplated. It was, however, stated that considering the huge financial involvement the assessee would be forming a separate public limited company for this project and a request was made that the necessary provision may be made in the license agreement for this permission at a later stage. There were certain other suggestions in respect of the draft agreement to be finalised in this respect. The assessee had proposed that he should pay Rs. 20 lacs as earnest money and the balance was to be paid at the time of actual possession. It was also stated that the license should be for 99 years and it should be co-terminous with the period for which the lease is granted by the Central Government to N.D.M.C. It was also proposed that a provision should be made whereby the licensee is authorised to transfer the possession of rooms, shops for any period not exceeding the total period of license. With the assessee's letter dated 10th March, 1977 the amount of Rs. 20 lacs was paid as earnest money.
4. After the payment of the earnest money in March, 1977 there is some interregnum in facts and it appears that the N.D.M.C. was not inclined to grant the license to the assessee. The assessee-company filed a suit against the N.D.M.C. in December 1978. In this suit it was stated that the N.D.M.C. by a resolution dated 23-3-1977 had ratified the action taken by the Officers of the N.D.M.C. It also appears that some draft was forwarded to the N.D.M.C. for finalizing the agreement. In the plaint it was stated that the assessee-company was interested in Hotel Project and, therefore, it had written letters to N.D.M.C. and on its not receiving any reply, the company approached the Lt. Governor. It also appears that the assessee had approached the Minister of Works & Housing as the N.D.M.C. and the Government were not granting the license, the N.D.M.C. refunded on 27-5-1978 the amount of Rs. 20 lacs which the assessee-company accepted under protest. It was on the basis of these facts that the assessee had claimed in the suit that the N.D.M.C. should be directed to pay damages of Rs. 64,40,000 but the first request was for the immediate physical possession of the Hotel site and only in the alternative to pay the damages. This suit was registered as Suit No. 144 of 79 and it remained pending till settlement was reached between the parties in March 1981. The Court was informed about the settlement under which the N.D.M.C. was to grant license in favour of the assessee-company for a period of 99 years. A copy of the license deed was filed before the Court. The Court's order was passed on 11th March, 1981 noting the giving of physical possession to the assessee and it was also observed that the Government had decided to allot the land in question to the N.D.M.C.
5. Thus, the N.D.M.C. granted license in favour of the assessee-company and a deed known as a agreement of license was executed on 11-3-1981. Under this license agreement, land having an area of more than 6 acres was to be used for the construction of the Hotel and Commercial Complex. The annual license fees was determined at Rs. 1 Crore 45 lacs. It also appears from this license deed that an amount of Rs. 50 lacs had been paid on 1-12-1980 and various amounts had also been paid up to the date of the signing of this lease deed. Rs. 95 lacs was to be paid at the time of the handing over of the vacant and unencumbered possession of the land by the Licensor to the licensee. This license deed was for a period of 99 years and it was clearly stipulated that within a period of 12 calendar months from the date of commencement of the license agreement a Public Limited Company was to be formed by the assessee and that company shall apply to the Licensor within six months thereafter for the transfer of the license to the said Public Limited Company so constituted and the Licensors shall transfer the license to the said Public Limited Company so constituted on the terms and conditions incorporated in the agreement. It was made clear that the land for the construction of the Five Star Hotel would continue to be on lease with the licensor N.D.M.C. in whom the building so constructed will also vest. However, it was made clear that the assessee-company shall have the right to raise loans on the security of the structures, building fixtures, fittings, etc.
6. The deed of license also stipulated that the licensees shall not be at liberty in any way to underlet, sublet, encumber, assign or transfer their rights and interest or part with the possession of the land and the building thereon to any person without the previous written consent of the licensors. However, sub-licensing of the property was permitted. Clause 14 of the license deed provided that the licensees shall have a bare license only to enter upon the piece of land for the purpose of building and executing works. It was further clarified that nothing contained in the agreement shall be construed as a demise in law of the said land. There were various other stipulations in the license deed. All the taxes except the house tax was to be paid by the licensee and it was stated that the building will vest in the licensor for all intents and purposes. The license fee was to be enhanced after the period of 33 years according to the cost of the land in the agreement.
7. According to the understanding and the provision of the lease agreement the assessee-company floated another company with the name of M/s. Bharat Hotels Limited for the purpose of taking the charge of the Hotel Project and the license in respect thereof. Shri G. Sagar Suri the Managing Director of the assessee-company was also a Director there. On 18th June, 1981 there was an agreement between the assessee-company and M/s. Bharat Hotels Ltd. laying down the terms and conditions for the transfer of the license in favour of the Bharat Hotels Ltd. In the preamble of the agreement it was stated that the assessee-company had incurred an expenditure and had also taken action to have the plan for the Hotel prepared and also took steps to make the necessary financial and other arrangements for the setting up and running of the Hotel. It is also stated that M/s. Bharat Hotels Ltd. had promoted and formed by the assessee-company and the proposal was to transfer the license to Bharat Hotels Ltd. The N.D.M.C. was also informed about the formation of this company and a request was made to transfer the license in favour of Bharat Hotels Ltd. The first two clauses of this agreement are important and may be noted here :-
1. Party No. 1 hereby transfers all its rights, title and interest in and arising out of the license deed dated 11-3-1981 and in the aforesaid decree dated 11-3-1981 in favour of Party No. 2. Party No. 2 shall observe all the terms and conditions of the licence deed dated 11-3-1981 which shall be binding on Party No. 2 and if Party No. 2 had itself submitted the order referred to above to the N.D.M.C and as if the licence deed has been entered into by the Party No. 2 self with the N.D.M.C.
2. Party No. 2 shall construct a 5-star Hotel are aforesaid land in accordance with the terms and conditions in the aforesaid licence deed dated 11-3-1981. As a consideration for the transfer of the aforesaid license, Party No. 2 shall pay to Party No. 1, by way of the goodwill, a sum of Rs. One crore and also give to the Party No. 1 sub-licence of an area approximately 1,00,000 square feet in the proposed hotel, which is earmarked for shopping-cum-office-cum-commercial area besides Car Parking Space (hereinafter referred to as Shopping Complex). This sub-license is in accordance with Clause 30 of the licence deed dated 11-3-1981 and is given for the same period as mentioned in the licence deed dated 11-3-1981.
Besides the above clauses, there were other clauses in the agreement, which contained provisions for the payment of other amounts for other considerations and for the reimbursement of certain expenses by the Parties. There were clauses relating to the shopping complex and it is not necessary to go in detail about those provisions. M/s. Bharat Hotels Ltd. was to give on licence some parts of the Shopping Complex to the assessee-company. This was called sub-licence and it was clarified that no right of any nature was created in favour of the assessee-company in respect of the Shopping Complex as it was merely an agreement of sub-licence.
8. Though it was the above agreement under which the licence and any other rights were sought to be transferred by the assessee-company to Bharat Hotels Ltd. and a consideration was mentioned by way of goodwill, we may also note another agreement known as licence deed which was executed on 22nd April, 1982 and by which it has already been agreed between the N.D.M.C. and the assessee-company. The N.D.M.C. granted the licence to Bharat Hotels Ltd. This licence deed clearly states that the former licensees (which is the assessee-company) had floated a Public Limited Company under the name and style of M/s. Bharat Hotels Ltd. and it had desired that the licence agreement be now executed with M/s. Bharat Hotels Ltd. in terms of Clause 2 of the licence deed dated 11-3-1981 entered between the N.D.M.C. and the assessee-company. This deed also noted that the former licencee (the assessee-company) had deposited Rs. 20 lacs towards the licence fee and the balance was to be paid at the time of handing over of the vacant possession. The terms and conditions of the earlier lease deed were repeated and the lease money was also given out at Rs. 1 crore 45 lacs. It was also stipulated in this lease agreement that M/s. Bharat Hotels Ltd. had agreed with other terms and conditions agreed by the former licencee, M/s. Delhi Automobiles Pvt. Ltd., were also to form part of this lease agreement. M/s. Bharat Hotels Ltd. agreed to accept full responsibility and liability in respect of what had been done by the former licencees M/s. Delhi Automobiles Pvt. Ltd., in terms and conditions of the licence agreement dated 11-3-1981. This licence was also for a period of 99 years with effect from 11th March, 1981 which was the date of the earlier licence granted to the assessee-company.
9. Prior to the above licence deed the N.D.M.C. had informed the assessee-company on 1-10-1981 about their approval for the transfer of the licence dated 11-3-1981 granted in favour of M/s. Delhi Automobiles Pvt. Ltd. in favour of M/s. Bharat Hotels Ltd. on the same terms and conditions.
10. Before the Income-tax Officer the question arose about the treatment for tax purposes of Rs. 1 crore agreed to be paid and actually paid by M/s. Bharat Hotels Ltd. to the assessee-company. After noting the facts which have already been given above, the Income-tax Officer also noted that the assessee-company was reimbursed by M/s. Bharat Hotels Ltd. by the amount of Rs. 50,23,000 which was paid towards the licence, fee and certification fee, etc. and also the expenses incurred on behalf of M/s. Bharat Hotels Ltd. from 12-3-1981 to 30-6-1981 amounting to Rs. 3,61,483.
11. Before the Income-tax Officer it was contended that the amount of Rs. 1 crore was not taxable as a revenue receipt as it was a capital receipt being receipt for goodwill. It was argued that there was no adventure in the nature of trade as it was a mere solitary transfer of a licence which was granted by the N.D.M.C. It was further contended before the Income-tax Officer that Rs. 1 crore could not be considered for the purpose of charge of capital gains, as the asset stated to be transferred was not such which could be considered as capital asset for the purposes of charge of capital gains tax. It was contended that the assets transferred had no cost of acquisition for the assessee and, therefore, the decision of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 was applicable. There also the question was regarding the assessability of the consideration received on transfer of goodwill and it was held by the Supreme Court that the goodwill generated in a newly commenced business could not be said to have any cost of acquisition. It was further contended before the Income-tax Officer that the reimbursement of expenses incurred by the assessee-company could not mean that there was any cost of acquisition of the assets transferred. The Income-tax Officer had noted that the assessee had opened an account for Hotel Project where expenses to the extent of Rs. 7,48,503 had been debited. It was, however, explained to the Income-tax Officer that the expenses shown there were merely expenses by way of internal accruals and the assessee-company had not paid anything for the goodwill or for the licensing rights obtained by the company.
12. The Income-tax Officer did not accept the plea of the assessee that the capital asset transferred to Bharat Hotels Ltd. did not cost anything to the assessee. The expenses which have been shown in the Hotel Project were in the nature of legal expenses, interest paid to the extent of Rs. 5,50,000, director's travelling expenses and other miscellaneous expenses. It was explained before the Income-tax Officer that though the income by way of interest had been shown to in the earlier assessment years. In the year 1982-83 it was reversed. On verification the Income-tax Officer found that in all these years expenses incurred on setting up of the Hotel project were not charged to respective profit and loss account but were shown in the Hotel project account. In this account besides the earnest money of Rs. 20 lacs there were expenses by way of interest charged in that account and bank charges were also shown. The Income-tax Officer analysed the Hotel Project account and found that considerable expenses were incurred in the filing of the suit and by way of court fees, and stamps etc. He also noted that the amount of interest debited in the years 1978-79 and 1979-80 were credited in the assessment year 1981-82. After analysing the yearwise position the income-tax officer came to the conclusion that considerable amounts were spent in respect of Hotel Project and it was not correct to say that for obtaining the rights by way of licence fee the assessee-company had not incurred any amount. The Income-tax Officer observed that for the purpose of computing capital gains all expenditure for acquisition or improvement of the capital asset had to be taken into consideration. After considering the contentions of the assessee, the Income-tax Officer came to the conclusion that the licencing rights were acquired by the assessee-company on 11-3-1981 at a cost/expenses of Rs. 4,52,163 expanded between 1977 to 1981. The Income-tax Officer further estimated at Rs. 40,000 the cost of acquisition of the sub-licencing rights and the balance was taken by him as the cost of acquisition of the licence transferred to M/s. Bharat Hotels Ltd. It was on this basis that he worked out the income by way of short-term capitals gains at Rs. 95,77,337.
13. After treating the consideration for purposes of capital gains the Income-tax Officer took the alternative plea that the receipt in question was a revenue receipt and the profit earned was in an adventure in the nature of trade. In this connection, he referred to the Memorandum of Association and pointed out that the Hotel venture was initiated in the year 1976-77 when the company made an offer to the N.D.M.C. for constructing and running a Five Star Hotel and started investing money by way of earnest money which was to be adjusted towards the licence fee. The Income-tax Officer also pointed out to the suit filed in the High Court and the claim for damages by the assessee-company. After referring to certain case-laws the Income-tax Officer held that the licence was acquired with the intention of selling and in the course of this activity the assessee incurred expenses and, therefore, the income could be considered as business income in the hands of the assessee. It may again be reiterated that the Income-tax officer has mainly assessed the amount as capital gains and has treated it as a short term capital gain but has alternatively considered the consideration to be a revenue receipt resulting in a profit from an adventure in the nature of trade.
14. When the matter came before the CIT (Appeals) it was contended that the amount of Rs. 1 crore was not taxable as it was a capital receipt and no capital gains could be charged as it was towards goodwill which had no cost of acquisition. Alternatively it was urged that even if it was chargeable to capital gains, it should be treated as long term capital gain and not short term capital gain and the basis that the right transferred in 1981 had come into existence in 1977 as there was a valid contract between the assessee and the N.D.M.C. for the purpose of which the assessee filed a suit for specific performance. The CIT (Appeals) also considered the inference of the Income-tax Officer regarding their being an adventure in the nature of trade. The CIT (Appeals) did not accept the submission of the Income-tax Officer that there was the intention of resale and he pointed out that it was the assessee-company which floated the new company and but for this the new company could not have come into existence. It was the company to be floated which was to run the Hotel business by obtaining the licence. According to him, there was no existence of ingredients of a trade.
15. Coming to the treatment of the amount for computing capital gains, it was not disputed before the Commissioner of Income-tax (Appeals) that the payment was received in consideration for a capital asset. The CIT (Appeals) observed that in the agreement between the assessee-company and Bharat Hotels Ltd., the description of Rs. 1 crore being paid for the goodwill did not represent the correct factual position. He observed that there could be no goodwill of a business which was yet to commence. He, therefore, considered the arguments regarding goodwill or Pugree to be not at all applicable to this case. According to him, this was also not a consideration for licence of as the assessee was not in fact or in law competent to hold or transfer the right. The right to hold or transfer the licence, according to him, did not at any point of time vest with the assessee-company and hence no consideration could possibly be received for the so-called transfer of the licence.
16. According to the CIT (Appeals), the assessee-company acquired a vested right in the contract for the specific performance and after the settlement and the Court decree the annual licence fee was substantially enhanced, and it was also stipulated that the assessee could form a separate limited company to which the licence would ultimately be given. The CIT (Appeals) held that this right came to be acquired by the assessee when the offer and acceptance of the contract between the assessee and the N.D.M.C. were completed and ratified on 22-3-1977. He also held that for this purpose of actually acquiring a transferable right the assessee had to incur certain expenses and had also to enter into litigation. He held that the cost of an asset may be the cost to a person originally and also includes expenses incurred till the stage the asset is considered as transferable. According to the CIT (Appeals), the right itself date backs to 1977 but the expenses incurred for acquisition of licence have also to be added towards cost of acquisition. He referred to the Hotel Project account and the expenses shown there and held that the capital asset transferred did cost something to the assessee and he accepted the amount determined by the Income-tax Officer as a fair determination of the cost of acquisition of the asset. According to him, the asset which was transferred had been acquired on 22-3-1977, its transfer in 1981 resulted in a long term capital gain and this capital gain was chargeable to tax as the asset did cost something to the assessee. Thus, the CIT (Appeals) did not accept the contention of the Income-tax Officer for treating it as a profit in adventure in the nature of trade but held it to be a long term capital gain on the basis that the asset which was transferred had been acquired in 1977.
17. The assessee as well as the Department are in appeal against the order of the CIT (Appeals). Briefly the contention of the assessee's counsel was that the amount could not be a business income and it was also not chargeable to capital gains tax as the asset transferred did not cost anything to the assessee. He reiterated the finding of the CIT (Appeals) that the asset which had been the subject matter of controversy had been acquired not in 1981 but in 1977 and there was no cost of acquisition of that asset, thus, taking it out of the net of taxation. We will revert to the detailed arguments later on in this order.
As against this the learned Counsel for the Revenue contended that it was clearly a business income and should be assessed as such. Regarding the alternative of the capital gains, it was contended that the CIT (Appeals) erred in holding that it was a long term capital asset as the asset which was subject-matter of transfer had been acquired only from 11-3-1981 when the licence was granted. It was also contended by him that in the face of all the facts it was not possible to argue that the asset which was transferred by the assessee did not cost him anything as it had taken so much effort and expenditure before the licence was granted to the assessee. Thus, the whole issue was gone into before us at a great length, is both the sides relying on large number of High Courts and Supreme Court decisions for various arguments advanced in support of the contention.
18. Now dealing, in some detail, with the arguments advanced by the assessee, we may first deal with his argument regarding the income being an income from business. It was contended that the assessee had never carried on any Hotel Business and when the assessee-company made offers to the N.D.M.C. in the beginning it was known that the Hotel business as such could not be carried on by the assessee having regard to the financial implication and other considerations. It was also submitted that the total business was not set up at any time till the assessment year in question and for this he cited several decisions of the Supreme Court as well as the various High Courts. It was contended by him that a business can be said to be set up only if it is ready to commence and merely obtaining a licence did not tantamount to setting up of a business particularly when the licence was to be exploited by another company. It was also contended that there was no profit motive as both the companies were managed by the same family and there was no intention to trade as far as this transaction was concerned. The learned Counsel submitted that in order to establish that this transaction was trade transaction, it must be shown that from the beginning the assessee wanted to carry on the Hotel business and the profit was received by him in the course of the carrying on the business. It was submitted that in the present case the assessee acquired certain rights and the amount was paid on capital account and not on revenue account.
19. We may now turn to the arguments advanced regarding the charge of capital gains. The learned Counsel for the assessee advanced various arguments on this issue and submitted that they should be considered separately. He contended that the subject matter of transfer should be a capital asset and in the present case the capital asset was the right acquired by the assessee in 1977 which ultimately resulted in the grant of licence later on. According to the learned Counsel, the agreement between the assessee and the N.D.M.C. had come almost up to the final stage in 1977 and the N.D.M.C. had also in its discussions given its consent for the grant of licence in 1977. He, therefore, submitted that it should be accepted that the capital asset which was transferred was acquired on 24-3-1977.
It was pointed out that the suit filed against the N.D.M.C. was for specific performance and when the matter came up before the Court there was no resistance on the part of the N.D.M.C. for the grant of licence. It was further contended that on this basis the capital asset was held by the assessee for a period of more than three years before it was transferred. The learned Counsel contended that this asset did not cost anything to the assessee and it was main agreement to the transfer of tenancy which had been held as not chargeable to capital gains as held by the Delhi High Court in the case of Bawa Shiv Charan Singh v. CIT [1984] 149 ITR 29. In respect of the cost of acquisition the learned Counsel gave detailed arguments. He submitted that as the right had come to the assessee in 1977 the cost has to be determined up to that date and the further expenses which might have been incurred in litigation or in any other item could not be taken into consideration for the cost of acquisition of the capital asset. He referred to the cost of acquisition as determined by the Income-tax Officer and pointed out that interest as well as travelling expenses were only notional adjustments without there being any actual expenditure on the Project. According to the learned Counsel, they were either by way of internal approvals or by way of defending the title or right in licence and thus it was not for acquiring of the licence itself. He submitted that the amount of Rs. 20 lacs which had been paid as earnest money was to be later on adjusted and it could not be considered to be an expenditure as in the case of the project falling the earnest money was refundable. He vehemently opposed the action of the Income-tax Officer to consider the internal adjustments of interest as well as the travelling expenses incurred by the Directors towards the cost of acquisition of the capital asset and he further submitted that the legal expenses incurred in the filing of a suit was also not to acquire any right or interest as the same had already been acquired by the assessee in 1977 but was being denied wrongly by the N.D.M.C. He, therefore, contended that if the interest, the travelling expenses, the legal expenses and other such expenses related with these items are taken out, the cost of acquisition of the capital asset could be nil. He, therefore, contended that the capital asset transferred could not be considered to be such capital asset the transfer of which could result in capital gain and the decision of the Supreme Court and the Delhi High Court referred to above were clear on the issue.
20. The learned Counsel further submitted that the principles laid down for determining the cost under Section 32 or Section 43 of the Income-tax Act could not be made applicable in respect of the capital assets. He also contended that though the assessee had debited interest to the Hotel project account on the basis of the money put in as earnest money there was nothing to show that this earnest money had been paid out of borrowed funds and not out of the assessee's own funds. He submitted that in the Hotel Project account there were certain expenses which had been debited but they had been reimbursed by Bharat Hotels Ltd. as per agreement between the assessee and Bharat Hotels Ltd. It was argued that whatever being reimbursed could not be considered to be an expenditure it could not go into the cost towards the acquisition of the asset He submitted that we could not consider any item apart from such item which had been noted by the Income-tax Officer towards the cost of acquisition of the capital asset and the earnest money could not at all be taken into consideration. It was also submitted that the earnest money in different cases are of different nature.
21. Making the new submission the learned Counsel submitted that, and this submission was made while giving a reply, that the asset in question was in respect of a right in land and therefore, there could be no transfer of such a right in the immovable property without registration of the document evidencing such a transfer. He, therefore, submitted that any such transfer would be ineffective and the charge of capital gains could not at all arise. He referred to the provisions of Section 17 of the Acquisition Act and pointed out that without compliance of the provisions, the transfer would be ineffective and the mere possession could not result a transfer of an immovable property or a right in it.
22. Further advancing an argument, which was also given in the course of reply, was whether the assessee, who had been granted a licence by the N.D.M.C. could transfer it to another company. He submitted that what has happened is that the licence was agreed to be transferred but it was for the N.D.M.C. to grant licence to M/s. Bharat Hotels Ltd. It was further contended that this licence was granted to M/s. Bharat Hotels Ltd. in April 1982 and was, therefore, beyond this accounting period. He, therefore, submitted that even if his arguments are not accepted, the transfer could be taken to have been effected not in this year but after the end of this year. Referring to the clause in the new licence making it effective from the date of the first licence, that is, 11-3-1981, the learned Counsel submitted that as M/s. Bharat Hotels Ltd. were granted licence only in April 1982 it could not be said that the assessee transferred that asset to M/s. Bharat Hotels Ltd. in this accounting period. He submitted that if this argument is accepted, even if capital gains could be charged, it would not be chargeable in this assessment year.
23. We may mention that some case laws were also relied upon by the learned Counsel for the assessee but we would make reference to them when we start considering these arguments on mertis. We will also deal with certain other arguments which will have relevance only as a reply to the arguments advanced on behalf of the Revenue.
24. In brief, therefore, the learned Counsel submitted that there was no adventure in the nature of trade and the receipt of Rs. 1 crore could not be considered to be a revenue in nature and though it was a capital receipt it was not the consideration for the transfer of the capital asset, which may be chargeable to capital gains tax. The capital asset transferred had no cost of acquisition in the hands of the assessee and, therefore, the provisions of capital gains were not applicable to such transfer. Besides this, there could be no transfer in respect of a right in land plan without a registered document and it was not for the assessee to transfer the licence to another company as it was for the N.D.M.C. to grant it and in any case, this licence had been given to Bharat Hotels Ltd. in the next year.
25. We may now deal with the arguments advanced by Shri B.B. Ahuja, Advocate on behalf of the Department. He submitted that he would advance his arguments on both the issues relating to the treatment of the amount of Rs. 1 crore as a receipt in the course of business as it was an adventure in the nature of trade and also on the alternative aspect of its treatment as a consideration for the transfer of a capital asset held by the assessee. He said that he would also try to show that the capital asset had a cost of acquisition and that such capital asset had been transferred in the relevant year. On the first aspect it was pointed out that from the beginning it was clear that the assessee-company was entering into a business venture and it was also known from the beginning that after the licence is acquired it would be transferred to another limited company. He, therefore, contended that the intention to transfer was from the beginning and it was with that intention that the assessee-company deposited the earnest money of Rs. 20 lacs and undertook to take various steps and incur expenses. It was also pointed out that the assessee-company had entered into another Hotel project about which the Income-tax Officer has made a mention in his order. It was, therefore, contended by the learned Counsel that the whole objection of the assessee was to acquire a right by getting a licence and then to make a profit by transferring it to another company to be floated for this purpose. The learned Counsel submitted that adventure in the nature of trade is not a systematic business but there should be an intention to any on an activity which is in the nature of business. He pointed out that the assessee-company had intention to do a hotel business in 1974 itself and when the present project was being finalised it had become clear that another company would be floated to take over this project. He, therefore, submitted that all the actions taken by the assessee showed that a business had been set up in the course of which this amount had been received. He referred to the cases relied upon by the learned Counsel for the assessee and submitted that this was not a case of 'salami' and the other cases were also not relevant. The learned Counsel further submitted that it is not necessary that from the beginning there should be a profit motive for making it an adventure in the nature of trade. In this connection, he referred to the decision of the Supreme Court in the case of Dalmia Cement Ltd. v. CIT [1976] 105 ITR 633. In that case certain imported machinery was sold and the question arose whether it was an adventure in the nature of trade. It was found that four cement plants had been imported out of which one had been sold at its invoice price and after revaluation by the Arbitrator some higher price had been received. The Supreme Court upheld the order of the High Court holding that the intention of the Sale was there almost from the beginning and was really the dominant intention in importing the machinery after the partition of the country. It was, therefore, held to be an adventure in the nature of trade and it was not material if there was no immediate profit on delivering the machinery. Heavily relying on this decision it was stated that as the assessee had obtained licence in order to transfer it, the whole transaction was a business transaction and the profit earned in that transaction was a business profit. Referring to the argument that the transfer was made to another company of the same group, the learned Counsel submitted that due to this relationship it was possible for the assessee-company to make the other company agreed to pay a substantial consideration. Thus, he contended that in this case from the beginning there was a dominant intention to trade. In such circumstances of the matters, the dominant intention has to be found out and as the dominant intention was to make a profit out of a business transaction, the amount was assessable as business income. Reference was made to the decision of the Supreme Court in the case of Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242 which had been relied upon by the assessee and it was submitted that this case was distinguishable on facts. Here the assessee had been taking huge loans and interest incurred had also been allocated to the Hotel project. He further submitted that the decision of the Supreme Court in the case of Kishan Prasad & Co. Ltd. v. CIT [1955] 27 ITR 49 was based on different facts, and the present case was a clear case of carrying on business. He relied on the decision of the Supreme Court in the case of Rajputana Textiles (Agencies) Ltd. v. CIT [1961] 42 ITR 743 where it had been held that the profit on the sale of certain shares was a commercial transaction as from the beginning there was intention to sell and transfer the shares to the Managing Agency. It was, therefore, pointed out that the intention at the beginning was important and in this case there was an intention to transfer the licence from the inception of the negotiation.
26. Referring to the other limb of the arguments relating to the applicability of capital gains tax, it was submitted that there was no dispute in this case that the right belonging to the assessee was a capital asset. He submitted that what has to be determined is whether the capital asset has been transferred in this year and whether the asset had any cost of acquisition so as to make the provisions regarding capital gains applicable to it. The other aspect was whether the capital gains was a long-term capital gain or a short term capital gain. He submitted that the right to transfer the licence was inbuilt in the licence itself and the transfer took place as contemplated. He submitted that the capital asset which had been transferred was the right which had been acquired by the assessee as a licencee with the prior understanding that the assessee would be able to transfer it to a nominee company to be floated for this purpose. He referred to the earlier correspondence and the lease-deed itself and pointed out that from the beginning it was contemplated that the NDMC would permit such a transfer. He pointed out to the agreement between the assessee and M/s. Bharat Hotels Ltd. where the capital asset transferred has been clearly described. The learned Counsel submitted that there was various stages of negotiation and there was an offer and acceptance on certain conditions and negotiations were going on for quite sometime. As a result of these negotiations the assessee-company was to be granted a licence which had however been denied for sometime. Ultimately the assessee had to go to court and the parties agreed that the licence should be granted. The learned Counsel pointed out that the various stages were not the same thing as the licence itself but the process in the course of obtaining the licence. He pointed out that the licence fee dated 11th March, 1981 clearly provided that a company would be floated within 12 months and that company shall apply to the Licensor and the NDMC was bound to transfer the licence in the name of the new company. The agreement between the assessee and the Bharat Hotels Ltd. clearly provided that as a consideration for the transfer of the aforesaid licence Bharat Hotels were to pay to the assessee company Rs. 1 crore and would also give to the assessee-company sub-licence for certain areas in the proposed Hotel as a Shopping Complex. This deed has also clearly provided that the assessee-company had transferred its right, title and interest arising out of the licence dated 11-3-1981 and in the aforesaid decree dated 11-3-1981 in favour of Bharat Hotels Ltd. These clauses have been reproduced in the earlier part of this order. He, therefore, contended that it was this capital asset acquired by the assessee-company by way of this licence which had been transferred and had resulted in a capital gain. He submitted that the earlier correspondence and letters only were the essential procedures to be fulfilled prior to the grant of licence. Till the licence was actually granted, it was merely a right to receive the licence and this right has not been transferred as such. At the time of transfer the licence had already been granted and it was that right as a licencee that had been transferred by the assessee. He, therefore, contended that the contention on behalf of the assessee that this capital asset had been acquired in 1977 was absolutely wrong and whatever rights the assessee might have acquired at an earlier period was not the subject matter of transfer by this agreement. He, therefore, contended that the licence which had been created on 11-3-1981 could not be taken to be held by the assessee on a date prior to it. The licence itself was not effective from any earlier date. He also pointed out that the land in question belonged to the Government and it had been leased out to the NDMC immediately before the licence had been granted and not at any earlier time like 1976 or 1977. The learned Counsel further submitted that in earlier negotiations contemplated about the grant of licence was the licence fee was thought to be Rs. 38 lacs, whereas in the licence it had been actually granted and the licence fee was mentioned at Rs. 1 crore 45 lacs. It was this licence which was granted for a period of 99 years which is the subject matter of transfer on 18-6-1981 to Bharat Hotels Ltd. The learned Counsel further submitted that once it is accepted that what had been transferred was the licence acquired in 1981 the arguments advanced by the learned counsel for the assessee that it had been held by the assessee since 1977 would have more legs to stand. For the cost of acquisition of the capital asset also, this fact has to be borne in mind as the cost of acquisition has to be worked out till the licence was granted in 1981 and not only up to the year 1977. He referred to the various clauses in the licence deed as well as in the agreement between the assessee and the Bharat Hotels Ltd. and submitted that what was being transferred was not the land or any right therein but only a right regarding the user of the land for specific purpose subject to the terms of the licence. A specific reference was made to the Clause 15 of the deed, which provided that there was no demise in law of the said land and the licence shall only have a licence to enter upon the said land for the purpose of building and executing works thereon. A reference was also made to Clause I6(xii) which provides that all the charges and taxes were to be paid by the licencee but the house-tax was not to be paid as it vested in the licensor. A reference was also made to Clause 25 of the deed providing that the accommodation was to vest in the NDMC and all the fittings and fixtures were also to belong to them. Clause 30 provided for the grant of a sub-licence in the course of running the Hotel. There was also a provision for the cancellation of licence in case the licence did not turn up to occupy the land for the construction of the buildings.
27. Referring to the agreement between the assessee and Bharat Hotels Ltd. he submitted that no doubt remains about the asset which has been transferred as a result of this agreement. It was pointed out that Rs. 1 crore paid by Bharat Hotels Ltd. had actually been credited in the books of the assessee-company in this year though it was not shown as a part of the profit on the ground that it was exempt under the judgment of the Supreme Court. The learned Counsel further submitted that when the new licence was granted on 22-4-1982 in the name of Bharat Hotels Ltd., it was also with reference to the agreement between the NDMC and the assessee as well as the assessee-company and Bharat Hotels Ltd. That licence was also effective from 11-3-1981 though it was executed on 22-4-1982. He submitted that there was no transfer by the assessee in 1982 as whatever the assessee possessed he had surrendered it in favour of Bharat Hotels Ltd. by the agreement dated 18th June, 1981.
28. Addressing us regarding the cost of acquisition of the capital asset, the learned Counsel submitted that the cost has to be the cost to the assessee and it did hot mean the price payable for acquiring the cost. He contended that it was nobody's case that the assessee-company had transferred any goodwill to Bharat Hotels Ltd. as the assessee-company had never acquired any goodwill when the business itself had not been carried on for any period by the assessee company. He, therefore, submitted that the mention of goodwill in the agreement was without any substance and one has to only look to the language to find out as to what has been transferred, what has not been goodwill but right as a licencee. It was contended that the assessee-company had paid substantial amounts as earnest money and this itself would show that there was a cost of acquisition as payment of such earnest money itself would mean that there was substantial cost. The assessee had incurred huge interest liable from year to year and it was out of the assessee's funds that Rs. 20 lacs had been paid towards the Hotel project. The assessee had debited not only the amount of the earnest money but also the interest which was attributable to such investment. This was a contemporaneous adjustment made by the assessee and writing back of this cannot change the factual position. He pointed out that the purchase of draft of Rs. 20 lacs cost to the assessee Rs. 2,000 and besides this there were other expenses. Besides the actual expenditure of interest there were expenses incurred on litigation. He referred to the Directors' report at page 7 where it had been stated by the Directors that the company had incurred loss on blocked investment. It was submitted that the legal expenses could not be denied as filing of a suit, engagement of lawyers and other such expenses were incurred prior to the grant of licence to the assessee. It was submitted that these expenses could not be considered as improvement of the assessee's rights but cost of acquisition of those rights as a licencee. He referred to the Hotel project account and the various expenses debited to it and submitted that this clearly showed that there was a cost of acquisition of the capital asset. He submitted that even if these expenses are written off or transferred back to the various accounts, it would not mean that there was no cost of acquisition. Referring to the argument that the assessee-company got reimbursed for various expenses, it was pointed out that even in the case of a capital asset, there is a stage of reimbursement to the extent of cost when the purchaser purchases any asset for a consideration which is more than the cost of acquisition.
29. The learned Counsel for the Department submitted that what had been transferred was not a mere promise but the licence itself. He referred to the order of the Commissioner and pointed out that there was contradiction in that order. It was pointed out that though the Commissioner had held that the capital asset had been acquired by the assessee in 1977, he had included in the cost of acquisition litigation expenses which had been incurred much later. In the travelling expenses incurred after 1977 had been partly taken by the Commissioner. He pointed out that the Commissioner had referred to the various grounds relating to various expenses which had not been pressed before him and it had also been held that the expenses relating to the Hotel project were disallowable. It was further submitted by the learned Counsel that the assessee had not raised any ground regarding the quantum of cost of acquisition and the only question which had been submitted was that there was no cost of acquisition in this case. Referring to the notion of cost, the learned Counsel submitted that all the expenses which go into the acquisition of an asset constitute its cost though it may not be its price. Certain expenses for outlay for acquiring the asset are included in the cost as held by the Supreme Court in the case of Challapalli Sugars Ltd. v. CIR [1975] 98 ITR 167. The learned Counsel referred to the decision of the Delhi High Court in the case of Mithlesh Kumari where it had been held that interest paid by the assessee on money borrowed on the purchase of a plot of land constituted part of the cost to the assessee for the purpose of computing capital gains tax. It was also contended that money or moneys worth which go into the cost constitutes the cost of the assessee as held by the Calcutta High Court in the case of CIT v. Lothian Jute Mills Co. Ltd. [1967] 66 ITR 630. The learned Counsel also contended that the payment of the earnest money itself goes into the cost of acquisition of the asset and there was always a possibility of forfeiture of the earnest money itself in certain circumstances. Strong reliance was placed on the decision of the Bombay High Court in the case of CIT v. Tata Services Ltd. [1980] 122 ITR 594, where it has been held that agreement for sale itself was a property and a capital asset and earnest money is a part of the consideration for acquiring that capital asset. It was also held by the court that the assignment of such a right to obtain the conveyance is at transfer for the purpose of charge of capital gains. It was, therefore, contended that when the assessee paid the substantial earnest money it was also a cost of acquisition apart from the other expenses incurred. It was further contended that even an asset like bus route permit is a capital asset which has been held by the Madras High Court in the case of 5. Vaidyanathaswami v. CIT [1979] 119 ITR 369. Similar view was taken in K. Balasubramania Nair v. CIT [1979] 119 ITR 504 (Mad.). It was made clear by their Lordships that the decision of the Supreme Court in the case was applicable to self-generating assets and not assets like bus route permit which may be having some cost of acquisition.
30. The learned Counsel for the assessee submitted that the decisions relied upon by the assessee in CIT v. Sterling Investment Corporation Ltd. [1980] 123 ITR 441 (Bom.) or the decision in the case of Bawa Shiv Charan Singh's case, (supra) were not at all applicable in this case. He also distinguished the case of the assessee from the case of loom houses or import entitlements where the cost of acquisition is nil. Referring to the argument of the learned Counsel for the assessee that litigation expenses were only for improving the asset, it was submitted that it was for obtaining the title in the asset and it could not be considered as the improvement of the asset itself.
31. The learned Counsel referred to the definition of 'transfer' as given in the Income-tax Act and pointed out that it is a wide definition and includes relinquishment of the asset and the extinguishment of any rights therein. He, however, submitted that in this case there was a transfer itself as stated in clear words in the agreement between the assessee and Bharat Hotels Ltd. It was pointed out that though it was for the NDMC to grant the licence to the assessee, it had been agreed in advance that the licence will be so granted after obtaining it. Where there was clear prior understanding or an agreement for the transfer of the licence in favour of the other company and it is given effect by the parties there was a transfer of the asset within the meaning of the definition so given in the Income-tax Act. The moment the assessee's rights ceases so that the other party may obtain the licence later on the transfer takes place. As this has taken place in this year at the time of agreement between the assessee and Bharat Hotels Ltd., it should be held that there was a transfer in this year. The actual grant of licence in 1982 does not result in the transfer which had already taken place at an earlier date.
32. Replying to the assessee's Counsel's argument that what had been transferred was a right in the land and no such transfer could take place without prior registration as contemplated under law, the learned Counsel submitted that no rights in land had at all been transferred. Several clauses in the agreement or in the lease agreement, make it absolutely clear that the licencee does not get any right in the land. They only can enter the land for a specific purpose and till the licence exists the NDMC was to continue as the lessee and licensor, and the NDMC was to have a right not only in respect of the land but also in respect of the buildings to be constructed.
33. The learned Counsel pointed out that there was a basic difference between lease and licence and it was necessary to find out whether a right in property was created by the document or a permission was granted only for the use of the land for a certain period. He referred to the Transfer of Property Act by Mullah as edited by Justice H.R. Khanna and Shri P.M. Bakshi and contended that a character of a transaction terms on the operative intent of the parties. If interest in immovable property entitling the transferee to its enjoyment is created, it is a lease. But that with permission to use the land without the right to exclusive possession, is a loan granted transaction under a licence. It was also laid down that if there is a formal document, the intention is inferred from its terms and only if the terms are ambiguous that one may go to the attendant circumstances. It was also pointed out that a licence itself was not assignable and is revocable by the grantor. The learned Counsel, however, submitted that in the present case both the parties have repeatedly made it clear that the assessee after obtaining the licence was to surrender it in favour of the other company and the NDMC was bound to take action as agreed between the parties. He, therefore, contended that for such a document there was no requirement of registration as no rights in land have been transferred to the licencee. In this connection, a reference was made to the provisions of the Leasement Act and also the decision in the case of Board of Revenue v. A.M. Ansari AIR 1976 SC 1813 and Chandu Lal v. Municipal Corporation of Delhi AIR 1978 (Delhi) 174 (FB). It was also pointed out that throughout this period it was the NDMC which was the lessee and in its capacity as a lessee it had granted a licence first in favour of the assessee and then in favour of Bharat Hotels Ltd. as agreed between the parties. He submitted that such a document not creating any right in an immovable property did not require registration. It was, therefore, contended that the transfer of the capital asset was complete in this year and there was a cost of acquisition of the capital asset and, therefore, the transfer of this capital asset resulted in a capital gains in the hands of the assessee. The capital asset transferred was the right as a licencee and this right came to be held by the assessee only in 198 land not in 1977. Thus, the capital gains which arises in the hands of the assessee is assessable as a short term capital gain. The CIT (Appeals) also, it was submitted, erred in holding that it was a long term capital asset.
After having noted the rival submissions and arguments, we may now proceed to consider the arguments on various aspects. We have to determine the nature of the receipt of Rs. 1 crore and then we have to decide whether this was a business receipt or a consideration for the transfer of capital asset. After that we have to consider whether the capital asset stated to have been transferred was a long term capital asset or a short term capital asset. As regards the question of considering the receipts as business income, we find that this plea has been rejected by the CIT (Appeals). This ground arises in the Departmental appeal. In this case the important event which has taken place is the transfer of a licence which had authorised the assessee to construct a Five Star Hotel and a commercial complex on a piece of land. The assessee-company was not carrying on any business of running a Hotel. However, it appears that the assessee was taking interest in a Hotel project and its intention from the beginning was that it will bid for it and if granted the right acquired would be transferred to another company which was to be specifically floated for this purpose. According to the Revenue's case it was this intention to transfer the licence after obtaining it, had made it an adventure in the nature of trade. According to the submission made on behalf of the Department, there was no intention on the part of the assessee to hold the asset as such but to transfer it to another company which was to be formed for this purpose. The observations made by the Commissioner in paragraph 2.11 were challenged. It was submitted that there were several documents prior to the licence deed dated 11-3-1981 wherein it was stipulated that a new company would be formed for take over of the licence and thus there was an intention to resell. It was in fact in the very beginning of the negotiations in 1976 and 1977 that such an understanding was there and it had been communicated in writing as well. After considering the sequence of events one has to agree with the learned Counsel for the Department that the observations made in this paragraph are not accurate. As already noted by us in the earlier part of this order, there was always an intention to form a company and to transfer the rights which are required by the assessee under the licence. It is also not accurate to say that the assessee was left with no alternative but to form another company because of the lease deed. The lease deed incorporated various points on which the parties had agreed and also some new points and this stipulation regarding the formation of a new company and the transfer of licence to it, was, therefore, in one form or the other from the beginning. However, in our opinion, this could not make the transaction as an adventure in the nature of trade. It was not the intention of the assessee to hold the licence as a commercial asset and to exploit it but to acquire the right and then to transfer it. It is true that in 1977 itself the assessee-company had taken steps to work out the details of the Hotel project and the Directors of the assessee-company travelled for procuring collaboration in respect of the running of the Hotel. It was for acquiring the licence that a suit was filed and ultimately the licence was granted by the NDMC. In reply to the queries made by the Income-tax Officer in this regard, the assessee has pointed out that the Hotel business as such had never been commenced by the assessee-company. It was also pointed out that it was not a stage where the business was even set up. It had also been pointed out that there was no continuous activity so far as this business was concerned. In our opinion, in this case the assessee having decided not to carry on the Hotel business itself was trying to acquire the rights to construct such a Hotel with a view to transfer it to a sister concern. The basic motive for carrying on business is to earn profit. This business was to be carried on by the successor company to be floated for this purpose. The assessee-company itself never intended to earn a profit as the new company to be floated was to be con trolled by the persons behind the assessee-company. The assessee-company could not have intended from the beginning to make a profit out of such a transfer. It was very much likely that as the business was to be carried on by a sister concern, they might have agreed to transfer it only on the condition of reimbursement of the actual expenses incurred and without charging anything for the transfer of the licence. Thus, the intention of making a business profit out of this deal is not shown to be present as far as the assessee-company is concerned. The learned Counsel for the revenue had strongly relied on the decision of the Supreme Court in the case of Dalmia Cement Ltd. (supra) on this issue. The facts of this case are very much different from the facts of the assessee's case. In that case the Dalmia Cement Ltd. had imported certain machineries with the intention to resell it and it was on this fact that the courts held that it was an adventure in the nature of trade. In such an adventure one may have profit or loss but a businessman always intends to have a profit at the time of beginning of the transaction. It is true that even a single and isolated transaction can be held to be capable of falling within the definition of an adventure in the nature of trade. In the case of Dalmia Cement Ltd. (supra) it was held that there was no intention to sell the machinery to any sister concern for their use but to sell it in the commercial market. We are, therefore, of the view that as far as the assessee-company is concerned, this transaction did not take the shape of adventure in the nature of trade, as the intention was very clear that the assessee could not itself run the business but would transfer it to another company to be floated by it. It was that company which had to carry on the business. The transaction was in the nature of transfer of the licence and it was not the business of the assessee to have a dealing in licence though that alone could not be conclusive in deciding the question about adventure in the nature of trade. Thus, while not agreeing with the reasons given by the CIT(Appeals), we agree with him and with his inference that this receipt was not from business in Hotel as there was no adventure in the nature of trade.
34. Coming to the other limb of the question, which relates to the charge of capital gains, we have first to determine whether there was a transfer of a capital asset in this year and if there was a transfer of a capital asset, what was precisely the capital asset which had been transferred. A reading of the agreement between the assessee-company and Bharat Hotels Ltd. leaves one in no doubt that what has been transferred is not the goodwill as in respect of the Hotel business the assessee-company had never acquired any goodwill and the description in the agreement was not correct. The language of Clauses (1) and (2) of the agreement which have already been reproduced, is important. The assessee had transferred its right, title and interest in and arising out of the licence deed dated 11-3-1981, and Bharat Hotels Ltd. agreed with all the terms and conditions of the licence. Clause (1) itself provided that Bharat Hotels Ltd. would step in the shoes of the assessee-company as if the licence deed has had been entered into by Bharat Hotels Ltd. and the assessee. It is the licence deed dated 11-3-1981 which is repeatedly used as the document which gave to the assessee a right which was being transferred. As far as the consideration of Rs. 1 crore was concerned, it is clearly stated that it was for the transfer of the above licence and the further mention "by way of goodwill" was without any meaning. There are various other clauses in this agreement which point out that what was being transferred was the licence rights acquired by the assessee on 11-3-1981. Thus, we have to determine whether the right obtained under this licence could be considered to be a capital asset. We have no doubt in our mind that the right obtained in the licence dated 11-3-1981 was a capital asset as that term includes property of all types and the definition is very wide. In fact the assessee has never seriously questioned that the rights under the licence deed constitute a capital asset, and all what had been stated is, that the rights transferred by this agreement were those rights which had been held by the assessee from 1977.
35. The submission made on behalf of the assessee, that the asset had been acquired by the assessee in 1977 after which he had been holding it till it transferred it in 1981 to Bharat Hotels Ltd., cannot be accepted. As a result of negotiation between the assessee-company considerable progress had been made and the assessee had also paid Rs. 20 lacs by way of earnest money on 9th March, 1977, However, as a result of all this the assessee acquired a right to obtain the licence deed from the NDMC. It was this right which the assessee tried to obtain through the courts when there was inordinate delay on the part of the NDMC. In fact at one stage the earnest money had to be taken back by the assessee though under protest. As far as the NDMC was concerned, the earlier negotiations had not resulted in licence till there was a compromise between the parties after the suit was filed. If the assessee had transferred its rights prior to the grant of the licence in March, 1981, it could have been argued that what has been transferred was the right to obtain the licence. In that situation, it could further be contended that the right to obtain the licence was held by the assessee since 1977. However, as a matter of fact, the licence was granted only on 11th March, 1981 and all the rights which arose to the assessee were contained in this licence. After this when the licence was transferred to Bharat Hotels Ltd., it was the licence dated 11th March, 1981, which was relevant. In order to understand this question, we may take an example. There may be an agreement to sell a property between two parties and that agreement to sell may remain pending for several years. Before the sale takes place, it is open to a party to transfer the right to obtain the conveyance and in that situation, it would be that right which would be the subject matter of transfer. However, once sale deed is executed, it is only the property which can be transferred to another person. The capital asset changes from the right to obtain a conveyance deed to the property itself. It would be with reference to the particular asset that one will have to determine the date from which it is being held by the assessee. It is in respect of that capital asset that one has to ascertain the cost of acquisition. We, therefore, hold that the subject matter of transfer in the agreement dated 18th June, 1981 was the licence obtained on 11th March, 1981.
36. Now the question arises whether the right which has been transferred can, in any way, be stated to be held by the assessee since 1977. In our opinion, this contention is the result of a conclusion regarding the capital asset, which is transferred. If there had been a transfer prior to the grant of licence it could be argued that those rights have been held since 1977 after the earnest money had been paid for the first time. It is not possible, in our view, to hold that the capital asset which is transferred by this agreement had been held by the assessee since 1977. The precise date since when it was held is 11th March, 1981 and we have to determine the cost of acquisition of this capital asset acquired by the assessee on 11th March, 1981 and transferred by the assessee on 18th June, 1981. Thus, we would hold that it was a short term capital asset which was purported to be transferred by this agreement. In this connection, it will be relevant to refer to the decision of the Bombay High Court, which has already been referred to above as Tata Services Ltd.'s case (supra). In that case what had been transferred, it was the right to obtain a conveyance and not the property itself. In that connection, the High Court had observed that the earnest money paid also goes towards the cost of acquisition of a capital asset. In our view, therefore, the learned CIT(Appeals) was in error when he held that the capital asset which had been transferred was a long term capital asset.
37. In this connection, we may make the reference to the second ground in the Departmental appeal, which was, according to the Counsel for the Department, had not been drafted properly. He submitted that the later part of the ground "especially when ownership in any immovable property is vested only when conveyance deed is executed and registered not otherwise." was not correct and he pleaded that he may be permitted to withdraw that part of the ground. It has been contended by him that he challenged the finding of the CIT( Appeals) that the right or asset which had been transferred had been acquired in 1977, as it was not that right which had been transferred by this agreement. The learned Counsel for the assessee objected to this withdrawal of a part of the ground. We are, however, of the view that we have to decide the matter in accordance with law and the parties cannot lay down the law whether or not it applied to the facts of the case. The basic issue before us is whether the capital asset which had been transferred was a long-term capital asset or not and we have held that it was the right under the licence granted in March, 1981 which was the subject matter of the transfer. The capital asset must be held to have been acquired at that time and not in 1977.
38. Connected with this aspect, is the objection that the licence deed being in respect of an immovable property (land) it had no effect as it had not been registered as required under the Registration Act. It has also been submitted that the assessee could not transfer the right in the immovable property without there being a registered deed for this purpose. The learned Counsel for the Department had objected to this argument being raised at this stage, particularly at the stage of reply. It was pointed out by him that the assessee had accepted the position that there was transfer by the agreement dated 18-6-1981 and in this connection he referred to the assessee's letter written to the Income-tax Officer, which is being placed at pages 99, 101, 102 as well as 108 of Paper Book-I. He also referred to the finding of the Income-tax Officer as well as the CIT (Appeals) that the licence was transferred by the agreement dated 18-6-1981. He had also referred to the balance sheet showing the receipt of the amount in this period. We, however, permitted the learned Counsel to make his submissions as also allow the learned Counsel to reply to the same action. This argument of the learned Counsel for the assessee is based on the premise that what was being given to the assessee and transferred by the assessee, was any right in land. It is true that any right in the immovable property can be transferred only by a registered deed. However, in the present case, no right in the property itself has been granted to the assessee and, therefore, he could not have transferred this right to Bharat Hotels Ltd. All what had happened is that the NDMC which was a lessee of the land, granted a licence to the assessee-company to use it for the construction of a Hotel business. The licence deed itself makes it repeatedly clear that the licence was for the use of the plot of land, for a specific purpose and no rights in the land had been granted. It was stipulated in the licence deed that the land would continue to be on lease with the licensor (the NDMC) in whom the building to be constructed will also vest but the licensee shall have the right to raise loans on the security of the structure, buildings, fixtures, fittings etc. This was a bare licence to enter upon the piece of land for the purpose of building and executing works thereon and nothing contained in the licence deed could be construed as a demise in law of the said land. It was made very clear that M/s. Delhi Automobiles Pvt. Ltd. did not get any legal, title or interest in the land. Clause 25 of the licence deed had repeated that the building to be constructed shall at all times vest with the licensor and thus even the building which was being constructed by the licensees had to run the Hotel under the terms and conditions of the NDMC. In these very clear circumstances and the terms of the licence deed, it is not possible to accept the plea of the assessee that it granted to the assessee any right in the land. The assessee could transfer only such rights which it possessed and nothing more. It was made clear from the beginning that after obtaining the licence the assessee withdrew from the scene and its place will be taken by another company to be nominated by the assessee-company. There is a basic difference between the lease and licence, which has already been discussed above. The intention of the parties is very clear from the terms of the licence deed and no part of the deed can be construed as transferring the rights in the land to the assessee or by the assessee to transferee. In our view, therefore, there was no question of requirement of registration in order to make the whole transaction legal. The licence deed itself as a licence deed, was valid and the agreement between the assessee and Bharat Hotels Ltd. was also valid without any registration, which was not applicable to the facts of the case.
39. An argument was raised that the assessee-company could not transfer the licence to another company as it was a personal right given to the assessee-company and again it was the NDMC which had to grant the licence to Bharat Hotels Ltd. It was, therefore, contended that the assessee could not transfer the licence to Bharat Hotels Ltd. This argument of the learned Counsel ignores the basic understanding which had been there throughout the negotiations and which had been clarified in repeated correspondence. It was also put in the licence deed that the NDMC was a certain party to the transfer of the licence rights in favour of another company if the terms and conditions were abided by the company to be floated for the purpose. As all the three parties were involved in this transaction and the NDMC which had granted licence to the assessee had agreed to grant it in favour of the other company, when the assessee-company entered into such an agreement the legal consequence was that the assessee had transferred the licence rights in favour of Bharat Hotels Ltd. The definition of the term 'transfer' is very wide under the Income-tax Act and we cannot accept the restricted meaning given to it by the learned Counsel for the assessee. Transfer is a word of widest import and includes every means by which the property may be passed from one person to another. The definition as given in Section 2(47) of the Income-tax Act, gives an extended meaning to the terms by including within its scope normal transfer and also admits two kinds of transactions, namely relinquishment of the capital asset and extinguishment of any right in the asset. Apart from the fact that the assessee has clearly stated that it was transferring all its rights to the other company and the other company had also taken it on transfer from the assessee. We note that a right which was possessed by the assessee was passed on the other company after the assessee-company withdrew from the scene giving the possession or control to the other company. It is not possible to appreciate the nature of the transaction without having regard to the facts of the case. It is having regard to those facts that we have to hold that there had been a transfer of a short term capital asset by the assessee in favour of Bharat Hotels Ltd.
40. This leaves us with the other argument advanced by the learned Counsel for the assessee which related to the cost of acquisition of the capital asset. According to the learned counsel, there was no cost of acquisition of the asset which had been transferred. This argument was based on the assessee's basic contention that what had been transferred by this agreement was the right held by the assessee since 1977 and it was not the right under the licence which had been transferred. We have already discussed above that we do not accept this plea of the assessee. We have held that the capital asset which has been transferred under the agreement between the assessee and Bharat Hotels Ltd. is the right under the licence. It is in consideration of such transfer that the consideration of Rs. 1 crore was provided in the agreement. The contention of the assessee that the capital asset had been acquired in 1977 which resulted in the restriction of the concept of cost of acquisition as worked out by the assessee. It is not possible to accept that it is like an agreement to transfer the tenancy in favour of another person. The decision of the Delhi High Court in the case of Bawa Shiv Charan Singh (supra) does not apply to this case. It had been contended by the learned Counsel for the assessee that the licence did not have any cost of acquisition and in 1977 the assessee had not incurred any expenditure for acquiring the rights. According to him, the delay by the NDMC could not result in the inference that the right had not been acquired by the assessee. As against this the Income-tax Officer has worked out the cost of acquisition with reference to the expenses debited in the Hotel project as given in the books of the assessee. The details of the Hotel project account have been given in the order of the Income-tax Officer and had also been discussed by the CIT (Appeals). Before us there was no challenge to the quantum of the cost of acquisition and the only point which had been advanced on behalf of the assessee was that there was no cost of acquisition of the asset which had been transferred by the assessee. We are not in a position to accept this plea of the assessee. We have already held that what had been transferred was the licence obtained in March, 1981. Besides the litigation expenses which had been incurred and which are not in dispute, the assessee had paid earnest money of Rs. 20 lacs which had first been returned and then the amount of Rs. 50 lacs had been paid. At the time of the use of this money for the Hotel Project the assessee had been allocating a part of interest paid by the assessee-company as relating to the investment made in the Hotel project. This was done from year to year. It has been pointed out by the Income-tax Officer in paragraph 5.27 of his order. The main plea of the assessee in favour of ignoring these interest expenses was that they were by way of internal accruals. It was contended that the assessee has tried to reverse the entries in later years and the result of these reverse entries were still pending. However, the learned Counsel for the Department had pointed out that the assessee-company had been paying substantial amount of interest on its borrowings and the assessee-company itself had been allocating a part of interest to the Hotel Project. The assessee-company had also contended before the courts that by investing substantial amount by way of the earnest money the assessee was incurring a liability by way of interest The learned Counsel for the assessee had also pointed out that where such a substantial amount of earnest money is paid that itself is a part of consideration, though it may ultimately be adjusted towards the licence fees. It had also been submitted on behalf of the Department that there was always a possibility for the forfeiture of the earnest money and this was definitely a consideration and would go towards the cost of acquisition of the asset.
41. There was also a dispute before us regarding the travelling expenses incurred by the Directors, a part of which had been put in the Hotel Project account. The learned counsel for the assessee had stated that this was merely an internal adjustment which had later on been reversed. There was no specific item of expenditure which had been put in the Hotel project. The learned Counsel for the Revenue pointed out that prior to the grant of licence the Directors of the assessee-company had travelled in India as well as abroad in connection with the Hotel project. The fact that some of these expenses might have been reimbursed later on by Bharat Hotels Ltd., would not mean that there was no cost of acquisition for the asset.
42. Having considered these rival arguments, we are of the view that there was definitely cost of acquisition of the licence acquired by the assessee and later on transferred. The bank charges had to be paid for obtaining a draft for payment of earnest money. Litigation expenses have been incurred and it is not possible to accept the plea of the assessee that it was incurred for improvement of the title of the assessee as the title to the capital asset had arisen only in 1981. There is also force in the submission of the learned Counsel for the Revenue that the substantial amount had been paid by way of earnest money and the assessee-company had been borrowing loans and paying interest to outsiders and that the assessee-company had been allocating apart of interest to the Hotel project on actual circulation, no part of it had gone into the cost of the asset We, therefore, hold that the right under licence which has been transferred had a cost of acquisition and, therefore, the plea of the assessee that it was in the nature of goodwill or tenancy cannot be accepted, The decisions of the courts to exclude such capital assets, which have no cost of acquisition, is therefore, not applicable to this case. There is no dispute before us regarding the quantum of the cost of acquisition as, if the assessee had argued about it, it would have only increased the quantum of its taxable income.
43. This leaves us with the last argument which had been raised by the learned counsel for the assessee in the course of his reply. It had been submitted by him that the agreement for transfer of the licence had been entered into between the company and M/s. Bharat Hotels Ltd. on 18-6-1981 but the licence was actually granted to Bharat Hotels Ltd. only in April 1982. It was, therefore, contended that the transfer, if any, has taken place in the next accounting period. The learned Counsel for the Revenue had pointed out to the Directors' report for this year which read as under:-
Extract from the Directors' report relating to Hotel Projects dated 16-2-1982 to the shareholders of the company in respect of accounting period ending 30th June, 1981 (Assessment year 1982] As reported earlier the civil proceedings against NDMC for the specific performance, interest and damages etc., pending in the Delhi High Court were compromised and land at Barakhamba Lane was allotted to the Company on modified terms. The possession of the land was taken over during the year under review. As stipulated in the agreement of license with NDMC a public limited company under the name 'Bharat Hotels Ltd.' has been promoted for construction and running of a Five Star Hotel. An agreement for transfer of the licence has been entered into between this company and M/s. Bharat Hotels Ltd. In consideration thereof and as compensation for expenses incurred and efforts made by this Company during the past many years, this company has received a sum of Rs. one crore as goodwill from M/s. Bharat Hotels Ltd. This company has also acquired sub-licensee rights for shopping complex of an area approximately 1,40,000 Sq.ft. in the proposed hotel.
It was submitted by him that whenever the licence was granted by the NDMC to Bhart Hotels, it was not the determinative event as far as the assessee was concerned. The assessee transferred his rights by the agreement dated 18-6-1981 and got a consideration for that As far as the assessee was concerned, its transaction with Bharat Hotels Ltd. were completed by giving effect to the terms of this agreement. It had, therefore, been contended that there had been a transfer of the capita] asset in this very year and not in the next year.
44. We agree with the counsel for the Revenue. We cannot hold that after the agreement dated 18-6-1981 had been executed and an amount of Rs. 1 crore had been paid by the other company in consideration of the transfer of licence and note was taken on this fact by the Directors in their report, there was still something to be done by the assessee for transferring its rights in the licence to Bharat Hotels Ltd. We agree that the grant of licence on a later date-will not determine the date of transfer for the capital asset which the assessee was transferring to Bharat Hotels Ltd.
45. In brief, our conclusion regarding this point is that Rs. 1 crore had not been received in the course of any adventure in the nature of trade, but had been received as a consideration for the transfer of a short term capital asset in the shape of licence granted to the assessee on 11 -3-1981. We have also held that this capital asset had a cost of acquisition and we have not accepted the plea of the assessee that there was no cost of acquisition. We have further held that the licence does not grant any right in any immovable property and therefore, there was no requirement of registration of the licence deed or the agreement between the assessee and Bharat Hotels Ltd. In the end, we have held that the fact that the NDMC had granted the licence to Bharat Hotels Ltd. in April 1982 would not mean that there has been no complete transfer by the agreement dated 18-6-1981. It has therefore, been held that the amount computed as capital gains on the transfer of short term capital asset was assessable in this year as held by the Income-tax Officer. On this issue, therefore, whereas the plea of the Department was not accepted on the question of adventure in the nature of trade, the plea of the Department has been accepted in respect of treating the profit as a short term capital gain.
46. This brings us to the other grounds raised in the assessee's appeal. Ground No. 2 relates to the treatment of Rs. 26,557 which was the unclaimed balances written back as the income of the assessee. The CIT(Appeals) has only followed the orders passed in the assessment years 1978-79 and 1979-80, where the Tribunal had also upheld the treatment of such amounts in the same manner. According to the submission of the assessee, this amount could not be assessed as the income as there had been no cessation of liability in this year. At the time of the hearing the learned Counsel drew our attention to the copies of accounts of the creditors as well as the order of the Tribunal for the assessment year 1976-77 where the High Court laid down the decision in petition under Section 256(2) of the Income-tax Act. It was pointed out that the High Court had also observed that there should be something to show remission or cessation of liability before the amount could be treated as income. The discussion in the orders of the Tribunal for the earlier assessment year read that the order of the High Court had to be taken into consideration for determining the nature of the balances and each account will have to be seen for determining whether it could be included as the income of the assessee. As this has not been done, we would restore back this matter to the Income-tax Officer to reconsider the accounts in the light of the observations of the Tribunal and the High Court in the assessment year 1976-77 and then to decide this issue.
47. The third ground relates to the disallowance of Rs. 97,814 out of entertainment expenses. Out of the total expenses incurred, the disallowance had been made of such expenses debited under sales promotion expenses or entertainment expenses. The CIT (Appeals) here also had followed the earlier years' orders. It has, however been submitted that all such expenses treated as entertainment expenses there is participation by the employees of the assessee-company and to that extent it should not be treated as entertainment expenses under its definition after the amendment. We find that this submission of the assessee requires consideration. However, before us there is no material on the basis of which we would determine the proportion which could be related to the employees of the assessee-company. We would, therefore, direct that the proportion of the employees' participation in such expenses should be determined after looking to the nature of the claim. For this the matter would go back to the Income-tax Officer.
48. The next ground is against the disallowance of Rs. 12,000 out of Directors' remuneration. The CIT (Appeals) found that this matter had been considered in the earlier years and following the earlier years' orders, the disallowance relating to the remuneration paid to Shri Ramesh Suri had been deleted whereas the balance of the disallowance was confirmed. Having regard to the Tribunal's orders in the earlier years, we uphold the action of the CIT (Appeals) on this question.
49. The next ground relates to the determination of disallowable amount out of the remuneration and perquisites of the Directors. The Income-tax Officer has discussed this issue in paragraphs 7.4 to 7.12 of the assessment order. He noted that the disallowance had been made in accordance with the provisions of Section 40A(5). The Commissioner rejected the assessee's plea that the computation of the disallowable item should be made under Section 40(c) and not under Section 40A(5) of the Income-tax Act. We find that as far as this point is concerned, the Tribunal has taken the view that the provisions of Section 40(c) were applicable in case of remuneration to the Directors. We, therefore, agree with the learned counsel for the assessee that the disallowance should be worked out having regard to the provisions of that section and not Section 40A(5). In fact even Section 40A(5) clarifies that the provisions of Section 40(c) were applicable to the Directors.
50. The other aspects of this dispute relates to the treatment of a part of the telephone expenses as perquisite in the hands of the Directors. The Income-tax Officer had treated Rs. 43,000 as the value of benefit in the hands of the Directors. The CIT (Appeals) found that the expenses coming for consideration in respect of residential telephone was Rs. 1,09,587 the CIT (Appeals) held that 40% of this expenditure should be considered as for the personal use of the Directors. He, therefore, accepted the estimate by the Income-tax Officer to treat Rs. 43,000 as the benefit to the Director.
51. It has been submitted before us that there has been an increase in the claim by the assessee as compared to the last year. It was also submitted that there were so many branches with extensive business and the estimate of 40% as personal expenses of the Directors was excessive. Having considered the facts, we are of the view that l/3rd of the total expenses of Rs. 1,09,587 may be considered as for the personal benefit of the Directors. It should be this amount that should be taken for working out the disallowance under Section 40(c) of the Income-tax Act.
52. The next ground is against the disallowance of Rs. 6,000 out of car expenses and Rs. 4,000 out of the hired car. Considering the total amount of expenditure and the earlier history we see no reason to interfere with the estimate as confirmed by the CIT (Appeals).
53. The last ground in the assessee's appeal in respect of the disallowance of Rs. 38,790 out of Pooja expenses. The Income-tax Officer had found that the assessee had incurred expenses on purchase of idols of gods and goddesses which were stated to be installed in the workshop and the offices of the company. According to the assessee, it was the requirement of the employees and it should be treated as staff welfare expenses. Reliance was placed on the judgment of the Punjab & Haryana High Court in the case of Atlas Cycle Industries Ltd. v. CIT [1982] 134 ITR 458. It had been claimed before the CIT (Appeals) that either the expenses should be allowed as such or depreciation should be allowed as was done in the case of building Mandir. The CIT (Appeals), however, considered the expenditure to be a capital expenditure but held that no depreciation could be allowed in respect of such idols, as they did not fall under any of the category of depreciable asset.
54. The learned Counsel submitted that there was nothing capital expenditure in the installation of such idols. It was pointed out that certain Moortis were purchased from Jaipur and were installed in the office or workshop of the various branches. It was submitted that expenses incurred for maintenance of temples were revenue expenditure. After looking into the details of the expenditure it is found that they were not in the nature of such temporary idols which are worshipped for a short period and then immersed in the river. They were purchased from Jaipur which is known for stone and marble Moortis. In respect of the purchase of such Moortis it is agreed before the CIT (Appeals) that it should be treated as capital expenditure, though the plea of the assessee that it was not for business, can be accepted. However, we find that the assessee had incurred a sum of Rs. 10,215 as Puja expenses, which related to the recurring pooja expenses as well as the cost of temporary Moortis installed at the time of the Puja. In our view, this expenditure should be treated as revenue expenditure and it should be allowed. The addition will, therefore, be reduced by Rs. 10,215.
55. We may place on our record our appreciation of the assistance given to us in finding the facts and in appreciating the legal issues by the learned Counsel for the assessee as well as the Counsel for the Revenue. Large number of decisions were cited before us and we have gone through those decisions. We have made reference in our order to such decisions which were strongly relied upon by the parties and we also found that it was not necessary to give all the case laws for deciding the issues before us.
56. In the result, both the appeals are allowed in part.
S.P. Kapur, Judicial Member
1. Since I have not been able to persuade myself to agree with the reasoning and conclusions arrived at by my learned senior Brother in the proposed order of his dated 23-11-1987 on the grounds set hereunder, qua these grounds and to this extent only, I aim inclined to jot down by note of dissent as under: -
(1) Ground by the assessee in its ITA No. 2448/Del/86 -
Rs. 1,00,00,000 for "goodwill" received being exempt from tax, instead treated by CIT(A) as long term capital gain.
(2) Grounds by the Revenue in its ITA No. 4155/Del/86 -
1. The CIT(A) was not correct in law and on facts in holding that in the absence of evidence of intention of purchase for resale, the finding with regard to income assessable under the head 'Business' must be rejected as non-sustainable, especially when the intention for resale was not necessary and the CIT(A) has not appreciated the decision of the Bombay High Court relied upon by the ITO in his order.
2. The CIT(A) was not correct in law and on facts in holding that the right or asset was acquired by the assessee only on 22-3-1977, when offer and acceptance of the contract between the assessee and NDMC were completed and ratified and thereby further holding that its transfer resulted in long term capital gains; (especially when ownership conveyance deed is executed and registered and not otherwise).
2. The facts giving rise to the controversy are summarised as under: -
2.1 New Delhi Municipal Committee (hereinafter to be referred to as "NDMC") invited offers for the purposes of putting up a Five Star Hotel in the following terms:-
Confidential D.O. No. 739/PS/M. Secy./D/76 New Delhi Municipal Committee Town Hall New Delhi.
Dated June 30, 1976 V.S. Allawadi, IAS, Member - Secretary.
Dear Sirs, The New Delhi Municipal Committee have finalised the layout for the development of a Commercial Complex at Barakhamba Lane. In the proposed layout, a hotel site of 4.5 acres with sufficient green area around, has been earmarked for purposes of putting up a five-star hotel. The layout is available for perusal with the Chief Architect in the NDMC between 3.00 P.M. to 5.00 P.M. on all working days. I would request you to send your offer in a sealed cover in duplicate addressed to the undersigned latest by the 20th July, 1976. On the front cover, the words "Offer for hotel site at Barakhamba Complex 1976-77" should appear. While giving your offer, you may please consider the following conditions:
(a) The land would continue to be on lease with the NDMC and the period of licence would be from 33 to 99 years, as may be decided by Committee.
(b) Construction of building would have to be undertaken in accordance with the design and the architectural control of the NDMC.
(c) The licensor would have the complete possession and its enjoyment during the period of validity of the licence.
(d) The amount of annual licence fee would have to be paid in lump sum for first two years and this would be adjusted against the annual licence fee as may be payable from the month following the month of completion of the building.
(e) The construction of the building would have to be completed within a period of two years of any extended period which may be agreed to by the NDMC.
(f) On termination of the licence, it will be the option of the licensor to purchase the building at such terms, as may be mutually agreed upon.
Yours sincerely, Sd/-
(V.S. Allawadi) M/s. Delhi Automobiles, 3/15-A, Asaf Ali Road, New Delhi The assessee put in the following offer-
"G. Sagar Suri Delhi Automobiles Pvt. Ltd.
Managing Director 3/15-A, Asaf Ali Road,
New Delhi.
July 19, 1976
Shri V.S. Allawadi,
Member-Secretary,
New Delhi Municipal Committee,
Town Hall,
New Delhi.
Dear Sir,
With reference to your D.O. No. 739/PS/M. Secy./D/76 dated the 30th June, 1976, we quote below our price for rent of one year for Five Star Hotel site of about 4.5 acres with sufficient green area around it in Commercial Complex at Barakhamba Lane.
Our offer is for the terms and conditions mentioned by you and or mutually agreed upon at the time of signing of the agreement, for the sum of Rs. 28,11,000.
(Rupee's...)
Thanking you, Yours faithfully,
For Delhi Automobiles Private Limited,
Sd/-
(Lalit Suri)
Executive Director.
2.2 N.D.M.C. rejoined the issue with the assessee vide its letter of March 9, 1977 in the following terms :-
No. 276/PG/M. Secy/D/77 New Delhi Municipal Committee Town Hall, New Delhi.
Dated : March 9, 1977.
To, Delhi Automobiles Pvt. Ltd.
3/15-A, Asaf Ali Road, New Delhi.
Sub : Your quotation for the allotment of Hotel site at Barakhamba Complex.
Dear Sirs, I am to refer to your letter dated 19th July, 1976 offering a sum of Rs. 11 lacs per annum as licence fee for the hotel site at Barakhamba Complex. Although originally the area of the hotel site was expected to be about 4.5 acres on the basis your offer was made, this area has now come to be about 6.0185 acres. It is presumed that the amount of your offer stands proportionately increased. This may please be confirmed.
I am also to enclose a copy of the standard terms and conditions finalised in connection with some other hotel site in New Delhi. These terms and conditions will mutatis mutandis be applicable in the case of the hotel site at Barakhamba Complex. You may please confirm that these are acceptable to you including the deposit of the advance licence fee worked out accordingly.
Yours faithfully, Sd/-
(V.S. Allawadi) Member-Secretary.
2.3 The assessee replied as under:-
Delhi Automobiles Private Limited 10th March, 1977.
The Member Secretary, New Delhi Municipal Committee, Town Hall, New Delhi.
Sub : Allotment of Hotel site at Barakhamba Road.
Dear Sir, Reference your letter No. 276/PS/M. Secy./D/77. of Match 9, 1977.
Although the proposal contained in your letter would mean and involve additional financial burden on us, you, in the interest of overall development of the project and to provide additional facilities to public, we undertake to pay proportionate increase in our tender price which is approximately 10,00,105 in addition to our tender price of Rs. 28,11,000 per annum.
We also generally accept the terms and conditions in your licence agreement. However, we submit the following points for your kind consideration and approval:-
(i) Since a huge amount of finance is involved in the hotel complex, we will be forming a separate public limited company for this project. Necessary provision may be provided in the licence agreement for this permission at a later stage.
(ii) Reference para 10 page 2 of the terms and conditions of the draft licence agreement.
The moratorium for payment of the licence may be extended from 2 to 3 years and the first instalment be made payable in the fourth year instead of in the third year, as mentioned in the draft agreement. This is necessary because some structures, which are already existing on the plot have got to be cleared and occupied places also cleared, then the handing over of the possession of the plot would be delayed unlike other hotel sites where the possession can be delivered straightaway.
(iii) Reference page 1 para 2 of the draft agreement Permission should be granted to us to pay Rs. 20,00,000 as earnest money and the balance of Rs. 10,11,105 (subject to the calculation by the New Delhi Municipal Committee) also will be payable at the time of actual possession being handed over to us. This again is necessary since the plot has some odd structures over it which are required to be cleared by the licensor before the actual handing over of the possession.
(iv) Reference page 2 para 11 of the draft agreement The licence period should be 99 years and it should be made coterminous with the period for which the lease is granted by the Central Government to the New Delhi Municipal Committee. Permission may also be granted to us for raising the finance for the construction of the hotel complex from financial institutions and/or banks subject to the usual terms and conditions on which such loans are granted. Licence for 99 years will be greatly justified since we would be required to invest a large sum of money on the construction and commissioning of the hotel and the period of 99 years as now proposed will be totally inadequate even to meet our assets and the discharge of our liabilities.
(v) Reference para 37 page 11 of the draft agreement A provision may be added to this clause whereby the licensee is authorized to transfer the possession of rooms, shops, offices, etc. for any period subject to the overriding condition that the period of such transfer will not exceed the total period agreed to between the licensor and the licensee.
(vi) Reference para 45 page 12 of the draft agreement This clause may be deleted as this is irrelevant and will not advance the purpose of the licence.
We also propose the addition of a general clause of waiver of the various terms and conditions of licence (at the discretion of the licensor), keeping in view the difficulties and hardships of the licensor for which he may approach the licensee from time to time.
We hearby enclose a bank draft of Rs. 20,00,000 on account of the earnest money, out of the total actual licence fee of Rs. 38,11,105. The balance will be payable at the time of the actual possession of the land is made over to us.
Thanking you, Yours faithfully, for Delhi Automobiles Pvt. Ltd.
Sd/-
(Lalit Suri) Director Ends.: As above.
2.4 NDMC acknowledged the receipt of Rs. 20,00,000 from the assessee-company as under (NDMC addressed this letter to Shri Lalit Suri, as Director of the assessee):-
New Delhi Municipal Committee, Town Hall, New Delhi.
No. 280/PS/M.Secy./D/77 Dated: March 10, 1977 Sh. Lalit Suri, Director, Delhi Automobiles P. Ltd., 3/15-A, Asaf Ali Road, New Delhi - 110 002.
Dear Sir, Reference your letter dated 10th March, 1977. The receipt of Demand Draft No. DBR 451955 dated 10-3-1977 drawn on Punjab & Sind Bank Ltd., for Rs. 20,00,000 on account of proportionate increase against tender for allotment of Hotel Site at Barakhamba Complex is hereby acknowledged.
Formal receipt will follow.
Yours faithfully, Sd/-
(V.S. Allawadi) Member - Secretary.
2.5 Thereafter the assessee knocked at the doors of the Hon'ble High Court of Delhi at New Delhi by filing Civil Suit No. 144/79 making averments as under:-
In the High Court of Delhi at New Delhi Civil Suit No. 144/79.
M/s. Delhi Automobiles Pvt. Ltd., 3/15-A, Asaf Ali Road, New Delhi... Plaintiff Versus New Delhi Municipal Committee, New Delhi-1 (service to be effected on the Secretary, New Delhi Municipal Committee, New Delhi). ... Defendant Suit for recovery of Rs. 64,40,000 (Rupees Sixty four lacs and Forty thousand).
The plaintiff above named submits as under:-
(1) That the plaintiff is a Private Ltd. Company duly registered under the Indian Companies Act 1956, hereinafter referred to as "Company". It has its registered office at 3/15 A, Asaf Ali Road, New Delhi. Sh. G. Sagar Suri S/o Late Shri Udho Ram Suri is the Managing Director of the plaintiff Company and as such is authorised to sign, verify and institute this suit on behalf of the plaintiff company. He is further authorised to sign, verify and institute this suit by means of a resolution No. 5 dated 26-10-1978 passed by the company in that respect. A true copy of the resolution is submitted with the plaint.
(2) That the Defendant Committee by the letter of its Member Secretary vide letter No. 779/PS/M.Secy./D/76 dated 30-6-1976 (acting for and on behalf of the defendant Committee) approached the plaintiff and invited it to send its offer in a sealed cover for the grant of a licence for constructing and running of a 5 Star Hotel in Barakhamba Road Complex. The said letter gave details of the various terms and conditions which the plaintiff was required to take note of while making the offer. Similar offers were invited from other interested parties in respect of the said Hotel site in Barakhamba Road Complex.
(3) That in response to the aforesaid invitation, the plaintiff sent its offer dated 19th July, 1976 for obtaining the licence of the site, of which the area indicated at the time was 4.5 acres. The plaintiff offered to pay Rs. 28,11,000 (Rupees Twenty Eightlacs & Eleven thousand) by way of licence fee per year. This offer was made by the plaintiff after taking into consideration and accepting the various terms and conditions contained in the defendant's letter mentioned in the preceding paragraph.
(4) That again on 9-3-1977 the defendant wrote letter No. 276/PS/M/Secy./D/ 77 informing the plaintiff that the area of the Hotel site would be increased from 4.5 acres to about 6.0485 acres. The plaintiff was asked to confirm as to whether the offer made by the plaintiff would continue to remain binding and whether the plaintiff would be willing to take the enhanced area and pay proportionate increase in the licence fee. Along with that letter, the defendant sent to the plaintiff standard terms and conditions of the licence that were to ultimately form the basis of the contract between the plaintiff and the defendant, and required the plaintiff to confirm whether it would be willing to accept those terms and the terms relating to the deposit of earnest money to be ultimately adjusted against licence fee.
(5) That vide its letter dated 9-3-1977, the plaintiff duly acknowledged receipt of the above mentioned letter of the defendant and communicated its willingness to take the enhanced area of the plot measuring 6.0485 acres and also agreed to the proportionate increase in the licence fee by a sum of Rs. 9,67,296 (Rupees Nine lacs Sixty seven thousand and Two hundred Ninety six). In other words, the plaintiff agreed to pay the licence fee of Rs. 37,78,296 (Rupees Thirty seven lacs seventy eight thousand and Two hundred Ninety six) per year as licence fee for the hotel site offered in the Barakhamba Road Complex. In the said letter dated 9-3-1977 the plaintiff also communicated the acceptance of the terms and conditions contained in the standard licence deed which were to be incorporated in the licence agreement. The plaintiff however, suggested certain modifications and changes to be incorporated in the licence deed to be executed between the parties. As desired by the defendants the plaintiff with its letter dated 9-3-1977 also sent a Bank draft of Rs. 20 lakhs (Rupees Twenty lacs) by way of earnest money vide Demand Draft No. 451455 dated 10-3-1977 drawn on the Punjab & Sind Bank Ltd., and also undertook to pay the balance amount so as to make the total of the said sum of Rs. 37,78,296 (Rupees thirty seven lacs Seventy eight thousand and Two Hundred ninetysix) at the time when the actual vacant and unencumbered possession of the site would be handed over to the plaintiff.
(6) That the Defendant Committee duly acknowledged the receipt of the said draft vide its letter No. 280/PS/M-Secy./D/77 dated 10-3-1977, wherein the plaintiff was informed that a formal receipt for Rs. 20,00,000 (Rupees Twenty lacs) would follow in due course.
(7) That the offer of the plaintiff for a sum of Rs. 37,78,296 (Rupees Thirtyseven lacs Seventyeight thousand and Two hundred Ninetysix) per year as licence fee being the highest offer [in fact about Rs. 3,00,000 (Rupees Three lacs) higher than the next lower offer given by any party amongst those from whom the Committee had invited offers] for the said hotel site, was accepted by the Committee and a binding contract in law came into existence between the parties.
(8) That the defendant in the meeting held on 23-6-1976 passed a resolution No. 3 A, to the effect that the defendant Committee had considered all the facts and had accepted what was done by its officers. This meeting was attended amongst others by the President and Member Secretary of the Defendant Committee.
(9) That later the defendants in its meeting held on 23-3-1977 passed its resolution No. 112/76-77 wherein it ratified the action that had been taken by its officers by that time. This is evident from the proceedings/minutes circulated in that respect. By that resolution also the Committee confirmed and accepted the offer given by the plaintiff in unambiguous terms.
(10) That thus the plaintiff's offer to take the hotel site in question in the Barakhamba Road Complex for a sum of Rs. 37,78,296 (Rupees thirty seven lacs Seventyeight thousand and Two hundred Ninetysix) per year as licence fee was accepted by the defendant and duly ratified by it by passing its aforesaid resolution with the result that the contract between the plaintiff and the Committee had become complete, final and binding in all respects.
(11) That plaintiff submits that in the aforesaid two meetings which were duly presided over by the President of the defendant, the entire action of its Member Secretary in asking for offers for the said plot of land from the plaintiff and others were duly ratified. In those meetings the defendant also ratified the acceptance of the plaintiff's offer and itself accepted the plaintiffs offer without any reservation by accepting and encashing the demand draft of Rs. 20,00,000 (Rupees Twenty lacs) by way of earnest money/licence fee. The entire correspondence that had been exchanged between the defendant through its officers and the plaintiff also stock ratified resolutions by the defendant, more particularly its Resolution dated 23-3-1977.
(12) That the contract between the parties had become final would be further evident from the correspondence which was exchanged between the parties with the object of implementing various terms of the contract In this connection, the plain tiff relies upon letter dated 15-3-1977 from the Financial Adviser of the defendant and plaintiff's reply thereto dated 17-3-1977, as also upon letter dated 24-3-1977 written by the Member Secretary of the Committee. The plaintiff finally enclosed with its letter dated 31-3-1977 four sets of the licence deed duly signed by the authorised representative of the plaintiff on non-judicial stamp papers for the purpose of executing and drawing up of formal deed of licence agreement containing all the terms that had been mutually agreed upon between the parties. The said licence agreement in quadruplicate was sent as desired by the defendant as all the terms and conditions which had been agreed upon between the parties had been incorporated therein.
(13) That it was one of the terms of the agreement that the 5 Star Hotel had to be constructed within a short period of two years. The plaintiff was therefore, obliged to make immediately arrangements to ensure that the said condition in the agreement was not breached. The plaintiff accordingly secured the services of M/s. Kothari Associates, the leading Architect firm of New Delhi. The said Architects prepared the plan for the construction of the hotel and took other necessary steps to make sure that the project would be complete in all respects within the stipulated period.
(14) That in order to ensure the construction of the hotel on the site for which the licence was granted to the plaintiff, it made all necessary financial arrangements with various financial institutions/banks and also for collaboration with internationally known chain of hoteliers so that the 5 Star Hotel may come up within the stipulated period. For that purpose the plaintiff also entered into agreements for the recruitment of managerial and catering staff and also placed orders for the purchase of various articles required for starting and running of the hotel. The Managing Director and Shri Lalit Sun and other Directors of the plaintiff visited England and Europe and it was as a result of their concerted efforts that the plaintiff were able to make arrangements for obtaining finances, collaboration with internationally known chain of hoteliers and also were able to enter into various agreements with different suppliers and other parties. All this was required to be done to enable the plaintiff to complete the construction and commissioning of the said hotel within the stipulated period of two years.
(15) That the plaintiff further submits that the plaintiff was keenly interested in the Hotel project. The Managing Director of the plaintiff had entered into an agreement with Shri S.N. Singh of 1, Man Singh Road, New Delhi, for acquiring and transfer of 70 per cent share in M/s. Fonseca Private Ltd., who were to construct a hotel at No. 1, Man Singh Road, in April 1974. This agreement was entered into for a consideration of Rs. 700,000 (Rupees seven lacs) and the plaintiff gave up his rights in that agreement because of the agreement which the defendant had entered into with the plaintiff in respect of the 5 Star Hotel in the Barakhamba Road Complex.
(16) That thereafter the plaintiff wrote number of letters to the defendantt for handing over possession of the hotel site but the defendant failed to do so. The plaintiff was therefore constrained to approach the Lt. Governor, Delhi and submitted a letter dated 9-6-1977 in which brief facts of the case were given. The Lt. Governor was approached with a request to pass appropriate orders directing the Committee and other concerned officers for giving possession of the hotel site to the plaintiff without any further delay. In that letter the plaintiff had also suggested that since a huge amount of Rs. 20,00,000 (Rupeess Twenty lacs) was lying with the Committee by way of earnest money for a long time and if somehow the Committee is to take still more time for giving possession of the hotel site the Committee may be directed to retain a token amount as earnest money as consideration for the licence agreement and refund the balance amount to the plaintiff. In spite of the aforesaid letter and personal approach of the Managing Director of the plaintiff to the Lt. Governor, Delhi no action was taken by the Committee or any of the concerned authorities concerned to either hand over the possession of the site or to temporarily refund a major part of the earnest money/licence fee after retaining the token amount.
(17) That the plaintiff also wrote its letter dated 2-7-1977 to the Hon'ble Minister for Works and Housing giving details of the concluding binding and valid agreement between the plaintiff and the defendant on account of acceptance of the highest offer given by the plaintiff to the defendant. The Hon'ble Minister was duly informed in that letter that for the purpose of converting the site, the plaintiff had already made commitments and agreements with different parties, collaborators, Architects, and Staff etc., and the Committee was not giving possession in spite of repeated demands. The plaintiff brought to the knowledge of the Minister that the plaintiff was being subjected to uncalled for hardships and losses inasmuch as had suffered damages and would be required to pay damages for not honouring its commitments with various other parties. As was suggested by the plaintiff in its letter to the Lt. Governor, Delhi it was also suggested to the Hon'ble Minister in this letter that he may give suitable instructions/directions to the Committee to return the major portion of Rs. 20,00,000 (Rupees Twenty lacs) deposited as earnest money after retaining a nominal amount as consideration for fulfilment of the agreement. In spite of the best efforts made by the plaintiff, the possession of the plot of land was not given to the plaintiff and no action was taken to return the major portion of the earnest money deposited by the plaintiff with the Committee after retaining the proposed token amount (18) That the plaintiff has succeeded in his efforts and has arranged the availability of a sum of about Rs. 10 to 15 crores to be made available to the plaintiff by financial institutions for the purpose of completing the hotel project. The huge amount of Rs. 10 to 15 crores was promised to be advanced to the plaintiff for the hotel project by foreign financiers at a meagre rate of 8 1/2% P.A. whereas at the relevant time the rate of interest charged by the Indian bankers was about 18 per cent which ultimately works out to be more than 20 per cent. In this way alone the plaintiff have suffered a loss at the rate of 11 1/2 per cent on the item of interest only on the said sum of Rs. 10 to 15 crores. The plaintiff reserves its right to claim and recover these damages separately.
(19) That suddenly on 27-5-1978 the plaintiff received a telephone message from the defendant asking it to collect the sum of Rs. 20,00,000, (Rupees Twenty lacs). The plaintiff collected the same under protest and without prejudice to the rights that had accrued to it because of the conclusion of a valid and enforceable agreement and to claim damages for the breach thereof.
(20) That the defendant has broken the contract by not delivering the possession of the site in question to the plaintiff in spite of the fact that the plaintiff paid to the defendant Rs. 20,00,000 (Rupees Twenty lacs) in advance and was always ready and willing to pay the balance of the first year licence fee and to perform each and every one of the plaintiffs part of the contract. The plaintiff is still ready and willing to perform his part of the entire contract. The defendant having committed breach thereof, the plaintiff is entitled to receive and recovery from the defendant compensation and damages for the loss and damage caused to the plaintiff which is detailed in this plaint and which has naturally arisen in the usual course of things from the defendant's breach.
(21) That the plaintiff are also carrying on business of motor dealership as they have got the franchise rights in respect of Premier Fiat cars. If the plaintiff would have paid Rs. 20,00,000 (Rupees Twenty lacs) to their principals for the supply of Fiat cars, the plaintiff would have been given at least 180 cars, in a month and by that method in the period of 15 months of this business of Fiat cars dealership the plaintiff would have earned a profit of Rs. 43,20,000 (Rupees Forty-three lacs and Twenty thousand).
(22) That because of the breach committed by the Committee in not handing over the possession of the hotel site the plaintiff has suffered the following damages:-
(a) Interest on Rs. 20 lacs (Rupees Twenty lacs) calculated at the rate of 18 per cent per annum with monthly rest for the period 10-3-1977 to 25-5-1978. Rs. 5,50,000
(b) Money payable by the plaintiff to Kothari Associates, the Architects who were engaged and were to be paid 5 + 1 % on the total project amount of about Rs. 15 crores : Rs. 5,00,000
(c) Plaintiff's liability to pay for non-performance of various agreements with various collaborators and parties with whom agreements for managerial and catering staff etc., had been entered into: Rs. 5,00,000
(d) Damages suffered by the Plaintiff of the profit which they would have earned by rotating the sum of Rs. 20,00,000 (Rupees Twenty lacs) to procure 180 Fiat cars a month which was the normal course of business at that time for 15 months : Rs. 43,20,000 Minus Item (a) above Rs. 5,50,000
----------------
Rs. 37,70,000
(e) Loss of reputation and loss of prestige of the plaintiff as the plaintiff were to run this project involving Rs. 15 crores including loss of profits which would have been earned during the first year of the running of the hotel by licensing Committee Rooms, Show Windows, Window Shops, Stalls, etc., within the Hotel Complex: Rs. 10,50,000
(f) Money spent for various visits abroad and also money spent for legal expenses: Rs. 1,00,000
----------------
Total: Rs. 64,40,000 (23) That the defendant is liable to specifically perform the agreement which was concluded between the parties and are bound to hand over physical possession of the hotel site in Barakhamba Road Complex to the plaintiff.
(24) That in the alternative, the defendant Committee are liable to pay to the plaintiff at least the sum of Rs. 64,40,000 (Rupees Sixtyfour lacs and forty thousand) as damages and compensation for the loss suffered by them and as detailed above.
(25) That the defendant has failed to deliver possession of the plot or to pay the amount of damages in spite of the service of notice dated 11-4-1978 on them under Section 80 CPC and Section 49 of the Punjab Municipal Act as extended to Delhi. Hence this suit.
(26) That in plaintiff notice dated July 15, 1978 total damages and compensation amounting to Rs. 1,16,50,000 (Rupees one crore sixteen lacs and Fifty Thousand) were claimed specific performance is not given. The plaintiff is however, filing this suit for specific performance and in the alternative for the recovery of Rs. 64,40,000 (Rupees Sixty four lacs and forty thousand) only and reserving his right to claim the balance after all remaining damage is ascertained and grantified.
(27) That cause of action accrued to the plaintiff against the defendant on 10-3-1977 when a sum of Rs. 20,00,000 (Rupees Twenty lacs) was paid by the plaintiff and again on 25-7-1978 when without assigning any reason whatsoever the said sum of Rs. 20,00,000 (Rupees Twenty lacs) was refunded to the plaintiff without specifically performing the contract and without making payment of the damages/ representation. It again arose on 20-4-1978 when the notice under Section 80 CPC and 49 Punjab Municipal Act dated 15-7-1978 was duly served on the defendant and it failed to give any.
(28) That value of the claim for specific performance the purpose of court fee is Rs. 37,78,296 (Rupees Thirty-seven lacs Seventy eight thousand and Two Hundred Ninety six), the amount of licence fee for one year and the value of the claim in the alternative for recovery of Rs. 64,40,000 (Rupees Sixtyfour lacs and forty thousand). Appropriate court fee on the higher of the two amounts i.e. on Rs. 64,40,000 (Rupees Sixtyfour lacs and Forty thousand) has been paid. The value of the suit for purpose of jurisdiction is Rs. 64,40,000 (Rupees Sixtyfour lacs and forty thousand).
(29) That as the parties to the suit reside and carry on business in Delhi and the major part of the cause of action arose in Delhi, this Hon'ble Court has jurisdiction to try the suit and grant the relief prayed for or any other relief.
(30) It is therefore respectively prayed that this Hon'ble High Court be pleased to pass a decree for:-
(a) Specific performance by the defendant of its obligations particularly on handing over immediate physical possession of the Hotel site in the Barakhamba Road Complex measuring 6.0485 acres to the plaintiff and grant all other facilities, sanctioned plans, grant licence etc., necessary for the completion of the 5-Star Hotel project on the site.
(b) In the alternative for payment by the defendant to the plaintiff of a sum of Rs. 64,40,000 (Rupees sixtyfour lacs and forty thousand).
(c) Cost of this suit in favour of the plaintiff, against the defendant.
(d) Any other relief to which the plaintiff may be found to be entitled under the circumstances of the case.
Sd/-
Plaintiff Delhi Automobiles Pvt. Ltd.
through:
Sd/-
(G. Sagar Suri)
12-12-1978. Managing Director
through Advocates.
Verification
I, G. Sagar Suri, Managing Director of the plaintiff Company do hereby verify that paras 1 to 26 of this plaint are true to my knowledge gathered from the record of the Company which I believe to be true and paras 27 to 29 are true to my belief based on information received and believed to be true. Last para. 30 is prayer to this Hon'ble Court.
Verified at Delhi this 12th day of December, 1978.
Sd/-
(G. Sagar Suri) The suit was decreed in the following terms :-
DECREE IN A SUIT FOR SPECIFIC PERFORMANCE IN THE HIGH COURT OF DELHI AT NEW DELHI (Ordinary Original Civil Jurisdiction) SUIT NO. 144/79 M/s. Delhi Automobiles Pvt. Ltd., 3/15-A, Asaf Ali Road, New Delhi. ....Plaintiff Versus
1. New Delhi Municipal Committee New Delhi-1 (service to be effected through Secretary, New Delhi).
2. Union of India (service to be effected through the Secretary, Ministry of Works & Housing, Nirman Bhawan, New Delhi). ....Defendants Value of the suit for the purpose of jurisdiction : Rs. 64,40,000.00 Court Fee paid : Rs. 65,198.40 Plaint presented on : 18-12-1979.
Claim : That this court be pleased to pass a decree for
(a) Specific performance by the defendants of its obligations particularly of handing over immediate physical possession of the total site in the Barakhamba Road Complex measuring 6.0486 acres to the plaintiff and grant all other facilities, sanctioned plans, grant licence etc., necessary for the completion of the 5-Star Hotel project on the site.
(b) In the alternative for payment by the defendants to the plaintiff of a sum of Rs. 64,40,000.00 (Rupees sixtyfour lacs and forty thousand only).
(c) Cost of this suit in favour of the plaintiff, against the defendants.
11th day of March, 1981 CORAM : Hon'ble Mr. Justice O.N. Vohra.
For the plaintiff: Shri D.R. Mahajan, Adv.
For the Defendant: Shri S.N. Suri, Adv. for Defendant No. 1 and Shri C.L. Chaudhary Adv. for defendant No. 2.
This suit coming on this day for final disposal before this Court in the presence of counsel for the parties as aforesaid it is ordered that a decree for specific performance and possession in respect of the land in question is hereby passed in favour of the plaintiff company and against the New Delhi Municipal Committee, defendant No. 1 in terms of the statements dated 11-3-1981 and the licence deed, dated 11th March, 1981, Ex.P-1.
It is further ordered that the statements of the parties and the licence deed shall form part of the decree. Defendant No. 2 is rendered proforma defendant.
It is lastly ordered that the parties shall bear their own costs.
Given under my hand and the seal of the Court this the 11th day of March, 1981.
Sd/-
[P.P. SHARMA] Registrar.
2.6 The background facts for the compromise decree or the statements of the assessee's counsel, the counsel of the defendant No. 1 and that of the counsel for the defendant No. 2 (Defendant No. 1 in the suit being N.D.M.C. and Defendant No. 2 being Union of India) are as under :-
SUIT NO. 144/7911.3.1981. PRESENT : Mr. D.R. Mahajan, counsel for the plaintiff with Mr. G. Sagar Suri, Managing Director of the plaintiff.
Mr. S.M. Suri counsel for defendant No. 1. Mr. C.L. Chaudhary, counsel for defendant No. 2.
It is represented by the counsel for the plaintiff as well as the counsel for the New Delhi Municipal Committee that there has been a settlement between the parties with regard to the subject-matter of the suit. Mr. Suri has in fact produced what purports to be a licence deed dated March 11, 1981 executed by the Administrator, New Delhi Municipal Committee and countersigned by the New, Delhi Municipal Committee in favour of the Delhi Automobiles Private Limited. The above two counsels want to make statements. Be recorded.
Sd/-
Dated: 11-3-1981. Judge Statement of Shri D.R. Mahajan, Advocate, counsel for the plaintiff.
There has been a settlement between the plaintiff company and the New Delhi Municipal Committee, defendant No. 1 whereby a licence has been created by the New Delhi Municipal Committee in favour of the plaintiff in respect of the land in suit. This licence is for a period of 99 years. Terms and conditions of the licence and other obligations undertaken by the parties are contained in the Licence Deed. True and correct copy of the Licence Deed, which has been signed by both the parties, is Exhibit P-1. In fact, it itself is original as the Licence Deed has been prepared in set of more than one and signed on behalf of the plaintiff as well as on behalf of the New Delhi Municipal Committee and is attested by witnesses. The suit, as framed, is for specific performance of the agreement for creating licence and for possession of the land measuring 6.0485 acres situated at Barakhamba Lane, New Delhi. In the alternative, there is a claim for damages and other reliefs.
In view of the settlement between the parties, the plaintiff confines itself to the relief of specific performance and possession and gives up the other reliefs as well as costs. The plaintiff shall remain ever bound by the terms and conditions of the Licence Deed and so would be the New Delhi Municipal Committee.
Sd/-
March 11, 1981. Judge Statement of Mr. S.M. Suri, Advocate, Counsel for defendant No. 1 I have heard the Statement of Mr. D.R. Mahajan just recorded and agree with the same. The Licence Deed, Exhibit P-1 duly executed between the plaintiff and the New Delhi Municipal Committee. I acknowledge its execution on behalf of the New Delhi Municipal Committee. A decree for specific performance and possession in terms of this compromise may be passed in favour of the plaintiff and against the New Delhi Municipal Committee and the parties be left to bear their own costs. The New Delhi Municipal Committee shall ever remain bound by the terms and conditions of the licence deed.
Supplementary Statement of Mr. DM. Mahajan, Advocate, Counsel for the plaintiff.
Defendant No. 2 has already allotted the land in question in favour of the New Delhi Municipal Committee and the said allotment has since been accepted by the New Delhi Municipal Committee. In the circumstances, it is defendant No. 1 alone which is competent to create licence in favour of the plaintiff. No relief, therefore, is sought against defendant No. 2 and in fact none can be sought.
Sd/-
March 11, 1981. Judge Statement of Mr. C.L. Chaudhary, Advocate, counsel for defendant No. 2 It states that the land in question has been allotted by defendant No. 2 in favour of the New Delhi Municipal Committee and the allotment has been accepted by the said Committee. Defendant No. 2 does not claim any costs.
Sd/-
March 11, 1981. Judge 2.7. Hon'ble Shri O.N. Vohra, Judge of the Hon'ble High Court of Delhi at New Delhi (as he then was) passed the following judgments on 11th March, 1981 :-
IN THE HIGH COURT OF DELHI Suit No. 144 of 1979 Appeal No. ... of ... from ...................... Original Decree Revision Application No... Appellate Order Date of Decision : 11-3-1981.
M/s. Delhi Automobiles Private Limited, through Mr. D.R. Mahajan, Advocate.
Versus New Delhi Municipal Committee through Mr. S.L. Chaudhary, Advocate for defendant No. 2; Mr. S.N. Suri, Advocate for defendant No. 1.
CORAM The Hon'ble Mr. Justice O.N. Vohra.
The Hon'ble Mr. Justice.
1. Whether Reporters of local papers may be allowed to see the Judgment ?
2. To be referred to the Reporter or not
3. Whether their Lordships wish to see the fair copy of the Judgment ? 'O.N. Vohra J. (Oral) ?
This suit for specific performance of obligations in particular handing over immediate physical possession of the hotel site in commercial complex at Barakhamba Lane, New Delhi, measuring 6.0485 acres to the plaintiff company, etc. and, in the alternative, for payment of damages in the sum of Rs. 64,40,000.00 was originally brought against the New Delhi Municipal Committee, New Delhi. Subsequently, the plaint was amended and the Union of India was impleded as a defendant No. 2.
During the course of proceedings, it was represented that the parties had come to terms of the compromise should be called and the suit decided in accordance therewith. On February 10, 1981 Mr. C.L. Choudhry, counsel appearing for the Union of India informed that the Government had decided to allot the land in question to the New Delhi Municipal Committee.
Today it was represented by the counsel for the plaintiff company and the New Delhi Municipal Committee that settlement had been arrived at. The counsel for the Committee produced licence deed, dated March 11,1981, Exhibit P-1, executed by the administrator, New Delhi Municipal Committee, and countersigned by the New Delhi Municipal Committee, in favour of the plaintiff-company. Accordingly, statements of the counsel for the New Delhi Municipal Committee have been recorded in respect of the settlement that has been arrived at between the plaintiff and the New Delhi Municipal Committee. Mr. D.R. Mahajan, counsel for the plaintiff company, has stated that the allotment in regard to the land in question made by the Union of India in favour of the New Delhi Municipal Committee has since been accepted by the said Committee and in the circumstances it is the committee alone which is competent to create the licence in favour of the plaintiff company and no relief is, therefore, sought against defendant No. 2, and in fact, none can be sought. Mr. Choudhry has stated that the land in question has been allotted by the Union of India in favour of the Committee and the allotment has been accepted by the said Committee.
The claim in the alternative for damages has been given up. Specific performance is sought in regard to various obligations appurtenant to the licence for constructing Five-star Hotel in terms detailed in the licence deed, exhibit P-1. Relief of possession of land is also sought in terms of Section 22 of the Specific Relief Act, 1963. Accordingly, decree for specific performance and possession in respect of the land in question is hereby passed in favour of the plaintiff company and against the New Delhi Municipal Committee, defendant No. 1, in terms of the statements recorded today and the licence deed, dated 11th March, 1981, Ex-P-1. The statements of the parties aforesaid and the licence deed would form part of the decree. Defendant No. 2 is now rendered proforma defendant. Parties to bear their own costs.
11th March, 1981. Sd/- O.N. Vohra Judge.
3.1 The most important document, the lease deed, which is an agreement of licence, entered into on 11th March, 1981, was in the following terms :-
(N.J. STAMP PAPER OF Rs. 2) LICENCE DEED This agreement of licence made at New Delhi on this 11th day of March, 1981 (one thousand nine hundred and eighty one) between New Delhi Municipal Committee, Parliament Street, New Delhi (hereinafter called the licensor which expression shall, unless requires another and different meaning thereof, includes its successors and assigns), of the one part and M/s. Delhi Automobiles Private Limited, 3/15-A, Asaf Ali Road, New Delhi, a company registered under the Companies Act, 1956 (hereinafter called the "Licensees" which expression shall, unless the context required another and different meaning include the executors, successors, administrators, assigns), having its registered office at 3/15-A, Asaf Ali Road, New Delhi acting through its Director, Shri Lalit Suri, S/o Late Shri Udho Ram Suri duly authorised by the Board of Directors vide Resolution No. 6 dated 25-11-1980 of the Delhi Automobiles Private Limited to execute this deed, on behalf of the licensees of the other part.
Whereas, the licensor has offered and the licensees have agreed to accept the licence to use the plot of land measuring 6.0485 acres (approximately) in Commercial Complex at Barakhamba Lane, New Delhi bounded as follows :-
North by : Babar Road.
South by : Service Lane or proposed Road and Food Corporation of India Building.
West by : Service Lane Govt. Bungalows, Food Corporation of India Building and Govt. Bungalows.
East by : School Lane.
and more particularly described in a sketch plan attached hereto as Schedule-I, for the construction and commission of a Five Star Hotel Building latest by 31st December, 1984 in full and in all respect 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 licensees on licence basis on terms and conditions mentioned hereafter at an annual licence fee of Rs. 1,45,00,000 (Rupees one crore fortyfive lacs) only from the date of handing over the said plot of land to the licensees. And whereas the licensees have deposited Rs. 50,00,000.00 (Rupees Fifty lacs) only vide draft No. 648837/2226/80 dated 1-12-1980 for Rs. 20,00,000 (Rupees twenty lacs) only and draft No. 988862 dated 10-3-1981 for Rs. 6,00,000 (Rupees Six lacs) only drawn on Punjab & Sind Bank, Connaught Circus, New Delhi and draft No. 075142 dated 10-3-1981 for Rs. 24,00,000 (Rupees twenty four lacs) only drawn on Grindlays Bank Ltd., Connaught Place, New Delhi, in favour of the licensor in Municipal Treasury, Rs. 95,00,000 (Rupees Ninety five lacs) only being payable at the time of handing over vacant and unencumbered occupation of the said plot by the licensor to the licensees which two amounts totalling Rs. 1,45,00,000 (Rupees one crore and forty-five lacs i.e., Rs. 50,00,000 + Rs. 95,00,000) only shall be treated as advance licence fee for the first year commencing from the date of handing over of the possession of plot of land to the licensees.
The New Delhi Municipal Committee, the licensor and M/s. Delhi Automobiles Private Limited, the licencees hereby agree to perform on their part the under mentioned terms and conditions mutually agreed upon between the licensor and the licensees:
1. The licence shall be for a period of 99 years from the date of execution of this licence agreement.
2. The licensees shall within a period of twelve calendar months from the date of commencement of this licence agreement form a public Limited Company and shall apply to the licensor within six months thereafter for the transfer of the licence to the said Public Limited Company so constituted and the licensor shall transfer the licence to the said Public Limited Company so constituted on the terms and conditions incorporated in this agreement.
3. The licensee shall be granted moratorium in the payment of annual licence fees falling due in the years 1982 and 1983 in order to facilitate the construction of the said hotel expeditiously. The accumulated licence fees for the period of moratorium will be payable in 10 half-yearly instalments along with the interest/ additional interest if the same charged by the Government of India from the licensor on the deferred payments towards the cost of land. Incase the Government of India do not charge any interest and/or additional interest on the instalments towards the cost of land the same shall also not be charged from the licensees. Next instalment will be payable along with the annual licence fee falling due in the year 1984. Save as provided above no interest will be charged from the licensees on the deferred payments if paid punctually in the aforesaid manner, failing which, interest will be charged at 15% per annum for the entire period till such time the accounts are squared up.
4. Save as provided in Clause 3, the licence fee of Rs. 1,45,00,000 (Rupees one crore forty-five lacs) per annum only in respect of the said plot of land shall commence from the date of handing over the possession of the said plot of land by the licensor to the licensee and the licence fee Rs. 1,45,00,000 (Rupees One crore forty-five lacs) only shall be payable annually in advance latest on the anniversary of handing over the possession of the said plot of land on which the annual advance licence fee falls due in each year. The licensees shall pay an interest of 15% per annum to the licensor on the licence fee remaining outstanding beyond the due date and falling in arrears. Such interest shall be charged for full month if the payment of licence fee is not made by the due date with arrears, if any, and such interest shall continue to accrue to the licensor month by month till the accounts are finally squared up.
5. In the event of the licensees failing to make the payment of licence fee, interest due thereon or any other payment due against the licensees for any reason whatsoever of the amount demanded by the licensor in full or in part, the licensor shall have absolute discretion without further reference to the licensees to revoke/ cancel the licence with immediate effect for running the said hotel in terms of this licence, to take possession of the licensed premises by recourse to law as provided in the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 or any other such law in force at that time, after revocation of the licence and the licensees shall have no claim on the premises but only seek arbitration under Clause 51 of this agreement.
6. The land for the construction and commission of Five Star Hotel would continue to be on lease with the licensor in whom the building so constructed, will also vest and the period of licence would be for 99 years but the licensees, M/s. Delhi Automobiles Pvt. Limited shall have the right to raise loans on the security of the structures/buildings/fixtures and fittings etc., which shall be put up by the licensees aforesaid on the said licensed plot from any Indian or Foreign Licensed Bank or from any Financial Corporation including the I.C.I.C.I. and I.D.B.I. and the Licensor, New Delhi Municipal Committee will have no objection to the licensees, M/s. Delhi Automobiles Private Limited, New Delhi, adopting such a course facilitating for the completion of the project.
7. The licence will be liable for termination if at any time the licensees commits any breach of the terms, conditions and covenants on their part to be observed and performed under this licence-deed. But before any action is taken in this behalf, the licensor shall communicate in writing to the licensees, M/s. Delhi Automobiles Pvt. Ltd., the breach, if any, of the terms and conditions on their part to be observed and performed under licence deed and it will be open to the licensees to satisfy the licensor that there had in fact been no such alleged breach to the satisfaction of the licensor.
8. The FAR of the land shall not be more than 2.50 if the said FAR of 2.50 is allowed to be increased at any time the licensees shall be liable to pay such increased licence fee as may be decided by the licensor after giving reasonable opportunity to the licensees in this behalf.
9. The licensees shall first obtain the approval of the licensor and Director General of Tourism, Government of India to the Five Star Hotel project from the aspect of its suitability for foreign tourists in conformity with the Five Star Category and shall thereafter submit to, and get the plans, elevation and cross-sections of the hotel buildings together with drawings showing the sanitary, drainage, water and other systems, which are to be installed therein, sanctioned in writing by the New Delhi Municipal Committee and any other authorities concerned within 30 days from the date of handing over of the possession of the said plot of land. The licensees shall not start construction of the Five Star Hotel Building before the said plans, elevation cross-sections and drawings are duly sanctioned by all the authorities concerned.
10. The construction work in the Five Star Hotel Building will commence within a period of 30 days from the date of obtaining the aforesaid sanction/approvals. Further, latest before the commencement of Asian Games, 1982, the licensees shall at their own cost and expenses complete the construction and commission of at least 100 to 150 rooms in the said Hotel Building according to the approved plans and drawings with new and sound materials and with complete water, sanitary, electrical and air-conditioning and other installations, furnishing, fittings etc. as prescribed for the Five Star Hotel Category to the satisfaction of the licensor and the Director General of Tourism.
11. The construction of the Five Star Hotel Building shall conform to the provisions of the Punjab Municipal Act, Municipal Bye-laws and the rules framed thereunder and/or by any other appropriate authority/authorities regarding construction of a Five Star Hotel building and other statutory requirements and to the terms and conditions contained in this agreement for licence.
12. The licensees shall not be at liberty in any way to underlet, sublet, 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 licensed property as stipulated in Clause 30 of this licence agreement.
13. The allotment of land measuring about 6.0485 acres will be allotted to the licensees on licence basis for the duration of the construction of the building, its furnishing, providing facilities and services till completion of the building and commissioning of the Five Star Hotel for the period of licence for 99 years from the date of this licence agreement.
14. The licensees shall have a bare licence only to enter upon the piece of land to be allotted by the New Delhi Municipal Committee for the purpose of building and executing works thereon as hereinafter provided in this licence Agreement and for commissioning a Five Star Hotel conforming to the approved standard for Five Star Hotel rating prescribed by the Government of India, Department of Tourism. The licensees shall be deemed to be bare licensees only of the land subject to payment of licence fee as has been agreed to between the licensees, M/s. Delhi Automobiles Private Limited, and the licensor New Delhi Municipal Committee.
15. 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. Delhi Automobiles Private Limited any legal title, right 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 Hotel conforming to the approved Five Star rating prescribed by the Government of India, Department of Tourism.
16. The licensees M/s. Delhi Automobiles Pvt. Ltd., will have to accept unencumbered and vacant possession and the licensees, M/s. Delhi Automobiles Pvt. Ltd., shall observe and perform the stipulation following, that is to say:-
(i) Within 30 days of the date of handing over possession of said plot of land, the licensees M/s. Delhi Automobiles Pvt. Ltd., shall submit to and get the plans, elevations and cross-sections of the Five Star Hotel Building together with drawings showing the sanitary, drainage and water systems which are to be installed therein with regard to their suitability for running Five Star Hotel in conformity with the approved Five Star rating prescribed by the Tourism Department of the Government of India, for approval of the licensor. The licensees, M/s. Delhi Automobiles Pvt. Ltd., shall not start the construction of the Five Star Hotel building before the said plans, elevations, cross-sections and drawings are duly sanctioned by the licensor and any other appropriate authority.
(ii) The construction of the Five Star Building on the said plot of land will commence within a period of 30 days from the date of obtaining the approval referred to in the preceding sub-clause. Further, latest before the commencement of the Asian Games-1982, the said licensees shall at their own cost and expense complete the construction and commission of at least 10C to 150 rooms in the said Five Star Hotel in all respect according to the above mentioned plans, drawings with new and sound materials and with complete water, sanitary, electricity, air conditioning and other installations, furnishing, fittings etc., satisfying all the criteria, prescribed for the Five Star rating by the Department of Tourism, to the satisfaction of the licensor, New Delhi Municipal Committee.
(iii) The licensees will provide at their own cost and expenses, and in all respect in substantial and workmanlike manner and with new and sound materials of the best description of their several kinds so as to ensure highest current international standards and in compliance with all municipal Rules, bye-laws and regulations applicable thereto and in strict accordance with the plans, elevations, details and specifications and under the inspection and to the satisfaction of the licensor and its officer(s), duly authorised in this behalf and the Director General of Tourism, Government of India and completely finish, fit for occupation on the said plot of land, building for housing a First class residential hotel of Five Star Category of the highest current international standards, equipped with all modern amenities containing furnished accommodation, of about 500 guest rooms with attached lavatory and baths, speacious Dining Halls, Banquet Halls, Conference Halls, Shopping Arcade, Swimming Pool, Bar with all requisite and proper drains and other convenience thereto and commission the same to the satisfaction of the licensor and Department of Tourism, Government of India.
(iv) The licencees shall at his own cost construct compound wall in the said plot of land with such description of wall as shall be approved by the licensor, New Delhi Municipal Committee.
(v) The licencees, M/s. Delhi Automobiles Pvt. Ltd., shall ensure highest current International standards in respect of the equipments, amenities and facilities to be provided at the said Five Star Hotel Building to be constructed on the said plot of land to the satisfaction of the licensor, New Delhi Municipal Committee in conformity to the approved Five Star rating prescribed by the Department of Tourism, Government of India.
(vi) The licencees, M/s. Delhi Automobiles Pvt. Ltd., shall obtain the prior approval in writing of the Director General of Tourism, Government of India to the tariff to be charged at the said Five Star Hotel, so as to have the proposed Five Star rating recognised by the Department of Tourism, Government of India.
(vii) That the licencees shall do all such other acts, deeds and things as may be required by the licensor, New Delhi Municipal Committee, and the Director General of Tourism, Government of India, for the purpose of obtaining the recognition of proposed Five Star rating from the Department of Tourism, Government of India to the running of Five Star Hotel in the building to be constructed on the said plot of the land for continuing the same throughout the terms of the licence.
(viii) That the licencees, M/s. Delhi Automobiles Pvt. Ltd., will not construct any portion of the building above the plinth level unless the plinth certificate is obtained from the licensor, New Delhi Municipal Committee and the Director General of Tourism, Government of India.
(ix) The licencees, M/s. Delhi Automobiles Pvt. Ltd., will not put to use the building unless the building completion certificate has been obtained from the licensor, New Delhi Municipal Committee and Department of Tourism, Government of India.
(x) If in the course of erecting and completing the building and compound walls, the licencees shall use any material or execute any work, which the licensor, New Delhi Municipal Committee or his Officer(s) consider unsound or unfit for the purpose intended or which in his /their opinion is imperfect or, if any deviation is made from the plans, elevations, details or specifications or if the licencees fail to observe and comply with any of the conditions or stipulations hereof, they shall immediately upon notice signed by the licensor or his authorised officer(s) requiring them to remove all such unsound and unfit material and substituting such sound and fit materials as shall be previously approved by the licensor, New Delhi Municipal Committee or his authorised officer(s) and made good such imperfect work and correct such deviations and if they shall neglect to do so within seven days after issue of such a notice, it shall be lawful but not compulsory for the officers and staff acting under the directions of the licensor, New Delhi Municipal Committee to remove the unsound and unfit material and to substitute therefor such material as shall be sound and fit and to make good the imperfect work and to correct every deviation and all cost of charge and expenses of so doing shall be paid by the licencees, M/s. Delhi Automobiles Pvt. Ltd., on demand with interest from the date of outlay to the date of payment, at the rate of 15% per annum. The power and liberty herein contained is without prejudice to any other powers, rights, and remedies of the licensor, New Delhi Municipal Committee.
(xi) The licencees shall keep the licensor identified against any or all claims for damages which may be caused to any workman, adjoining building or other premises by such building or in consequence of the execution of the aforesaid works and also against all payments whatsoever, viz. during the progress of the work that may become payable or be demanded by the licensor, New Delhi Municipal Committee in respect of the said work or of anything done under the authority herein contained.
(xii) The licensees, M/s. Delhi Automobiles Pvt. Ltd., will pay all rates, taxes, charges, claims and outgoings 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.
(xiii) The licencees will not any time do, cause or permit any nuisance in or upon the said plot of land and building to be constructed thereon or anything which shall cause unnecessary annoyance, inconvenience or disturbance to the occupiers of any other property in the neighbourhood and they will not erect or permit to be erected on any part of the premises any stable, shed and other structure of any description whatsoever for keeping horses, cattle, dog kennel and cages for pet of normal dimension in reasonable number.
(xiv) If as a result of excavation etc. any material in excess of the bona fide requirements of the licencees for the purpose of construction of the Five Star Hotel Building, in question, remains unutilised, such material would be the property of the licensor and the licencees would be obliged to permit its disposal peacefully by the licensor, New Delhi Municipal Committee.
(xv) The licencees, M/s. Delhi Automobiles Pvt. 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 licencees and keep insured the same under written intimation to the licensor from time to time in the joint names of New Delhi Municipal Committee and the licencees, M/s. Delhi Automobiles Pvt. Ltd. against damage by fire, riots, civil commotion, earthquake, electrifire and flood etc. in some well established Insurance Company having an office in Delhi to be approved in advance in writing by the licensor for an amount equal to the cost of the said building and on demand produce to the licensor the policy or policies of insurance, and receipts of the payment of the last premium and forthwith apply all money received by virtue of such insurance, rebuilding or reinstating the building. The licensor, New Delhi Municipal Committee shall not at all be responsible for the payment of the premium is stipulated above.
(xvi) Any coins or any articles of public interest or mines, the materials, coal, gold washing, earth oils and quarries discovered during any excavation shall belong to the licensor and shall be handed over to the licensor or its officer(s), duly authorised in this behalf by the licensor.
(xvii) The licencees will provide all sanitary arrangements for labourers and staff during the construction of the building on the plot in order to keep the plot and surroundings in good conditions, to the entire satisfaction of the licensor and its authorised officer(s).
(xviii) If the licensor or/and the Department of Tourism, Government of India do not approve of all or any of the plans, elevations, details and specifications of the Five Star Hotel Building to be constructed on the said plot of land whether originally submitted or subsequently required of if the same be not submitted to the Department of Tourism, Government of India or the licensor or other appropriate authorities within the time stipulated or if the construction works in accordance with the sanctioned plans, elevations, and specifications are not commenced and completed and the Five Star Hotel Building is not commissioned as hereinbefore prescribed, the licensor may by notice in writing to the licencees terminate the agreement and if possession as licencees has been given to the licencees, authorised officer(s) of the licensor may, notwithstanding the waiver of any previous clause or right or re-entry by the licencees, entire upon the said land and building and structure, if any, put on the whole of the plot of land, and thereupon the land and the building and structure thereon shall remain to the use of land be vested in the licensor and the licence deed so executed shall absolutely determine and the licencees shall not be entitled to any compensation whatsoever.
17. Until the building and works have been completed and certified as completed in accordance with this agreement the licensor or its authorised of ficer(s) shall have the following rights and powers i.e. to say:-
(a) The right for the licensor and other officers under the direction at all reasonable times to enter upon the said premises to view the state and progress of the said work, to inspect and test materials and workmanship and for other reasonable purposes connected with this agreement.
(b) In case the licencees shall commit any breach or make default in the performance of all or any one or more of the covenants on their part hereinbefore and hereinafter contained in this licence agreement it shall be lawful for the licensor or for officers in his behalf to re-enter into and upon the said land and building and take and retain possession of the said land and of all such buildings, erections, superstructure and materials as may then be found upon the said land for the absolute use of the licensor without any compensation and without prejudice to all other legal rights and remedies of the licensor against the said licencees.
Notwithstanding any such default as aforesaid, any of the officer(s) authorised in this behalf by the licensor may in his direction give notice to the licencees of his intention to enforce the terms of licence herein contained and may fix any extended period for the completion of the said building and works in substitution for the period mentioned in this agreement and thereupon the obligation hereunder of the licencees to complete the obligation hereunder of the licences to complete the same shall be taken to refer to such extended periods. It will be open to the licensor to refuse to grant any extension for the period of construction of the building and extension if granted by the licensor, the same shall be granted by the licensor on such terms and conditions including a condition requiring payment of revised annual licence fee and furnishing of irrevocable Bank Guarantee in the form and from a scheduled Bank in such and for such periods as the licensor may in his absolute discretion think fit.
(c) All building materials and plant which shall have been brought upon the said land by or for the licencees for the purposes of erection of such building as aforesaid shall be considered as immediately attached to the said plot of land and no part thereon other than defective or improper material removed for the purpose of being replaced by proper material shall be removed from the said land without the previous written consent of the licensor until after the grant of the completion certificate mentioned in relevant clause hereof.
(d) If at any time during the execution of the said works, any of the officer of the licensor authorised in this behalf does not approve of any work done or does not approve of the omission to do any work, which should have been done by the Engineer or the Architect engaged by the licencees, the said officer may without being required to give or assign any cause or reason therefor require the licencees to appoint another Engineer or Architect with the approval of licensor, until such other Engineer or Architect is so approved and appointed no further building work shall proceed without the previous written consent of the said officer.
18. All notices, consents and approvals to be given under the licence agreement shall be in writing and shall be signed by the officer(s) authorised in this behalf by the licensor, and any notice to be given to the licencees shall be considered as duly served if the same shall have been addressed to the licencees and delivered to, left at or posted to the usual or last known place or residence or business in Delhi of the person served by ordinary post or on the said land hereby proposed to be demised or if the same shall have been affixed to any building or erection whether temporary or otherwise, upon the said land.
19. 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.
20. That the trees, if any, standing on the plot shall remain as licensor's property and shall not be removed or otherwise disposed of without obtaining the prior written permission of the licensor or his officer(s) authorised in this behalf.
21. That the licencees shall not without the written consent of the licensor or its officer(s) authorised in this behalf, construct any well of any description or instal any private system of supplying water whether for irrigation or for drinking purposes.
22. The licencees will make necessary arrangements for parking of cars, scooters and cycles within the premises.
23. The electric sub-station in the Five Star Hotel Building shall be provided by the licensor in the basement/ground floor of the building for which adequate space and other structural requirements including space for vertical rising mains, meter boards, etc. shall be provided by the licencees free of cost and rent to the licensor. The cost of the sub-station and electric connection will be borne by the licencees except for that portion which is otherwise borne by the licensor as per their rules for giving electric connections to such buildings. Metering for the electricity will be given to the licencees on medium pressure. The sub-station shall be installed by the licensor and its operation and maintenance shall also be borne by them. All such installations shall be the property of the licensor notwithstanding that full or part cost thereof has been paid by the licencees. The licencees shall provide telephone extension from its PABX Exchange with outside facility to the electric sub-station free of any installation charges, rental and call charges, etc.
24. All electric installations in the building shall be carried out by the licencees as per prevailing Indian Electricity Rules. The licensor shall be allowed to inspect the installations during the execution of work or subsequently whenever required. The installations of elevators shall be carried out in accordance with the provisions of Delhi Lift Rules, 1942 and Bombay Lift Act, 1939 as extended to Delhi with subsequent modifications.
25. That the accommodation/building to be constructed on the licenced space shall at all times vest in the licensor together with all fittings, fixtures and other installations of the immovable types or of the types removal of which is likely to cause damage to the accommodation/building. A list of such fittings, fixtures and installations shall be drawn up jointly by the representatives of the licensor and the licencees on completion of the said accommodation/building and the same shall form part of the licence deed.
26. Life of the building to be constructed should be per usual practice be 100 years.
27. 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.
28. On revocation of the licence and/or vacation of the premises by the licencees for any reasons whatsoever, the licencees shall not remove from the premises furnishings, fittings and fixtures of the movable types belonging to the licencees without prior written permission of the licensor and, if required, the licensor shall have the option to retain the same with payment of compensation as may be mutually agreed upon. In case of licensor deciding not to retain the same, the licencees shall remove the same peacefully and restore the space to the condition as existing at the time of completion of the building, at their own cost.
29. Preparation of articles of food as may be allowed by the Medical Officer of Health, New Delhi Municipal Committee and dish washing would be done in the kitchen pantry area and nowhere else. Only gas burner/electric gadgets will be used for cooking purposes.
30. The licencees shall run the Five Star Hotel themselves. However, the licencees may allow sub-licencees within the period of licence for running carparking, cycle-scooter stand for parking and shopping arcade, banks, offices (within the shopping arcade) etc. The licencees shall be further responsible for the conduct of various sub-licencees and observance of rules and regulations etc. The licencees shall be further responsible to answer that the sub-licencees shall not get any right over and above the rights and privileges of the licencees.
31. 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 any body else.
32. The licensees shall make adequate provisions for fire protection, safety, fire fighting arrangements as may be prescribed by the licensor/Chief Fire Officer or any Code standard practice or any other competent authority in this behalf.
33. The licencees will have to obtain the electric and water connections and will bear the electric and water charges by themselves.
34. The licencees shall be responsible to secure from time to time the necessary permission or licence or permit etc. as may be required from the authority concerned in order to carry on the business of a Five Star Hotel in the said building.
35. The licencees shall be responsible to keep the said Five Star Hotel Building and the entire premises together with fittings, fixtures and other installations including lifts in a befitting manner. The licencees shall also be responsible to carry out effective day today maintenance and repairs annual or special as may be required from time to time including operation of service at their own cost including replacement of installations for any reasons whatsoever. The licencees shall be further responsible for the maintenance of open space and Electric Sub-station to be located in the basement or ground floor shall be maintained and operated by the licensor or its officer(s) who shall at all times have access to the Sub-station without any obstruction or hindrance and the licencees shall not claim any compensation from the licensor for the space occupied for running the Sub-station. The licensor shall be responsible for the maintenance of all electric installations and appliances up to meter boards.
36. Save as otherwise provided, the licencees after completion of the building shall not make any additions/alternations in the said building and installations without prior permission of the licensor and even then permitted by the licensor, the said additions/alterations shall be carried out by the licencees at their own cost.
37. No encroachment of any kind on the Municipal land or on the space other than the space that will be licensed out to them shall be permitted/tolerated.
38. The licencees shall not employ or permit to be employed or allow to enter into or remain in the said premises any person suffering from any contagious, loathsome or infectious disease.
39. The licencees 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.
40. The licencees shall name the Five Star Hotel after obtaining prior written permission of the licensor.
41. 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 powers hereof and such powers shall be exercisable in the event of any violation/condition and the powers hereof shall be exercisable in the event of any future case of default and the liability of the licencees for past and future defaults shall remain unaffected besides other rights and remedies of the licensor.
42. In the event of licence having been terminated earlier in the terms of the relevant clauses, the licencees shall vacate the premises in a peaceful manner and clear all the dues of the licensor forthwith.
43. In the event of breach of any 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 duty of the licencees to quit and vacate the premises without any resistance and obstruction and give the complete control of the premises to the licensor.
44. If the licencees default in the terms of the licence fee or cease to do business in the said Five Star Hotel Building or commit breach of any of the terms of the licence fully or otherwise, the licensor may give a notice in writing to the licencees for remedying the breach and if the licencees fail to do so within a reasonable period as may be determined by the licensor, the licensor may terminate licence forthwith.
45. If the licencees after execution of the licence deed does not turn up to occupy the land for construction of Five Star Hotel Building or stop construction the licence will be cancelled after giving them 10 days' notice and the licencees shall be liable to pay demages to the licensor at double the rate of licence fee plus interest at 15% on defaulted amounts for the period of such default or till reallotment of the land/ premises to any other party is made.
46. The licence shall stand ipso-facto determined and possession/occupation transferred to licensor without any right to compensation whatsoever to the licencees in any of the following events:-
(1) If the licencees being any individual or if a firm, any partner in the said firm shall die or at any time be adjudged insolvent or shall have a receiving order or order for administration of his estate made against him or shall take any proceeding for liquidation or composition under any Insolvency Act for the time being in force or made any conveyance or assignment of his effects or enter into any arrangement or compensation with the creditors or suspend payment or shall introduce a new partner or shall change the constitution of the partnership or if the firm is dissolved under the Partnership Act; or (2) If the licencees being a company shall pass a Resolution or the court shall make an order for the liquidation of its affairs or a receiver or manager on behalf of the debenture holders shall be appointed or circumstances shall have arisen which entitle the court or debenture holders to appoint a receiver or manager :
Provided always that such determination shall not prejudice any right to action of remedy which shall have accrued or shall thereafter accrue to the licensor.
47. The licensor accepts and reserves into himself all mines, minerals, coals, gold washing, earth oils and quarries in or under the said land and full right and power at all times to do all acts and things which may be necessary or expedient for the purpose of searching for, working, obtaining, removing and enjoying the same without providing any vertical support for the surface of the said land or for any building for the time being standing therein provided always that the licensor shall pay reasonable compensation, to the licencees for all damages directly occasioned by the exercise of the rights hereby reserved or any of them.
48. Any servants quarters constructed by the licencees shall not without the written permission of the licensor or such officer as may be authorised in this behalf be occupied or permitted to be occupied otherwise than by the bona fide servants or persons occupying in the main building.
49. The licence fee will be enhanced after every 33 years provided that the increase in the licence fee at each such time shall not exceed 100% of that immediately before the enhancement is due. For determination of the increase the percentage increase would depend on the market value of the plot at the relevant time. In this regard, decision of the licensor shall be final and binding on the licencees.
50. 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.
51. In the event of any question, disputes or difference or differences arising in regard to these terms and conditions and their interpretation, the same shall be referred to the sole arbitration of the Lt. Governor of Delhi and the award of the said Arbitrator shall be binding on the licencees and licensor.
The parties have gone through the contents of the licence deed carefully. The information supplied by the licencees is true to the best of their knowledge and belief and nothing has been concealed therefrom. The licencees shall abide by the terms and conditions of licence deed.
New Delhi. Signature of licencees
Dated : 11-3-81. For Delhi Automobiles Pvt. Ltd.
Witness (1) Sd/- Lalit Sun
Sd/- Ram Singh (Director)
(F.A., N.D.M.C.).
Signature of the licensor
Witness (2)
Sd/- Nihal Chand Jain Sd/- P.N. Behl
(O.S.D., N.D.M.C.) (Administrator)
New Delhi Municipal Committee
Witness (3)
Sd/- D.R. Mahajan Countersigned
(Advocate) Sd/- Mahesh Chandra
Delhi Secretary
New Delhi Municipal Committee.
3.2 Agreement executed on 18th day of June, 1981 between the assessee and M/s. Bharat Hotels Ltd. reads as under:-
Agreement This agreement executed this 18th day of June, 1981 between M/s. Delhi Automobiles Private Limited, a company registered under the provisions of the Companies Act, 1956 and having its registered office at 3/15-A, Asaf Ali Road, New Delhi through its Director duly authorised to enter into this agreement vide its Board of Directors resolution dated 17-6-81 (hereinafter referred to as Party No. 1) of the first part which expression shall, unless repugnant to the context and meaning thereof, mean and include their administrators, legal representatives and successors and M/s. Bharat Hotels Ltd., a company registered under the provisions of the Companies Act, 1956 and having its registered office at 6, Tilak Marg, New Delhi through its Director Shri G. Sagar Suri, duly authorised to enter into this agreement vide its Board of Directors Resolution dated 17-6-81 (hereinafter referred to as Party No. 2) of the other part, which expression shall, unless repugnant to the context and meaning thereof, mean and include their administrators, legal representatives, successors and assigns:
Be it stated as under :
WHEREAS the New Delhi Municipal Committee, New Delhi (hereinafter referred to as NDMC) vide its letter No. 779/PS/M.Secy/D/76 dated 30th June, 1976 approached Party No. 1 to send its offer for grant of a licence for constructing and running a 5-Star Hotel in Barakhamba Road Complex;
AND WHEREAS Party No. 1 submitted to the NDMC its offer dated 19th July, 1976 for obtaining the licence of the site;
AND WHEREAS offers were received by the NDMC from other parties also after taking the same into consideration it entered into negotiation with Party No. 1 and by its letter No. 276/PS/Secy/D/77 dated 9th March, 1977 it increased the area of the land from 4.5 acres to 6.0485 acres and asked Party No. 1's consent to pay yearly licence fee of Rs. 37,78,286;
AND WHEREAS the terms and conditions contained in the said letter as well as those contained in the standard terms and conditions annexed to the said letter were accepted by Party No. 1 and this acceptance was conveyed by Party No. 1 vide letter dated 9th March, 1977 to the NDMC.
AND WHEREAS along with the acceptance letter of 9th March, 1977 Party No. 1 also sent a bank draft for Rs. 20 lakhs by way of earnest money and undertook to pay the balance amount as and when vacant and unencumbered possession was handed over;
AND WHEREAS vide letter dated 10th March, 1977 the NDMC acknowledged the receipt of the aforesaid bank draft which was also encashed by the NDMC;
AND WHEREAS in its meeting held on 23rd March, 1977 the NDMC passed a resolution ratifying the aforesaid action of its officers with regard to the allotment of the aforesaid land in favour of Party No. 1 ;
AND WHEREAS Party No. 1 incurred expenditure and took action to have the plans for the hotel prepared and also took steps to make the necessary financial and other arrangements for the setting up and running of the hotel;
AND WHEREAS before the formal licence deed could be executed differences arose between the parties with the result the physical possession of the aforesaid land was not handed over to Party No. 1;
AND WHEREAS Party No. 1 filed a suit for specific performance suit No. 144/79, against the NDMC and Union of India in the High Court of Delhi, inter alia praying therein that a decree for specific performance be passed against the NDMC requiring the NDMC to perform its part of the contract by handing over physical possession of the aforesaid site and completing all other formalities which may be necessary in this behalf;
AND WHEREAS as a result of mutual discussions an amicable settlement was arrived at and licence deed dated 11th March, 1981 was executed by the NDMC in favour of Party No. 1;
AND WHEREAS on an application being filed in the High Court of Delhi, the settlement between the parties was recorded in suit No. 144/79, and a decree dated 11-3-81, incorporating the aforesaid licence dated 11th March, 1981 was passed in terms of the settlement;
AND WHEREAS one of the conditions of the aforesaid licence is that Party No. 1 shall form a public limited company and apply to the NDMC for the transfer of the licence granted to the said public limited company;
AND WHEREAS Party No. 2 has been promoted and formed by Party No. 1 to whom the aforesaid licence is to be transferred;
AND WHEREAS party No. 1 has written a letter dated 18-6-81 to NDMC intimating them about the information of Party No. 2 and requesting for the transfer of the aforesaid licence in favour of Party No. 2;
AND WHEREAS in consideration of Party No. 1 agreeing to transfer the aforesaid licence in favour of Party No. 2, the parties have agreed to abide by the following terms and 'conditions of this agreement:
NOW THIS DEED WITNESSETH AS UNDER :
1. Party No. 1 hereby transfers all its rights, title and interest in and arising out of the licence deed dated 11-3-1981 and in the aforesaid decree dated 11-3-81 in favour of Party No. 2. Party No. 2 shall observe all the terms and conditions of the licence deed dated 11-3-81 which shall be binding on Party No. 2 and if Party No. 2 had itself submitted the order referred to above to the NDMC and as if the licence deed has been entered into by the Party No. 2 itself with the NDMC.
2. Parly No. 2 shall construct a 5 Star Hotel on aforesaid land in accordance with the terms and conditions in the aforesaid licence deed dated 11-3-81. As a consideration for the transfer of the aforesaid licence, Party No. 2 shall pay to Party No. 1, by way of the goodwill, a sum of Rs. one crore and also give to the Party No. 1 sub-licence of an area approximately 1,00,000 sq. ft. in the proposed hotel, which is earmarked for shopping-cum-offices-cum-commercial area besides Car Parking Space (hereinafter referred to as Shopping Complex). This sub-licence is in accordance with clause 30 of the licence deed dated 11-3-81 and is given for the same period as mentioned in the said licence deed dated 11-3-81.
3. Party No. 1 shall observe and perform the following terms and conditions and stipulations namely:-
(i) That by way of licence fee and in consideration of providing:-
(a) Centrally air-conditioning facilities in the premises during business hours;
(b) Centrally piped music in the passages;
(c) Watch and ward and maintenance services provided the Party No. 2 shall not in any way be responsible in the case of any theft, pilferage or loss.
(d) Providing maintenance facilities of electricity, water, sanitary fittings and plumbing requirements in the passage, lobbies and entries around the premises;
(e) Cleaning and keeping in neat and tidy conditions common passages, lobbies and entrances around the stipulated space;
Party No. 1 shall pay a consolidated sum of Rs. 12.50 per sq.ft. per month to Party No. 2. This sum may be increased by Party No. 2 after every five years provided, however that such increase shall not exceed 15% of the amount so being then charged.
(ii) To reimburse to Party No. 2 actual out of pocket costs and expenses on a bill being submitted for telephone and other services, and for maintenance, repairs and other outgoings.
(iii) To pay or cause to be paid electricity charges and meter hire in respect of electricity consumed in the shops comprised in the Shopping Complex on presentation of the bills thereof.
(iv) To bear and pay such share as may be decided by Party No. 2, from time to time, of any new or additional or excess ground rent, rates or taxes which may be levied or imposed by the Government (Central or State) or the New Delhi Municipal Committee or any other public body or authority in addition to the existing ground rent, rates, taxes and ceases.
(v) To keep the interior of all shops in the Shopping Complex in a good state of repair (including the interior or plant work) at all times during the subsistence of this Agreement and Party No. 2 shall be at liberty to send its representative to respect the same from time to time and Party No. 2 shall be entitled to call upon Party No. 1 to carry out or cause to be carried out at its own expenses interior repairs or repainting or renovation or work of any other kind which Party No. 2 may reasonably deem to be necessary.
(vi) Not to allow to be kept, exhibited or exposed for sale in the shops in the Shopping Complex any goods or articles which may be abnoxious, obscene or undesirable nature, and of being required by Part No. 2 to forth with remove or cause to be removed the same from such shop.
(vii) Not to hold/permit to be held an auction/sale in any of the said shope in the Shopping complex without the prior written consent of Part No. 2.
(vii) Not to paint, affix or exhibit or allow to be painted, affixed or exhibited any name or writing or any other thing upon the exterior of the shops in the Shopping Complex without the prior written approval of Part No. 2 and particularly regarding its size, colour, lettering, design and get up.
(ix) To submit for the prior written approval of Party No. 2 the schemes, specifications and the layout, decor, interior decorations and the furnishings of the shops in the Shopping Complex, and to ensure that each and every shop in the said Shopping Complex is maintained in a first class condition and furnished with elegant furniture and furnishings, so that the same may be in keeping with the standards of a Five-Star Luxury Hotel, and for implementation of the provisions hereof, Party No. 2 shall have a right to issue from time to time directions to Party No. 1 to carry out or cause to be carried out such changes and alterations in the decor, furnitures and furnishings.
(x) To ensure that the members of the staff or Party No. 1 or the users of the said shops in the Shopping Complex, or the members of their staff do not use any route or passage to go, to some out of the Hotel premises or any toilet or washroom other than those which Party No. 2 may from time to time decide.
(xi) To ensure due observance and performance of the directions issued from time to time by Party No. 2 for the general conduct of business (which it is hereby authorised to do) in the shops of the Shopping Complex.
(xii) Not to do or permit to do any act which may invalidate or in any way jeopardise the said Indenture or licence dated 11th March, 1981.
(xiii) It is clearly agreed and understood that the leave and sub-licence hereby granted shall be irrevocable for the period mentioned in Clause 2 above, and even if Party No. 1 commits default in observance and performance of any of the terms and conditions herein contained, Party No. 2 shall not be entitled, to revoke the sub-licence, but its remedy for any such breach on the part of the Part No. 1 shall only be in damages.
(xiv) Not to change the lock on the main entrance door of the said shopping complex without the consent in writing of Party No. 2.
(xv) Not to make or allow to be made any additions, variations or alterations in the said Shopping Complex or any part thereof without obtaining first the consent in writing of Part No. 2.
(xvi) Not to store or keep or allow to be stored and kept any hazarduous and/or inflammable goods or articles in the said Shopping Complex.
(xvii) Not to do or permit to do any act which may invalidate or in any way affect the insurance of the said property or which render Party No. 2 able to pay any extra or excess insurance premium.
(xviii) To ensure observance of all municipal and other regulations in the use of the said Shopping Complex.
(xix) Not to cause or to allow to be caused nuisance or annoyance either to Party No. 2 or to other users of the property and it is agreed that the decisions of Parly No. 2 whether the nuisance or annoyance has been caused or not shall be final and conclusive shall not be questioned or challenged by Part No. 1 and shall be accepted by it as final and correct (xx) Not to allow any of the said shops in the Shopping Complex to be used for carrying on any business, trade or profession other than as set out in the Schedule hereto.
(xxi) Party No. 1 on the expiration or sooner determination of this licence shall vacate the said Shopping Complex/showroom/office space and, if required by Party No. 2 or its agents, leave all fixtures and fittings fixed by Party No. 1 or other users of property with all lockings and fastenings completed, upon Party No. 2 paying to Party No. 1 value thereof according to the valuation of an independent valuer to be agreed by the parties and otherwise to remove the same forthwith.
(xxii) Party No. 1 shall not throw dirt, rubbish, garbage or refuse or permit the same to be thrown on the said shopping complex/showroom/ office space or in the verendah or in the passage of any other portion of the said shopping complex.
(xxiii) Party No. 1 shall not assign this sub-licence or his interest therein or shall not in any way encumber, deal with or dispose of the said shopping complex/ showroom/office space or any part thereof or his interest under this agreement without obtaining previous written consent of Party No. 2 which shall not be withheld unreasonably.
(xxiv) Party No. 1 shall not carry on any business of restaurant or of selling of liquor or any other business which may compete with the business of Party No. 2.
(xxv) It is hereby expressly agreed that by virtue of this leave and sub-licence no right of any nature whatsoever is created in favour of Party No. 1 in respect of the Shopping Complex nor any relationship of landlord and tenant and subtenant created between Party No. 2 and Party No. 1 in respect of the said shopping complex nor is the exclusive possession of the said Shopping Complex agreed to be given to Party No. 1 it being expressly agreed and understood by and between the parties hereto that the sub-licence agreed to be given is merely leave and sub-licence in respect of the said shopping complex.
(xxvi)Party No. 2 shall intimate to Party No. 1 as to the time when the amounts payable under Clause 4(d) below become due and payable and Party No. 1 shall within seven days from receipt of such intimation make the payments, time in this respect being the essence of the contract. Party No. 2's decision as to the time when the amounts become payable under Clause 4(d) below shall be final and binding upon Party No. 1. If Party No. 1 fails to pay any instalment on its due date, Party No. 2 shall be entitled to terminate this agreement and immediately on such termination all amounts paid by Party No. 1 hereunder shall stand forfeited to Party No. 2.
(xxvii) Notwithstanding anything contained herein it is agreed and understood between the parties hereto that the sub-licenced premises shall at all times be under the overall control and supervision of Party No. 2 and Party No. 2 shall retain dominion and possession over the said premises and shall at all times have the right to direct the mode and manner of user of the said premises so as to more effectively provide for the facilities and amenities of a 5 Star Luxury Hotel.
4. Parties herein have agreed that, as authorised by the terms of the licence deed dated 11-3-81, Party No. 1 may permit the use by way of a licence of the Shopping Complex to one or more persons and/or their nominees with the information to Party No. 2 and on such terms and conditions as Party No. 1 may deem fit to impose, but such terms and conditions shall not he contrary to or inconsistent with the provisions hereof and nor shall it be contrary to any of the terms of the licence deed dated 11-3-81. It is clearly understood that Party No. 1 has no right to let or sub-let any premises. The users of Shopping Complex and their nominees shall comply with all the terms and conditions in Clause 3 hereinabove except Sub-clause (xiii) of Clause 3, as if they are required to comply with Party No. 1. Such users shall be permitted on the following terms and conditions being satisfied and complied with:-
(a) Party No. 1 shall take interest-deposit from the users at agreed rate per sq.ft. of the area to be licensed to any party. This deposit may vary from party to party and from time to time. Party No. 1 may also change other terms and conditions from time to time for grant of licences to various parties.
(b) Party No. 1 may further charge from the users licence fee on per sq.ft. basis or in any other manner on monthly, quarterly, yearly or on any other basis besides the deposit mentioned above.
(c) The parties herein agree that Party No. 1 shall be entitled to retain 25 per cent of the aforesaid security deposit payable by the users/licencees on the same terms and conditions as to payment of interest, if any, or period of deposit or the return thereof or other terms and conditions on which such deposit may be received by the Party No. 1 from the licences.
(d) Party No. 2 shall be entitled to take and retain the balance 75% portion of the deposit on the same terms and conditions and for such period for which Party No. 1 accepts the deposits from the users/licencees for the use of the premises as stated above which Party No. 2 shall be entitled to retain and which shall, however, exclusively belong to the Party No. 1.
(e) Party No. 2 shall be bound to repay the said deposit of any licencee as and when the licensee becomes entitled to receive the same.
5. Party No. 1 agrees with the Party No. 2 that in the case Party No. 2 suffers any costs, losses or damages in case of breach by the Party No. 1 of any terms and conditions of the licence agreement dated 11-3-81 or any modification thereof, Party No. 1 shall reimburse Party No. 2 in respect of such costs, losses and charges as may be suffered by Party No. 2.
6. Subject to the provisions herein contained, Party No. 2 hereby agrees with Party No. 1 as follows:-
(i) Party No. 2 shall be responsible for and ensure the payment of all rates, taxes, charges and assessments on air-conditioning and other service charges or outgoings assessed, charged, imposed or payable in respect of the Shopping Complex but excepting charges for telephones, electricity or other energy consumed by the persons using the said shops in the said Shopping Complex.
(ii) To keep the exterior of the building in which the Shopping Complex is located and the drainage thereof in good and substantial repaid order and condition, and to do or cause to be done from time to time all heavy repairs such as in connection with the falling of a wall, ceiling, roof or timber or any other part of the said building and all such repairs as may be necessary for keeping the said Shopping Complex wind and water tight.
(iii) To keep or cause to be kept the common entrances, doorways, staircases, landings, lobbies and passages leading to the said Shopping Complex well and sufficiently clean and lighted and in good and sufficient repaired condition.
7. Subject to the provisions of the next clause, Party No. 2 hereby agreed to provide the following services with regard to the Shopping Complex :
(a) Central Air-conditioning facilities during business hours.
(b) Central piped music in common passages.
(c) Clearing and keeping in neat and tidy condition common passages, lobbies and entrances around the Shopping Complex.
(d) Looking after and attending to the electricity meter and sanitary fittings and plumbing requirements in the common passage, lobbies, and entrances around the Shopping Complex.
(e) Providing watch and ward services for the Shopping Complex, provided Party No. 2 shall not in any way be responsible in case of any theft, pilferage or loss.
8. The services to be rendered by Party No. 2 as stipulated in the preceding clause shall be subject to the following:-
(i) Party No. 2's right to temporarily cut off the air-conditioning and telephone service after giving not less than 36 hours previous written notice for the purpose of altering, repairing, servicing or overhauling any apparatus, machine for Central Air-conditioning plant of the telephone installations.
(ii) Party No. 2 shall at all reasonable times be entered, inspect and test any equipment installed in the Shopping Complex for supply of Central Air-conditioning.
(iii) Party No. 2 shall not be in any way responsible if the services hereinbefore mentioned cannot be rendered due to the failure of the Central air-conditioning plant or the telephone installation in the hotel or any part thereof or for non-availability of any part of equipment in respect thereof or due to any other reason beyond the control of Party No. 2 or the Contractor who may have agreed to procure or render the aforesaid services.
9. Party No. 1 shall ensure payment to Party No. 2 on a demand being made in that behalf of the following:-
(a) Charges for electricity or other energy which may be consumed in the said Shopping Complex other than the electricity consumed for the Central air-conditioning services.
(b) The charges for telephone calls made from the telephones if provided by the Party No. 2 to various users of shops in the said Shopping Complex.
10. And it is hereby agreed by and between the parties hereto as follows :.
(i) This agreement does not create any interest or any other right in favour of Party No. 1 in the said Shopping Complex or any part thereof but it is mere sub-license to use the said Shopping Complex given to Party No. 1.
(ii) Party No. 2 shall throughout the period of the Sub-licence have full control over the said Shopping Complex and Party No. 1 shall have only the Sub-licence to use it for the period and on the same terms and conditions herein set out.
(iii) Party No. 2 shall retain with itself the keys of the main entrance/s of the said Shopping Complex and deliver to Party No. 1 only the duplicate/s thereof.
(iv) Any notice to be served upon Party No. 1 shall be deemed to be properly served if addressed to Party No. 1 and if delivered at the said Shopping Complex or it is pasted on the outer door of the said Shopping Complex.
(v) Party No. 1 shall bear and pay all the costs, charges and expenses of and incidental to the preparation and execution of the sub-licence in duplicate.
11. That without prejudice to the other rights of Party No. 2 herein contained, the Party No. 1 shall indemnify the Party No. 2 and save Party No. 2 harmless against action, sanction proceedings claims or demands of any person made against Party No. 1 in respect of or as a result of business carried on by Party No. 1 or any of its licencees or Party No. 1 committing any breach of the provisions of the Delhi Shops and Establishment Act or any other Act or statutory rules and regulations or in consequence of any act or commission or default of Party No. 1, their agents, servants or workmen and against all costs, charges and expenses which such action, proceedings, claim or demands or otherwise in relation thereto. IN WITNESS WHEREOF the parties hereto have executed these presents the day and year first hereinabove written.
SIGNED, SEALED AND DELIVERED by the within named Company Delhi Automobiles Private Limited by its Director being the party of the one part in the presence of Sd/- Ramesh Suri (DIRECTOR) Say- R.B. Singhal 49, Model Basti, New Delhi.
SIGNED, SEALED AND DELIVERED by the within named Bharat Hotels Ltd. being the party of the other part in the presence of Sd/- G. Sagar Suri (DIRECTOR) Sd/- Arvind Sachdev, 8/36, W.E.A., Karol Bagh, New Delhi.
3.3 Agreement of licence dated 22nd day of April, 1982 entered into by NDMC with M/s. Bharat Hotels Ltd. is identically worded as that of agreement of licence dated 11th day of March, 1981, hence it is not being reproduced to avoid repetition.
3.4 N.D.M.C. vide letter dated 1-10-1981 addressed to the Managing Director of the assessee-company conveyed the approval for the transfer of licence deed dated 11-3-1981 granted in favour of the assessee in respect of 5 Star Hotel site at Barakhamba Lane in favour of M/s. Bharat Hotels Ltd. in the following terms:-
NEW DELHI MUNICIPAL COMMITTEE TOWN HALL : NEW DELHI No. 4710/P/Dt. 1-10-1981 The Managing Director, Delhi Automobiles Pvt. Ltd., Hotel Division, 6, Tilak Marg, Sagar Apartments, NEW DELHI.
Sub : Transfer of licence deed dt. 11-3-1981 granted in favour of M/s. Delhi Automobiles Pvt. Ltd. in respect of 5 Star Hotel at Barakhamba Lane, New Delhi.
Dear Sir, Please refer to your letter No. BHL/1 dt. 18-6-1981 and letter No. BHL/2/2 dt. 24-7-1981 on the above cited subject. I am desired to convey the approval for the transfer of licence deeddt. 11-3-81 granted in favour of Delhi Automobiles Pvt. Ltd. in respect of Five Star Hotel site at Barakhamba Lane in favour of M/s. Bharat Hotels Ltd., a public company limited by shares formed in pursuance of clause No. 2 of the licence deed dt. 11-3-81 on the same terms and conditions as embodied in the licence agreement dt. 11-3-81. The draft licence deed to be executed by M/s. Bharat Hotels Ltd. will be sent in due course.
Yours faithfully, Sd/-
MAHESH CHANDRA GUPTA SECRETARY
4. My learned senior brother in para 32 of proposed order has held that on the facts and in the circumstances of the case, qua the issue involved and grounds mentioned on page 58 of my order, there was no venture in the nature of trade and to that extent I concur with my learned brother.
4.1 Shri C.L. Chowdhari, advocate, as he then was, as counsel for Union of India- Defendant No. 2 in the proceedings taken by the assessee made a statement as on March 11, 1981, to the following effect:-
The land in question has been allotted by defendant No. 2 in favour of the New Delhi Municipal Committee and the allotment has been accepted by the said Committee.
4.2 In view of the above statement, it is uncertain and none of the learned lower authorities examined this aspect of the case as to whether NDMC did ever own or possess any land, which was subject-matter of transfer by way of 'licence' either to the assessee or to the said M/s. Bharat Hotels Ltd. No body has also verified the title much less the rights of the NDMC, and accordingly what was offered or subjected to 'transfer' as a 'licence' has not been probed into. It has also not been examined as to when the land in question was ever transferred, either to the assessee or to the Bombay Hotels. Also, if at all it was ever transferred, since for the purposes of capital gains, transfer has to be in terms of the ratio of the decisions of the Hon'ble Supreme Court as laid down in 34 ITR 802 at pages 804 and 805; 57 ITR 185 at page 193 and further 162 ITR 888 (SC).
4.3 No body has examined about this facet of the case i.e. whether there was any transfer of land or not in favour of either of the parties. Admittedly the so called 'licence' fixes the annual premium and it is more than Rs. 100 and accordingly the said 'licence' can be said to operate, to create, to declare and assign the right in the immovable property qua the transferee and limit and extinguish the rights in the immovable property as to its interest in the said immovable property, qua the transferor, though be in the present or in the future and since the said 'licence', as what it recites, it does fall within the mischief of Section 17(1)(b) of the Registration Act (Central Act No. XVI of 1908), none of the learned lower authorities have examined the said facet of the case also. In fact the Revenue in its ITA No. 4155/ Del/86 has taken as specific ground No. 2, the laterpart of which reads "... especially when ownership conveyance deed is executed & registered & not otherwise". The grievance of the Revenue in the said ground is that since there has been no execution of a conveyance deed and no registration of the same, the learned CIT (Appeals) was not correct in law and on facts for holding that the right or asset was acquired by the assessee only on 22-3-1977. This facet of the case also needs to be gone into i.e., as and when the licence was executed and registered as a "conveyance deed", whereby the rights in the immovable property were to be created/declared/ assigned in favour of any one, the assessee or the said Bharat Hotels Ltd. and limiting and extinguishing the rights of the transferor i.e. the NDMC or the assessee respectively. Transfer for the purposes of capital gain and that of a capital asset, in terms of Section 2(47) of the Act means effective conveyance of the capital asset to the transferee and it has to be read in the light of ratio laid down by the Hon'ble Supreme Court in the cases mentioned above viz., CIT v. Bhurangya Coal Co. [1958] 34 ITR 802 at pages 804 and 805, Alapati Venkataramiah v. CIT [1965] 57 ITR 185 at page 192 and Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888 since in the case of an immovable property or any interest thereof the value exceeding Rs. 100, the title to the property on the interest thereof cannot pass to the transferee till a conveyance is executed and registered. Mere delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of the immovable property. The date of accrual of capital gain has to be taken, the date when the transfer takes place and the entries in the account books are irrelevant for the purposes of determining such dates.
4.4 In the case of KC. Pal Chowdhury v. CIT [1962] 46 ITR 1 (Cal.), pending negotiations for the sale of a colliery owned by the assessee to a company to be formed, the assessee delivered possession of the colliery on January 1, 1947 to the promoters of the company. On April 16, 1947, an agreement for sale was executed reciting the consideration etc. The company was incorporated on May 2, 1947. The sale deed was executed on February 25, 1948 and was registered on the next day. On these facts their Lordships of the Hon'ble Calcutta High Court held that the title to the colliery, both as to movable and immovable property, passed on the day of execution of sale deed and the capital gains accrued on that date.
4.5 In the case of Hall & Anderson (P.) Ltd. v. CIT [1963] 47 ITR 790 (Cal.), it was held that even though the assessee had parted with the immovable properties to all intents and purposes as from December 1,1946, in law, the ownership transferred and the sale of the immovable properties was effected on February 26, 1949 when the sale-deed was executed and registered.
4.6 Here again in the case of CIT v. H.H. Sri Btakadambadas Raja Rajagopala Thondaiman [1969] 72 ITR 816 (Mad.), the facts were as under-on 8th February, 1960, the assessee entered into an agreement and accepted an advance for the sale of his house property to the purchaser or his nominees for a total sum of Rs. 4,35,000. The balance of the consideration was paid on September 15, 1960 and November 13, 1960. The first sale deed was executed in favour of nominee on March 15, 1961 and the last on October 20, 1962. Possession of the former property was delivered by the assessee sometimes in April 1960. Their Lordships held that sales having taken place on March 15, 1961 and October 20, 1962, these were the relevant dates when the property stood conveyed and cause of action arose to the Revenue for capital gain purposes.
4.7 A licence, according to Section 56 of Central Act 5, 1882 is not assignable. A licence does not entitle the licensee to sue anybody in his own name in terms of Section 60 of the Act mentioned above, it is revocable by the grantor. It stands determined when the grantor makes an assignment of the subject-matter. (Extract from page 651 - Commentary under Section 105 of the Transfer of Property Act by H.R. Khanna and P.M. Bakshi[1985] Edition) - If a licence is not assignable and can be revoked by the grantor and stands determined when the grantor makes an assignment of the subject-matter, then qua the assessee, there was no right to assign the same, much less, transfer it to Bharat Hotels Limited , since when NDMC granted licenceto M/s. Bharat Hotels Ltd. qua the assessee, it stood determined. The grantor could revoke it and assessee could neither assign nor transfer it and in this view of the matter, there was no transfer in terms of capital gains.
4.8 The assessee vide its letter dated March 10, 1987 (reproduced above in the body of this order), while generally accepting the terms and conditions in the NDMC licence agreement, wanted the NDMC, inter alia, the following to be made stipulation in the said agreement of licence - "Since a huge amount of finance - is involved in the hotel complex, we will be forming a separate public limited company for this project. Necessary provision may be provided in the licence agreement for this permission at a later stage.
4.9 Even stipulation No. 2 in the agreement of 'licence' dated 11th March 1981, already reproduced in the body of this order reads as under :-
The licensees shall within a period of twelve calendar months from the date of commencement of this licence agreement form a Public Limited Company and shall apply to the licensor within six months thereafter for the transfer of the licence to the said Public Limited Company so constituted and the licensor shall transfer the licence to the said Public Limited Company so constituted on the terms and conditions incorporated in this agreement.
4.10 Now in view of the above two propositions (stipulations), the assessee's acceptance of the offer, read with stipulation No. 2 (reproduced above), proves beyond any doubt the intention of the assessee and the said intention being that the assessee was bidding not for itself but for its nominee, i.e., a Public Limited Company to be formed by the assessee. In view of this intention, agreement and stipulation No. 2, reproduced above, qua the assessee, the transfer of licence from NDMC, at the behest of the assessee, in favour of M/s. Bharat Hotels Ltd. cannot be said to be a transfer within the meaning of Section 1(47) of the Act, qua the assessee, as transferor and the said M/s. Bharat Hotels Ltd. as the transferee. Here also, additionally, I will like to rely upon Section 17(1)(b) of the Registration Act.
4.11 Entries in the books of account are not determinative of the character of the receipts, is an accepted principle and needs no case law and accordingly these entries by itself i.e., entry of Rs. One crore, debited to the account of M/s. Bharat Hotels Ltd. and credited to the account of the assessee, by itself cannot be said to be income in the hands of the assessee, since to be an income, "every receipt" has to be brought within the mischief of the Income-tax Act, 1961, and since there is no material to hold the said receipt to be a revenue receipt, it cannot be treated as income and certainly not as a capital gain in view of what is stated above.
4.12. In view of our discussion, as above, since the learned lower authorities have not verified the facet of the case relating to execution and registration of the licence either in favour of the assessee or else in favour of the said M/s. Bharat Hotels Ltd. and additionally since the Revenue has specifically raised ground no. 2 in its appeal, on my part I will set aside the impugned orders of the learned lower authorities on the issue, on which this note of dissent is being written and restore it to the file of the assessing officer for doing the exercise again viz., whether the capital gain is chargeable or not and the said exercise shall be done after hearing the assessee and calling for from the assessee, the additional evidence to that effect. The department will also be at liberty to collect the requisite material from local source and through enquiries made/caused to be made, but in that case, the materials shall be put to the assessee.
4.13 In view of my above finding, qua the grounds, mentioned at page 58 of this order, since the issue stands restored to the file of the assessing officer, both the parties shall be deemed to have succeeded for statistical purposes.
ORDER UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961 K.C. Srivastava, Accountant Member
1. We having differed on some points in the above appeals, we proceed to state the point on which we have differed and refer the same to the President of the Income-tax Appellate Tribunal for hearing on this point by one or more of the other Members of the Tribunal. The point of difference is as under :-
Whether on the facts of the case, the amount of Rupees One crore had been received as a consideration of the transfer of a short-term capital asset and was therefore to be taken for charge of short-term capital gains in the hands of the assessee company as held by the Accountant Member or the orders of the lower authorities on this point were to be set aside to the assessing officer in terms of directions recorded in the order of the Judicial Member.
THIRD MEMBER ORDER G. Krishnamurthy, President
1. These matters have come before me as a third Member under Section 255(4) of the Income-tax Act, 1961 for my opinion on the following point of difference of opinion, that arose between the Members of Delhi Bench 'D', who heard these appeals :
Whetheron the facts of the case, the amount of Rupees One Crore had been received as a consideration of the transfer of a short-term capital asset and was therefore to be taken for charge of short-term capital gains in the hands of the assessee company as held by the Accountant Member or the orders of the lower authorities on this point were to be set aside to the assessing officer in terms of directions recorded in the order of the Judicial Member ?
The point of difference of opinion framed is such that I have to first decide whether there is a capital asset and whether there was a transfer of that capital asset and whether such a transfer had given rise to a shorf-term capital gains in contradistinction to a long term capital gain and whether that capital gain was at all assessable to tax or the whole matter was to be set aside and sent back to the assessing officer for fresh adjudication after obtaining the information on such points as the learned Judicial Member stipulated in his order.
2. The facts are given very clearly by both the Members in their orders and they are not in dispute. The assessee company was mainly carrying on the business in automobiles. Sometime in 1976 the New Delhi Municipal Committee, hereinafter referred to as N.D.M.C. for short, finalised the lay out for development of a commercial complex at Barakhamba Lane, New Delhi. In that lay out a hotel site with sufficient green area around it had been earmarked for the exclusive purpose of putting up a five-star hotel. The NDMC called for offers for this hotel site. The offer was in the following terms and it needs to be quoted in cxtenso :
CONFIDENTIAL D.O. No. 739/PS/M.Secy./D/76 NEW DELHI MUNICIPAL COMMITTEE V.S. ALLAWADI, IAS, Member-Secretary TOWN HALL NEW DELHI Dated June 30, 1976 Dear Sirs, The New Delhi Municipal Committee have finalised the layout for the development of a Commercial Complex at Barakhamba Lane. In the proposed Lay-out, a hotel site of 4.5 acres with sufficient green area around, has been earmarked for purposes of putting up a five-star hotel. The layout is available for perusal with the Chief Architect in the NDMC between 3.00 PM to 5.00 PM on all working days. I would request you to send your offer in a sealed cover in duplicate addressed to the undersigned latest by the 20th July, 1976. On the front cover, the words "Offer for hotel site at Barakhamba complex 1976-77" should appear. While giving your offer, you may please consider the following conditions :
(a) The land would continue to be on lease with the NDMC and the period of licence would be from 33 to 99 years, as may be decided by Committee.
(b) Construction of building would have to be undertaken in accordance with the design and the architechtural control of the NDMC.
(c) The licensor would have the complete possession and its enjoyment during the period of validity of the licence.
(d) The amount of annual licence fee would have to be paid in lump sum for first two years and this would be adjusted against the annual licence fee as may be payable from the month following the month of completion of the building.
(e) The construction of the building would have to be completed within a period of two years of any extended period which may be agreed to by the NDMC.
(f) On termination of the licence, it will be the option of the licensor to purchase the building at such time, as may be mutually agreed upon.
Yours sincerely, Sd/-
(V.S. ALLAWADI) M/s. Delhi Automobiles, 3/15-A, Asaf Ali Road, Delhi.
The assessec company through its Managing Director submitted an offer, which was in the following terms :
DELHI AUTOMOBILES PVT. LTD.
3/15A, Asaf Ali Road, New Delhi.
G. Sagar Suri, Managing Director.
July 19, 1976.
Shri V.S. Allawadi, Member-Secretary, New Delhi Municipal Committee, Town Hall, New Delhi.
Dear Sir, With reference to your D.O. No. 739/PS/M. Secy./D/76 dated the 30th June, 1976, we quote below our price for rent of one year for Five Star Hotel site of about 4.5 acres with sufficient green area around it in Commercial Complex at Barakhamba Lane.
Our offer is for the terms and conditions mentioned by you and/or mutually agreed upon at the time of signing of the agreement, for the sum of Rs. 28,11,000 (Rupees...) Thanking you, Yours faithfully, for DELHI AUTOMOBILES PRIVATE LIMITED Sd/-
(Lalit Suri) EXECUTIVE DIRECTOR.
The NDMC wrote a letter on 9-3-1977 offering a larger area for the hotel complex and requesting the assessee to increase proportionately the offer of licence fee. The standard terms and conditions of licence deed was also conveyed to the assessee. The assessee then replied on 10-3-1977 stating that even though the revised proposal involved additional financial burden, in the interests of overall development of the project and to provide additional facilities to the public, it would undertake to pay proportionate increase in the tender price, which would approximately be Rs. 10 lacs more than the original tender price of Rs. 28 lacs offered per annum. It then put forward certain suggestions for the consideration and approval of the N.D.M.C., one of which was in the following terms :
(i) Since a huge amount of finance is involved in the hotel complex, we will be forming a separate public limited company for this project. Necessary provision may be provided in the licence agreement for this permission at a later stage.
Then there are so many other conditions imposed, which are not very relevant for our present purpose. Along with this letter dated 10-3-1977 a cheque for Rs. 20 lacs as earnest money out of the total licence fee of Rs. 38,11,105.00 agreed to be paid was enclosed offering to pay the balance at the time of actual possession of the land. The N.D.M.C. acknowledged the receipt of the cheque for Rs. 20 lacs on the same day. Thereafter the assessee went on writing to the NDMC to finalise the licence agreement and to hand over the subject site. Since the N.D.M.C. failed to hand over the possession of the subject site as promised, the assessee approached the High Court of Delhi by filing a Civil Suit No. 144/79. It was stated in the plaint that the offer of the assessee being the highest offer was accepted by the NDMC and a binding contract in law came into existence, that NDMC in its meeting held on 23-6-1976 passed a resolution bearing No. 3 A to the effect that it (NDMC) considered all the facts and accepted what was done by its officers, namely, accepting the offer made by the assessee and that in its another meeting held on 23-3-1977 the NDMC passed another resolution No. 112/76/77 wherein the action of the officers was ratified and thus an enforceable contract between the assessee and the NDMC had come into existence. Even though a complete final and binding contract had come into existence between the assessee and the NDMC and even though the assessee on its part made all necessary financial arrangements with various financial Institutions, Banks and also for collaboration with internationally known chain of hoteliers so that a Five-star Hotel might come up within the stipulated period and also entered into agreements for the recruitment of managerial and catering staff and also placed orders for the purchase of various articles required for starting and running of the hotel and incurred expenditure under various heads in this regard, the NDMC committed a default in handing over the possession of the hotel site despite several requests to that effect. The assessee then approached the Lt. Governor Delhi and submitted a letter dated 9-6-1977 requesting the Lt. Governor to direct the NDMC to give possession of the hotel site to the assessee without any further delay. The assessee also approached on 2-7-1977 the Hon'ble Minister for Works and Housing, Government of India, with a similar request but to no avail. Suddenly on 27-5-1978 the assessee received a telephonic message from NDMC asking the assessee to take the money of Rs. 20 lacs back, which the assessee did under protest. As the NDMC thus committed the breach of the contract in not delivering the possession of the site in question, it incurred a huge loss of about Rs. 64,40,000.00. It therefore prayed the Hon'ble High Court to interfere and either direct the NDMC to pay the damages of Rs. 64,40,000 to the assessee or deliver the possession of the hotel site to the assessee as agreed to earlier. The prayer that the assessee made in the plaint was (a) the Hon'ble High Court be pleased to pass a decree for specific performance by the NDMC of its obligations particularly in handing over immediate physical possession of the hotel site in the Barakhamba Road Complex measuring 6.0485 acres to the plaintiff and grant all other facilities, sanctioned plans, grant licence etc. necessary for the completion of the 5-Star Hotel Project on the site;- (b) in the alternative for payments by the NDMC to the assessee of a sum of Rs. 64,40,000; and (c) Costs of this suit in favour of the assessee. This plaint was filed on 12-12-1978. This suit was decreed by the Hon'ble High Court on 11-3-1981 in the following terms :
This suit for specific performance of obligations in particular handing over immediate physical possession of the hotel site in commercial complex at Barakhamba Lane, New Delhi, measuring 6.0485 acres to the plaintiff company, etc. and, in the alternative, for payment of damages in the sum of Rs. 64,40,000 was originally brought against the New Delhi Municipal Committee, New Delhi. Subsequently, the plaint was amended and the Union of India was impleaded as a defendant No. 2.
During the course of proceedings, it was represented that the parties had come to terms of the compromise should be called and the suit decided in accordance therewith. On February 10, 1981 Mr. C.L. Choudhry, counsel appearing for the Union of India informed that the Government had decided to allot the land in question to the New Delhi Municipal Committee.
Today it was represented by the counsel for the plaintiff company and the New Delhi Municipal Committee that settlement had been arrived at. The counsel for the committee produced licence deed, dated March 11, 1981, Ex-P-1, executed by the administrator New Delhi Municipal Committee, and countersigned by the new Delhi Municipal Committee, in favour of the plaintiff-company. Accordingly, statements of the counsel for the New Delhi Municipal Committee have been recorded in respect of the settlement that has been arrived at between the plaintiff and the New Delhi Municipal Committee. Mr. D.R. Mahajan, counsel for the plaintiff company, has stated that the allotment in regard to the land in question made by the Union of India in favour of the New Delhi Municipal Committee has since been accepted by the said Committee and in the circumstances "it is the Committee alone which is competent to create the licence in favour of the plaintiff company and no relief is, therefore, sought against defendant No. 2 and in fact, none can be sought. Mr. Choudhry has stated that the land in question has been allotted by the Union of India in favour of the Committee and the allotment has been accepted by the said Committee.
The claim in the alternative for damages has been given up. Specific performance is sought in regard to various obligations appurtenant to the licence for constructing Five-star Hotel in terms detailed in the licence deed, ex. P-1. Relief of possession of land is also sought in terms of Section 22 of the Specific Relief Act, 1963. Accordingly, decree for specific performance and possession in respect of the land in question is hereby passed in favour of the plaintiff company and against the New Delhi Municipal Committee, defendant No. 1, in terms of the statements recorded today and the licence deed, dated 11 in March, 1981, Ex-P-1. The statements of the parties aforesaid and the licence deed would form part of the decree. Defendant No. 2 is now rendered proforma defendant. Parties to bear their own costs.
11th March, 1981 Sd/- O.N. Vohra,
Judge.
Thereafter the NDMC granted licence in favour of the assessee by executing a licence deed dated 11-3-1981. In the meantime on 1-12-1980 a sum of Rs. 50 lacs was paid and the balance of Rs. 95 lacs was agreed to be paid at the time of handing over of the vacant possession of the land by the NDMC to the assessee. This licence deed was for a period of 99 years. It was clearly stipulated that within a period of 12 calendar months from the date of the commencement of the licence agreement a public limited company was to be formed by the assessee and that company should apply to the NDMC within six months, thereafter, for the transfer of the licence to the said public limited company so constituted and that the NDMC should transfer the licence thereafter to the said public limited company. It was also made clear that the land for the construction of the 5-star Hotel would continue to be on lease with the NDMC in whom the building to be constructed would also vest. In other words, the assessee was to construct the hotel on the land belonging to the NDMC and hand over the building to the NDMC after the expiry of the licence period. By way of a facility it was made clear that the assessee would have the right to raise loans on the security of the structures, building and fixtures etc. It was also provided that the licensees shall not be at liberty in any way to underlet, sublet, encumber, assign or transfer their rights and interest or part with possession of the land and the building thereon to any person without the previous written consent of the NDMC. However, sub-licence of the property was permitted. Clause 14 of the licence deed made it clear that the assessee shall have a bare licence only to enter upon the piece of land to be allotted by the NDMC for the purpose of raising a building thereon and that nothing contained in the agreement should be construed as a demise in law of the said land by the NDMC.
3. According to the understanding and the provisions contained in the licence agreement, the assessee company floated another company under the name and style of M/s. Bharat Hotels Ltd. for the purpose of taking the charge of the hotel project and the licence in respect thereof. On 18-6-1981 an agreement was entered into between the assessee company and M/s. Bharat Hotels Ltd. stipulating for the transfer of the licence in favour of M/s. Bharat Hotels Ltd. Thereafter a request was made by the assessee to the NDMC to transfer the licence to M/s. Bharat Hotels Ltd. In the agreement entered into between the assessee and M/s. Bharat Hotels Ltd. on 18-6-1981 a brief history of the case was narrated and in Clause (a) it was provided :
1. Party No. 1 hereby transfers all its rights, title and interest in and arising out of the licence deed dated 11-3-1981 and in the aforesaid decree dated 11-3-1981 in favour of party No. 2, Paly No. 2 shall observe all the terms and conditions of the licence deed dated 11-3-1981 which shall be binding on party No. 2 and if party No. 2 had itself submitted the order referred to above to the NDMC and as if the licence deed has been entered into by the party No. 2 self with the NDMC.
In Clause (2) it was provided :
2. Party No. 2 shall construct a 5-star Hotel on aforesaid land in accordance with the terms and conditions in the aforesaid licence deed dated 11-3-1981. As a consideration for the transfer of the aforesaid licence, party No. 2 shall pay to party No. 1, by way of the goodwill, a sum of Rs. One crore and also give to the party No. 1 sub-licence of an area approximately 1,00,000 square feet in the proposed hotel, which is earmarked for shopping-cum-office-cum-commercial area besides Car Parking Space (hereinafter referred to as Shopping Complex). This sub-licence is in accordance with clause 30 of the licence deed dated 11-3-1981 and is given for the same period as mentioned in the licence deed dated 11-3-1981.
It was on 22-4-1982 that the N.D.M.C. transferred the licence in favour of M/s. Bharat Hotels Ltd., which agreement was agreed to be identically worded as that of the agreement of licence dated 11-3-1981. The NDMC had also in a letter addressed to the assessee company on 1-10-1981 conveyed the approval of the transfer of licence deed dated 11-3-1981 in favour of M/s. Bharat Hotels Ltd. in the following terms:
NEW DELHI MUNICIPAL COMMITTEE TOWN HALL, NEW DELHI No. 4710/P/ Dated 1-10-1981 The Managing Director, Delhi Automobiles Pvt. Ltd.
Hotel Division, 6, Tilak Marg, Sagar Apartments, New Delhi Sub : Transfer of licence deed dated 11-3-1981 granted in favour of M/s. Delhi Automobiles Pvt. Ltd. in respect of 5-star Hotel at Barakhamba Lane, New Delhi.
Dear Sir, Please refer to your letter No. BHL/1 dated 18-6-1981 and letter No. EEL/2/2/dated 24-7-1981 on the above cited subject. I am desired to convey the approval for the transfer of licence deed dated 11-3-1981 granted in favour of Delhi Automobiles Pvt. Ltd. in respect of Five Star Hotel site at Barakhamba Lane in favour of M/s. Bharat Hotels Ltd., a public company limited by shares formed in pursuance of clause No. 2 of the licence deed dated 11-3-1981 on the same terms and conditions as embodied in the licence agreement dated 11-3-1981. The draft licencedeed to be executed by M/s. Bharat Hotels Ltd. will be sent in due course.
Yours faithfully, Sd/-
(MAHESH CHANDRA GUPTA) SECRETARY
4. Now the question that arose before the Income-tax Officer was as to the treatment to be given to the sum of Rs. One crore agreed to be paid and actually paid by way of adjustment by M/s. Bharat Hotels Ltd. to the assessee company. The claim of the assessee before the Income-tax Officer was that this sum was received as and by way of goodwill and therefore not liable to tax at all. Since the receipt was towards goodwill, there was no question of charge of any capital gain as the asset transferred was not of such a nature for the acquisition of which any cost was incurred, so that it could be considered as capital asset for the charge of capital gains tax. In support of the view that there was no cost of acquisition for the assessee and therefore no capital gains tax could be levied, reliance was placed upon a decision of the Supreme Court in the case of CIT v. B.C. Srinivasa Setty (supra). It may also be stated here that M/s. Bharat Hotels Ltd. had reimbursed for the expenses it incurred, which was quite substantial sum. It was pointed out that the reimbursement of these expenses could not be related to any cost in the acquisition of the goodwill.
5. The Income-tax Officer was, however, of the opinion that the assessee did incur cost in the nature of legal expenses, interest, etc. in a sum of Rs. 5,50,000 in acquiring the capital asset. The Income-tax Officer also analysing the hotel project account came to the conclusion that considerable amounts were spent in respect of this project and it was therefore not correct to say that for obtaining the rights by way of licence the assessee company had not incurred any expenditure. He rejected therefore the theory of the assessee acquiring goodwill at no cost. He was further of the opinion that the assessee acquired the licensing rights from the N.D M.C. on 11-3-1981 at a cost of Rs. 4,52,163. As this licensing right acquired by the assessee on 11-3-1981 was transferred to M/s Bharat Hotels Ltd., on 18-6-191,1, the gain that arose of Rs. One crore was a short-term capital gain. Deducting from the sum of Rs. One crore, the expenditure incurred, which he estimated at Rs. 4,92,163, he treated the balance of Rs. 95,77,337 as short term capital gain liable to tax. The Income-tax Officer was also of the opinion that in the alternative, the receipt in question was a revenue receipt and the profit earned was in the course of an adventure in the nature of trade because according to the Income-tax Officer having regard to the facts and circumstances of this case, the object of the assessee was to acquire the licence with the intention of selling it or transferring it in the course of its activity to another company and therefore the whole transaction amounted to an adventure in the nature of trade. But his emphasis was not so much on the taxing of the sum in question as income from an adventure in the nature of trade as it was as a short term capital gain. The theory of adventure in the nature of trade was adopted as an alternative argument by the Income-tax Officer to bring the above sum to tax.
6. The matter was then taken to the Commissioner (A). It was argued before him that as "goodwill" it was not liable to tax as there was no cost of acquisition and alternatively even if it was liable to tax as capital gains, it should be treated as long term capital gain on the ground that the assessee acquired the right of licence in 1977 when a valid contract between the assessee and the NDMC came into existence and that what took place in 1981 was only a declaration by way of formalisation of the right already acquired in 1977 at the behest of the High Court order and that even High Court order did not create a right for the first time. It was then the NDMC failed to perform its part of the contract, the assessee was compelled to go to the High Court seeking specific performance of the contract and the decree passed by the High Court granting specific performance and possession of the land did not create rights in the assessee for the first time so as to say that those rights were transferred within a period of 36 months stipulated in the Income-tax Act so as to term it as a "short term capital gain". The Commissioner (A) held that the sum in question could not be termed as a consideration for the transfer of goodwill because there could be no goodwill in a business, which was yet to commence. As no business had commenced in this case, there could be no goodwill. He therefore rejected the argument based upon goodwill. He also held that the amount received also was not a consideration for licence as the assessee was not in fact or in law, competent to hold or transfer the rights. According to him the right to hold or transfer the licence did not at any point of time vest with the assessee and therefore no consideration could possibly be received for a so-called transfer of the licence. According to the Commissioner (A) the assessee acquired a vested right in the contract for the specific performance and it was only after the settlement and the Court decree enhancing the licence fee substantially and after the formation of a separate limited company, that the assessee acquired some right. This right was acquired by the assessee when the offer by the assessee and its acceptance by the NDMC was completed and ratified on 22-3-1977. On a consideration of the facts and circumstances of the case, the Commissioner (A) held that the asset, namely, the right to obtain licence which was transferred, was acquired by the assessee on 22-3-1977 and its transfer in 1981 for a consideration resulted in a long term capital gain and this capital gain should therefore be subjected to tax as long term capital gain. As the assessee incurred some expenditure in acquiring this right, that expenditure should be quantified and be allowed as a deduction in computing the long term capital gain. The Commissioner (A) did not accept the alternative contention of the Income-tax Officer that the profit was in the course of an adventure in the nature of trade.
7. Both the assessee and the department preferred appeal against the order of the Commissioner (A). The assessee contended that the amount in question could not be a business income nor could it be brought to tax as capital gains, much less as long term capital gains. The emphasis of the assessee was that the asset in question was acquired not in 1981 but in 1977 and as there was no cost of acquisition of that asset, that asset should be regarded as goodwill and any amount received for the transfer of goodwill should not be brought to tax on the authority of the decision of the Supreme Court in the case of B.C. Srinivasa Setty's case (supra). The Revenue, on the other hand, contended that it was clearly business income, that there was an adventure in the nature of trade, which was fully demonstrated by the efforts the assessee has put in to acquire the licence and to promote another company to take over for consideration. In any case it was not a long term capital gain, inasmuch as, the assessee acquired the right of licence and obtained the possession of the property in question only as a consequence of the decree passed by the High Court on 11-3-1981 and the transfer thereafter to another company M/s. Bharat Hotels Ltd. on 18-6-1981 fell within the period stipulated for short term capital gains. The Commissioner (A) should not have held it to be a long term capital gain. It was also emphasised that the right that remained with the assessee prior to the decree passed by the High Court was only an inchoate right which did not vest in the assessee any tangible asset. It was also contended having regard to the facts that the acquisition of this licence did cost the assessee substantially. These were the main arguments addressed before the Tribunal.
8. The learned Accountant Member in a very elaborate order discussed the various aspects of the matter and agreed that the sum of Rs. One crore was not received by the assessee in the course of any adventure in the nature of trade but was received as consideration for the transfer of a short term capital asset in the shape of licence granted to the assessee on 11-3-1981. He also held that the acquisition of this licence costed the assessee some money and it was not right to say on behalf of the assessee that this acquisition of licence did not cost any expenditure. I have earlier mentioned that on 18-6-1981 there was an agreement between the assessee and M/s. Bharat Hotels Ltd. transferring the licence and the NDMC had finally granted the licence to M/s. Bharat Hotels Ltd. in April 1982. The learned Accountant Member held that notwithstanding the grant of licence by the NDMC to M/s. Bharat Hotels Ltd. in April 1982, there was a complete transfer of the licence from the assessee to M/s. Bharat Hotels Ltd. on 18-6-1981 so as to constitute a short term capital gain.
9. But the learned Judicial member did no agree with this view. After tracing the entire history of the case ending with the decree passed by the High Court and the agreement entered into by the assessee with M/s. Bharat Hotels Ltd. and the transfer of licence by the NDMC to M/s. Bharat Hotels Ltd., the learned Judicial Member held that there was nothing on record to show that the NDMC did ever own or possess the land in question and that nobody verified the title much less the rights of the NDMC. He was further of the opinion that since the licence fixed the annual premium of more than Rs. 100 and it related to immovable property, it operated to create, declare and assign the rights in the immovable property and therefore the matter fell within the meaning of Section 17(7) (b) of the Indian Registration Act and since it was not registered, there could not be any transfer by any party to any party. By referring to the grounds of appeal filed before the Tribunal, particularly ground No. 2, where the department objected to the order of the Commissioner (A) by stating that ownership was not transferred because there was no registered deed, the learned Judicial Member observed that in the absence of a registered deed there could not be acquisition of any right or asset by the assessee on 22-3-1977. He was also of the opinion that transfer of a capital asset for the purpose of capital gain in terms of Section 2(47) of the Income-tax Act, 1961, meant effective conveyance of the capital asset to the transferee and that transfer was to be read in the light of the decisions of the Supreme Court in the cases of Bhurangya Coal Co. (supra), Alapati Venkataramiah (supra) and Nawab Sir Mir Osman Ali Khan (supra). Mere delivery of possession of immovable property could not by itself be treated as equivalent to conveyance of the immovable property. Therefore the date of accrual of capital gain has to be taken to be the date when the transfer takes place and in this context the entries in the accounts were irrelevant. He then referred to several decided cases in support of the above view. By referring to Section 56 of the Transfer of Property Act, and Section 60 of the same Act, the learned Judicial Member held that a licence does not entitle the licensee to sue anybody in his own name. It is revocable by the grantor of the licence and it stands determined when the grantor makes an assignment of the subject-matter.
Thus when a licence could be revoked by the grantor, there was no right according to him in the assessee to assign the licence much less transfer it to M/s. Bharat Hotels Ltd. Thus no capital gains according to him arose on the facts of this case. By tracing the entire events that led finally to the formation of M/s. Bharat Hotels Ltd. and the transfer of licence to it, the learned Judicial Member opined that it was the intention of the assessee right from the inception to act as a benami for M/s. Bharat Hotel Ltd. and in such an event the question of transfer could not arise. He said that this kind of a transaction was not the one covered by the word "transfer" as defined in Section 2 (47) of the Income-tax Act, 1961. He eventually held that the sum in question could not be regarded as revenue receipt and could not therefore be treated as income much less as capital gain, He thought it fit to set aside the assessment, restore the file to the Assessing Officer for doing the exercise all over again. Thus the difference of opinion arose.
10. As I pointed out earlier the difference of opinion was couched in such a broad and at the same time restricted way that I have to decide first whether there is a capital asset and whether such a capital asset was transferred giving rise to capital gain and whether such capital gain was short term or long term or the matter should be referred back to the Revenue authorities for fresh adjudication as opined by the learned Judicial Member. Even though the question states whether the consideration received on the transfer was a short term capital asset and was to be charged or not as short term capital gain. Implicit in this question is also the point whether if it was not short term capital gain, whether it was long term capital gain.
11. I have heard very carefully the elaborate arguments addressed to me by the learned representative for the assessee Shri S.L. Batra and the arguments of Shri Amitabh Kumar for the department. As is to be expected, they relied upon those orders of the Members which supported their respective views.
12. I would like to deal first with the question whether the matter needs to be sent back to the authorities below for fresh examination. As I mentioned in my summary of the order of the learned Judicial Member, he was of the opinion that the licence deed required registration under Section 17 of the Registration Act. The distinction between a licence and a lease is now very clear. The cardinal distinction between a lease and a licence is that in a lease there is a transfer of interest in land within the meaning of Section 105 of the Transfer of Property Act whereas in the case of a licence, there is no transfer of interest in or to the land although the licencee acquires the right to occupy the land if the effect of the instrument is to give the holder an exclusive right of occupation of the land. It is in law not a demise of the land itself. The licence is defined not in the Transfer of Property Act but by Section 52 of the Indian Easements Act V of 1881 as :
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 distinction thus between a licence and a lease is that a licence does not create an asset or interest in the property to which it relates. In the Transfer of Property Act, Seventh Edition by Shri H.R. Khanna and Shri P.M. Bakshi at page 650, it is pointed out:
There is no simple it must test for distinguishing a lease from a licence. The character of the transaction turns on the operative intent of the parties. If interest in immovable property, entitling the transferee to its enjoyment, is created, it is a lease, if permission to use the land without the right to exclusive possession is alone granted, the transaction is a licence.
It is the creation of an interest in immovable property or aright to possess it that distinguishes a lease from a licence. For the purpose of deciding whether a particular transaction is a lease or a licence, the question of intention of the parties is to be determined, and the intention has to be inferred from the circumstances of each case. It is essential, therefore, to look to the substance and essence of the agreement, and not merely to the form ... Where the licensee acting upon the licence, executes permanent works and incurs expense, the licence cannot be revoked by the grantor if the grantor stands by and allows the licensee to do such acts in the belief that he has a rigty to do so.
Bearing in mind these principles, it is to be decided whether the transaction in this case is a licence and if so whether it created any interest in the immovable property requiring registration under Section 17 of the Registration Act. Section 17 of the Registration Act provides for compulsory registration in the following circumstances :
17. Documents of which registration is compulsory.-(1) The following documents shall be registered, if the property to which they relate is situate in a district in which, and if they have been executed on or after the date on which, Act, XVI of 1864, or the Indian Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian Registration Act, 1877, or this Act came or comes into force, namely-
(a) instruments of gift of immovable property;
(b) other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property;
(c) non-testamentary instruments which acknowledge the receipt of payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest; and
(d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent; and
(e) non-testamentary instruments transferring or assigning any decree or order of a court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property;
A reading of the section shows that the documents which require registration are such that purport or operate to create, declare, assign, limit or extinguish whether in present or in future any right, title or interest, whether vested or contingent of the value of one hundred rupees and upwards to or in immovable property. Now a licence by definition does not create, declare, assign (licence is not assignable) limit or extinguish whether presently or in future any right, title Or interest to or in immovable property. As we have seen a licence is only 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 a right be unlawful. Since the licence does not create any estate or interest in the property, a licence does not need registration unless the creation of a licence or the grant of it would amount to a lease. Whether a transaction is a licence or a lease, the intention of the parties has to be gathered and it has to be gathered from surrounding circumstances. Here the surrounding circumstance is none else than the offer made by the NDMC was accepted by the assessee as license and agreements of license dated 11-3-1981, 18-3-1981 and 23-4-1982. Though the relevance of these documents and the purpose for which they were executed is to be separately stated, all these documents specifically in terms mention and create only a licence and what is more they declare in unequivocal terms that the documents do not create a "lease" and never to be understood as a "lease" and that the licencee i.e. the assessee would only have the right to enter upon the land, which shall continue to belong to the NDMC for the purposes of constructing a five-star hotel and it further provided that the super-structure raised thereon shall also vest and continue to vest in the NDMC the only right of the assessee being to exploit the hotel during the period of licence. Further as we have seen the decree passed by the High Court, which I have reproduced above, clearly shows that a licence deed dated 11-3-1981 was produced by the administration of the NDMC before the court executed in favour of the assessee-company and that it was specifically pointed out therein that it was agreed before the High Court by the NDMC that it was the NDMC which was competent to create a licence in favour of the assessee. The High Court judgment also referred to the whole transaction as a licence for constructing a five-star hotel in terms detailed in the licence deed. The High Court passed the decree against the NDMC in terms of the submissions recorded in the licence deed dated 11-3-81. The judgment further stated that the licence deed would form part of the decree. From these circumstances, it cannot but be said that the transaction is a licence and since a licence does not create any right, title or interest to or in the immovable property, it does not come within the definition of Section 17(1)(b) of the Indian Registration Act so as to require compulsory registration. Section 17(1)(d) of the Registration Act does provide that leases of immovable property from year to year or for any term exceeding one year for reserving a yearly rent shall have to be registered. Since the document in question is not a lease deed but only a licence, this is my opinion and as per the settled law as far as I could lay my hands upon, does not require any registration, unless to repeat the document is held to be a lease of immovable property, which is not the case of either of my colleagues in this case or of the department at any stage or now before me. So the question of the document requiring registration coming in the way of transfer does not seem right and therefore it is difficult to agree with the view expressed by the learned Judicial Member on this aspect. Nor I am able to agree with him that the NDMC ever possessed the land in question and therefore the NDMC was not the owner of the land so as to be able to transfer it to the assessee. To come to this view, I rely only upon again the judgment of the High Court dated 11-3-1981, which was extracted above. In this judgment one of the parties to the judgment was Union of India. The judgment proceeds to record that Mr. H.R. Mahajan counsel for the NDMC had stated before the High Court that the :
allotment in regard to the land in question made by the Union of India in favour of the New Delhi Municipal Committee has since been accepted by the said Committee and in the circumstances it is the Committee alone which is competent to create the licence in favour of the plaintiff company and no relief is, therefore, sought against defendant No. 2 and in fact, none can be sought. Mr. Choudhry has stated that the land in question has been allotted by the Union of India in favour of the Committee and the allotment has been accepted by the said Commitee.
This shows very clearly that the land in question was allotted to the NDMC by the Union of India and such allotment by the Union of India in favour of the NDMC must set at rest all doubts in regard to the rights that NDMC had over this property. The NDMC had become the lessee of this land as a consequence of the allotment and such allotment under Section 17(2)(vii) of the Registration Act does not require any registration. In any case in view of the submissions made by the counsel for Union of India and the NDMC before the High Court and the judgment passed by the High Court in the above terms, it is no more open to doubt that NDMC has no right over the property so as to create an effective licence in favour of the assessee. Another point that was mentioned by the learned Judicial Member, with which again I am unable to agree was that delivery of possession of the immovable property could not by itself be treated as equivalent to conveyance of the immovable property. Here the possession of the property in question was given by the NDMC to the assessee on 11-3-1981 pursuant to the licence deed executed on a Non-Judicial Stamp Paper of Rs. 2, again pursuant to the judgment of the Delhi High Court on the suit filed by the assessee for the specific performance. The suit for the specific performance filed was in particular to hand over immediate physical possession of the hotel site in Commercial Complex at Barakhamba Lane, New Delhi or in the alternative for the payment of damages in the sum of Rs. 64,40,000. It is. further to be noted that on 10-2-1981 the counsel appearing for the Union of India informed the High Court that the Government had decided to allot the land in question to the NDMC. It was on 11-3-1981 that the suit filed for specific performance was decreed in favour of the assessee and physical possession was handed over to the assessee and a licence deed was executed providing for various terms and stipulations. So it is not a question of mere delivery of the possession of the immovable property but it is a deli very of the possession of the immovable property pursuant to the decree passed by the High Court granting specific performance to the assessee followed by the execution of the licence deed, which do not in my opinion require registration. The sequence of events had completed the transaction of transfer and it cannot therefore be said that the transfer still did not take place within the meaning of Section 2(47) of the Income-tax Act, 1961. In my opinion reference to Section 56 of the Transfer of Property Act and to Section 60 they are not relevant for the present issue. Merely because a right exists in the grantor of the licence to revoke the licence, it does not mean that the licence was revoked and the grantor had made an assignment of the licence violating the terms of the licence and the law relating thereto. Existence of power in the grantor is different from exercising that power. Here the power of revocation was not exercised by the grantor, namely, the NDMC therefore it cannot be said that there was no transfer and consequently no capital gain at all. Nor can it be fruitfully argued that the assessee acted all along as a benami for M/s. Bharat Hotels Ltd. and therefore no transfer of licence had taken place from the NDMC to the assessee. The events mentioned above rule out this suggestion altogether. Now I may add that in so far as the intention of the department was concerned, namely, that the sum in question was a revenue receipt arising in the course of an adventure in the nature of trade, there was no disagreement between my learned brothers on this point. Both the Members have agreed unequivocally that there was no adventure in the nature of trade. Therefore the question of treating the receipt in question as a revenue receipt does not arise. To this extent I may say that I am in agreement with the view expressed by the learned Judicial Member, although it was in a different context in the sense that there was no disagreement about this matter between the Members. In the light of what I have expressed above, I do not find any reason, justification or purpose to set aside the assessment and send the case back to the revenue authorities for fresh adjudication. All the points on which the learned Judicial Member expressed doubts stand already clarified in the orders, supported by proper evidence and law.
13. Before I take up the points expressed by the learned Accountant Member, I would like to dispose of the preliminary point, namely, whether there is an asset capable of being transferred giving rise to a capital gain. First on this, I did not find any disagreement between the Members for between the learned Departmental Representatives and the learned representative for the assessee. Both the representatives, who appeared before me agreed in unambiguous terms that the transaction in this particular case involved an asset and that asset was transferred giving rise to a capital gain. In view of this agreement, I do not propose to go into the question as to whether there was a capital asset or not except to state in one sentence that the interest that the assessee acquired by entering into this transaction with NDMC is a property within the meaning of Section 2(15) of the Income-tax Act, 1961, capable of being transferred. In fact it was transferred. Therefore, I will leave that question at rest.
14. The significant point which needs to be disposed of at this stage is namely, was there a concluded contract between the assessee and the NDMC and if so at what point of time that contract came into existence. On this finding depends the question whether the transfer gave rise to a long term capital gain or short term capital gain. The department contends that the contract came into existence on 11-3-1981 whereundcr the assessee became the owner of the right of licence, which is transferred to M/s. Bharat Hotels Ltd. on 18-6-1981, which gave rise to capital gains and as the period during which this capital asset was held was less than 36 months, it was only a short term capital asset whereas the assessee contends that the contract came into existence on 22-3-1977 and therefore what was transferred on 18-6-1981 was long after the period of 36 months and therefore along term capital asset. This question can be answered in two ways, one direct and one indirect leading to the direct. The direct is the decree passed by the High Court granting specific performance. The suit filed by the assessee against NDMC was for specific performance of the obligations that NDMC had undertaken to fulfil but did not fulfil, namely giving physical possession of the hotel site in the Commercial Complex at Barakhamba Lane or in the alternative to pay damages. The High Court granted specific performance in the terms of licence deed dated 11-3-1981 and Section 22 of the Specific Relief Act. By the passing of the decree for specific performance directing handing over possession of the land in question proves, that there was a concluded contract between the assessee-company and the NDMC as otherwise a suit for specific performance under the Specific Relief Act, 1963 would not lie. Section 9 of the Specific Relief Act clearly provides :
9. Defences respecting suits for relief based on contract-Except as otherwise provided herein, where any relief is claimed under this Chapter in respect of a contract, the person against whom the relief is claimed may plead by way of defence any ground which is available to him under any law relating to contracts.
The words "in respect of a contract" go to suggest that this section is applicable only where a relief is claimed in respect of a concluded contract and it will have no application to cases where there is no contract. So unless there is a concluded contract within the meaning of the Indian Contract Act, the suit before the High Court for specific performance would have no legs to stand. A concluded contract would imply that there was an agreement involving an offer, which is valid and an acceptance which is again valid. There is a difference between an agreement and negotiations. There may be some period of negotiations in which suggestions and counter-suggestions are made. Then there may be an agreement. The parties either settled the matter finally or postponed it until some other event. In a suit for specific performance it is therefore important to distinguish between a negotiation for agreement and an agreement. If the agreement is a complete bargain, then only Specific Relief Act can be invoked but if it is only a provisional arrangement, no relief can be asked for or given under the Specific Relief Act. Whether an agreement is a complete bargain or merely a provisional arrangement depends upon the intention of the parties deducible from the language used by the parties on the occasion of the negotiations. Here the events that led to the passing of the decree by the Hon'ble High Court on 11-3-1981 do indicate that there was a concluded contract between the parties and it was only when the NDMC failed to perform its obligation namely, handing over of the possession of the land in question that the assessee was forced to seek relief from the High Court compelling the NDMC to perform its part of contract. It is therefore incorrect to state there was no concluded contract till the High Court passed the decree on 11 -3-1981. The decree passed by the High Court was only for due performance of the contract by the NDMC which it failed to perform, which showed that there was a contract between the parties, a contract enforceable at law entered into prior to 11-3-1981. It only declared the prior existing legal relationship. Unless such a contract existed, a suit for specific performance would not have lied and the High Court would not have passed the decree granting specific performance of the contract. This much is clear from the judgment passed by the High Court of Delhi.
15. Now the question is at what point of time this contract came into existence. The necessary material for this was again available before the High Court, which enabled the High Court to pass the decree. The evidence was in the form of a plaint by the assessee filed in the High Court wherein in paragraphs 7, 8 and 9 the assessee in very clear terms pointed out that its offer for a sum of Rs. 37,78,296 per annum as licence fee being the highest offer was accepted by the NDMC, that the NDMC in the meeting held on 23-6-1976 passed a resolution to that effect accepting the offer of the assessee and later on in another meeting held on 23-3-1977 passed a specific resolution No. 112/76-77 wherein it ratified the action that had been taken earlier. It was further pointed out that the fact that a resolution was passed on 23-3-77 was evident from the minutes circulated by the NDMC. In a statement recorded on 11-3-1981 by the Hon'ble Judge of the High Court of Delhi, the advocate on behalf of the assessee clearly pointed out that there was an agreement between the assessee and the NDMC whereby a licence was created by the NDMC in favour of the assessee in respect of the land in suit and that licence was for a period of 99 years and that the terms and conditions of the licence were contained in the licence deed, which was executed and a true copy of which was Ex. P-1 and the suit filed by the assessee was for specific performance of the obligations namely executing the document and giving physical possession and in the alternative for claim for damages. It was also stated that a settlement between the parties was reached as a consequence of which the claim for damages was given up and the relief was confined to the grant of specific performance of the contract and handing over of the possession of the land. The advocate on behalf of the NDMC had agreed before the Hon'ble Judge in the High Court with the statement made by the assessee counsel and further agreed in specific terms that Ex.P-1 was a licence deed duly executed between the assessee and the NDMC. He specifically acknowledged the execution of the licence deed on behalf of the NDMC and he requested the Hon'ble to pass a decree for specific performance and possession of the land in terms of the compromise. The agreement by the advocate of the NDMC with the contentions raised in the plaint and the execution of the licence deed, which was Ex.P-1, which ratified the prior existing relationship clearly show that the offer made by the assessee on 10-3-1977 was accepted by the NDMC. The entire correspondence that took place between the assessee and the NDMC and the copies of the plaint etc. were all reproduced in the order of the learned Judicial Member, which 1 do not wish to reproduce again. Suffice it to say that the sequence and the acknowledgement by the NDMC do indicate that the offer made by the assessee was accepted by the NDMC but NDMC delayed handing over of the possession of the site to the assessee, which compelled the assessee to seek help of the High Court for specific performance of the contract. In the meantime a settlement was reached by which the licence fee, which was originally fixed at Rs. 38 lacs had substantially been increased to Rs. 1.45 crores. It can be argued that since the licence fee was increased from 38 lacs to Rs. 1.45 crores, a new agreement came into existence and the earlier agreement was given a go-bye but the point to be seen is the earlier agreement came into existence on 23-3-1977 on terms and conditions mentioned in the licence deed. When NDMC delayed handing over of the possession of the site, fresh negotiations started, which culminated in enhancement in the licence fee. Even if it is argued that was a second contract, the right that the assessee has acquired, namely, to have the licence granted in its favour arose under the first contract and that contract not having been rescinded or revoked, that must be given effect to and subsequent contract if at all there is any is only an improvement over the earlier contract but not a new contract altogether in the sense that it was only on the date of settlement that the assessee acquired the right for the grant of the licence. The assessee acquired the right for the grant of the licence as soon as it conveyed the offer of licence fee of Rs. 38 lacs to the NDMC and the NDMC accepted it by passing a resolution on 23-3-1977. It may be argued that the resolution accepting the offer of the assessee was not conveyed to the assessee and therefore there was no firm acceptance and consequently no enforceable contract came into existence. If that were the position, the advocate on behalf of the NDMC, would not have agreed in the High Court about the contents in the plaint. It was the earlier licence deed that was executed as Ex.P-1, that was finalised with the same terms and conditions with the increased licence fee. This shows that acceptance was complete. On these facts I find it difficult to say that the contract came into existence only on 11-7-1981 when the High Court passed the decree and not earlier the facts of this case and the correspondence referred to above do lead one to the conclusion that an enforceable contract came into existence as early as on 23-3-1977. Thus all the circumstances of the case do lead to the inevitable conclusion that the contract for the grant of licence was conducted between the parties on 23-3-1977 although subsequently on account of disputes raised by the NDMC or for any other reason, which was not disclosed to us, the licence fee got enhanced to the present figure of Rs. 1.45 crores. In this context reference may be made to Section 3 of the Contract Act, which provides for the communication of the acceptance and the revocation of proposals. It says :
The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively are deemed to be made by any act or omission of the party proposing, accepting or revoking by which he intends to communicate such proposal, acceptance or revocation, of which has the effect of communicating it.
Section 4 of the Contract Act provides as to when communication is complete. It says:
4. Communication when complete. - The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
The communication of an acceptance is complete,-as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor;
as against the acceptor, when it comes to the knowledge of the proposer.
** ** ** It is therefore clear from this section that a communication is complete as against the acceptor, i.e. the NDMC, when it comes to the knowledge of the proposer i.e. the assessee. The assessee has come to the knowledge of the acceptance by the NDMC by the resolution dated 21-3-1977, which it mentioned in the plaint and which was not disputed by the NDMC and on the other hand it accepted it. It cannot therefore in my opinion be said that no valid contract came into existence on 23-3-1977 and that a valid contract came into existence only when a settlement was reached after the proceedings reached the High Court for final adjudication. Section 5 of the Contract Act provides for revocation of proposals and acceptances. It says: "A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.
An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.
The acceptance by the NDMC by the resolution dated 22-3-1977 was not revoked at any time. Therefore it cannot be said that the acceptance of the proposal made by the assessee was revoked by the NDMC. One can understand that the contract was not concluded on 23-3-1977 if there is evidence to show that the NDMC made a counter proposal in which case it could be said that the parties had not assented to the same terms and therefore they prevented the formation of a contract. Nor can it be said that this is a contract of novation. A contract of novation (Section 62 of the Contract Act), which is a mode of performance of a contract comes into being if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, so that the original contract need not be performed. For a contract of novation to result, it is therefore essential that the parties to the contract must agree to substitute a new contract for it or alter it in such a way that the original contract need not be performed. Thus an agreement to substitute a new contract for the old one is a matter of evidence and therefore a question of fact. There is nothing on the record to show that such a new contract had come into existence in place of the old one till a settlement reached between the parties was filed in the High Court that too in the suit filed for specific performance of the contract. After the suit for specific performance was filed in the High Court, there might have been a settlement but still the High Court passed only a decree for specific performance of the contract already entered into by directing the NDMC to hand over possession instantly to the assessee. This means that a concluded contract already entered into was not cancelled but only a breach was committed on the part of the NDMC. Having regard to these circumstances, I am of the opinion that a valid contract had come into existence on 23-3-1977 between the assessee and the NDMC and when the NDMC failed to perform its part of the contract, namely, handing over of the possession of the site to the assessee, a breach of contract was committed by it and that the assessee was compelled to approach the High Court for redress and eventually got a decree for specific performance of the contract by which the assessee got the possession of the site but agreeing to pay a higher amount of licence fee. If there had been evidence to show that the NDMC was demanding a higher licence fee from the assessee and for that reason declined to hand over the possession of the site to the assessee, the position would have been different. That not being the case here, I am inclined to agree with the contention canvassed on behalf of the assessee that the contract in this case came into existence only on 23-3-1977. I am therefore unable to agree with the view expressed by the learned Accountant Member that the assessee acquired the right to get the licence only on 11-3-1981 and not earlier. For this view, he relied only on the licence deed dated 11-3-1981. It is not doubt true that the licence deed had provided that the licence fee shall be payable from the date of handing over possession of the said plot of land to the licensee but there is nothing to indicate in the document that the licence was being given only from that day except that it suited that the agreement of licence was made at Delhi on 11-3-1981. That docs not mean that the licence was not created in favour of the assessee prior to that date although no formal deed was executed and possession obtained. On the other hand the preamble shows that there were negotiations even earlier to 11 -3-1981. There was a resolution passed by the assessee on 25-11-1980 authorising Shri Lalit Suri S/o Late Shri Udho Ram Suri to execute the licence on behalf of the assessee. There was no deed for a resolution to be passed on 25-11-1980 authorising the Managing Director to execute the deed of licence unless there was a licence deed at that time. This shows that the issue of licence was not disputed. The second point is on 1-12-1980 the assessee paid Rs. 50 lacs towards the licence fee and this payment also would not have been made unless the grant of licence was agreed upon earlier. The circumstances that led to the execution of the licence deed which I have referred to above, were not referred to by the learned Accountant Member in coming to the conclusion to which he did. Therefore it is difficult to agree that the assessee acquired the right to the licence only on 11-3-1981 and not earlier. What actually happened on 11-3-1981 was as a consequence of the decree passed by the High Court, the possession of the land was given to the assessee and the assessee had agreed to enhance the licence fee to Rs. 1.45 crores.
16. The learned Departmental Representative submitted in the course of his arguments that the transaction in this case was not a lease but only a licence and it does not require registration. I also agree with this view but his point was that it was the NDMC alone, who was competent to create the licence and it created the licence only on 11-3-1981 and not earlier and therefore the contract must be deemed to have come into existence only from that day. For the reasons given above, I am unable to agree with this view. His point was that there was a counteroffer or a counter proposal by the NDMC and therefore the earlier proposal made by the assessee followed by the payment of money could not have resulted in a valid enforceable contract. He further argued that there was no unconditional acceptance by the NDMC because the subject-matter of the contract had varied in such a way that the licence fee from a meagre sum of Rs. 38 lacs had gone up to 1.45 crores. Since the subject-matter as it originally existed had been materially changed, no contract could have come into existence. It was the fresh offer made by the NDMC that was accepted by the assessee and therefore the contract had come into existence only on 11-3-1981 and not earlier. I have discussed this matter elaborately above and for the reasons given above I find myself unable to accept these contentions. The second fact that was mentioned in the plaint filed before the High Court was that on 23-3-1977 the NDMC had accepted and ratified the offer of the assessee by resolution and that fact was not disputed by the NDMC and on the contrary it was accepted and was acknowledged. This shows that there was no counter offer made by the NDMC but on the contrary there was only a breach of contract, which forced the assessee to agree to pay enhanced licence fee. It is therefore difficult to accept that what was transferred by the assessee to M/s. Bharat Hotels Ltd. on 18-6-1981 was only the right that came to the assessee only on 11-3-1981 and not earlier. In my view the right that was transferred to M/s. Bharat Hotels Ltd. on 18-6-1981 was the right that the assessee acquired in March 1977. Therefore, reckoning from that date, the capital gain that arose could be a long term capital gain and not a short term capital gain.
17. The question whether the consideration passed was for goodwill or not, though was debated before the Bench, was slightly touched upon before me by the parties during the course of arguments. Since that was not a point of difference of opinion referred to me, I should have refrained from expressing an opinion on that. Nevertheless since it was debated before me I should say that I find it difficult to say that goodwill was attached only to the business and not to a business site. A business acquires goodwill as much for the location as it is for the management, reputation, faith and trust of the clientele. Had it not been for the location, a huge sum of Rs. 1.45 crores would not have been agreed to be paid as licence fee and that too annually for a period of 99 years. Be that as it may, I do not want to go into that question at the present moment in any detail. The learned counsel for the assessee argued that when the Members had stated in the point of difference of opinion that whether the consideration passed for the transfer was a short term capital gain or not, included in it is the question whether it was exempt from tax altogether on the ground that it was goodwill. But I do not think that the issue was covered in that manner by the question framed by the learned Members.
18. In conclusion, my opinion on the point of difference of opinion referred to me is that the learned Accountant Member was not right in saying that the consideration received by the assessee for the transfer was for a short term capital asset and therefore the amount in question was to be taxed as short term capital gain. There is no need for setting aside the order of the assessing officer for a fresh adjudication of the matter in terms of the directions recorded in the order of the learned Judicial Member.
19. The matter will now go before the regular Bench for deciding the appeals in accordance with the opinion of the majority.