Income Tax Appellate Tribunal - Delhi
Assistant Commissioner Of Income Tax vs Girish Chander Sharma on 30 August, 2005
Equivalent citations: (2006)104TTJ(DELHI)220
ORDER
Vimal Gandhi, President
1. This appeal by the Revenue for asst. yr. 1998-99 is directed against order of CIT(A) deleting addition of Rs. 30 lakhs received from landlord for vacation of premises at 152, Golf Links, New Delhi. The AO assessed the amount under the head "Capital gains" whereas CIT(A) held it to be a capital receipt not liable to tax.
2. The facts of the case are that assessee is lawyer by profession and had been representing and guiding M/s Gedore Tools (P) Ltd. [now named M/s Jhalani Tools (I) Ltd.] for the past several years. For utilizing retainership services in a better manner, above company allowed the assessee to occupy ground floor of above premises, as per letters/agreement dt. 5th Aug., 1977. Copy of above agreement is available on record and is also reproduced in the impugned orders. The assessee continued to occupy these premises till April, 1997 when he was persuaded by Jhalani Tools (I) Ltd. not to obstruct the surrender of premises to Shri T.R. Anand, who had purchased the property from original owner Mrs. N.D. Khanna and had stepped into the shoes of the owner in eviction proceeding initiated before the Court in Delhi. A surrender deed was accordingly submitted in the Court based on an understanding recorded in the memorandum dt. 3rd April, 1997. A copy of above memorandum is available at pp. 33 to 36 of paper book. Copy of surrender deed between M/s Jhalani Tools (I) Ltd. and the landlord dt. 3rd April, 1997 is available at pp. 29 to 32 of the paper book.
3. The assessee filed return for the relevant period 1998-99 declaring total income at Rs. 22,72,814. In the course of assessment proceedings, a question relating to receipt of Rs. 30 lakhs in respect of Golf Links property was raised and assessee had claimed that above amount was received as compensation for discomfort and inconvenience caused to the assessee. The AO, after taking into account terms and conditions of the agreement, dt. 5th Aug., 1977 as also the submission of the assessee held that assessee was a sub-tenant of the premises for monetary consideration paid to the tenant and also in terms of services rendered for 20 years. Above sub-tenancy was a "capital asset" in terms of Section 2(14) of the IT Act. In the relinquishment/surrender of above tenancy rights a capital interest was transferred and, therefore, receipt of Rs. 30 lakhs was liable to be assessed under the head "Capital gains". Accordingly, above amount was charged to tax as capital gains under Section 45 r/w Section 55(2)(a) of the IT Act.
4. The assessee impugned above assessment in appeal before the CIT(A) and attention of the appellate authority was drawn to the terms and conditions on which premises was given by M/s Jhalani Tools (I) Ltd. to the assessee. The relevant terms noted by the AO and by the learned CIT(A) for disposal of matter are reproduced hereinbelow:
(i) Shri G.C. Sharma shall be provided furnished accommodation at 152 and 153, Golf Links, New Delhi, rented by the company where he shall have to stay for the purpose of rendering professional services to the company. The exclusive possession of these premises will always remain with us and our authorized representatives will have a right to inspect the premises whenever desired.
(ii) The company shall also provide secretarial assistance including law books and other literature, as would be necessary, to enable you to render promptly and efficiently the professional services required of you.
(iii) The company, if feasible, shall also provide you a telephone for the purpose of establishing constant contact with the Gedore Management.
Part II
(i) In consideration of the facilities provided by the company, as specified in Part I, you shall give first priority to the matters of the company entrusted to you as regards the legal advice sought and the appearance desired to be put on its behalf in any Court, Tribunal or before any other authority.
(ii) You shall not appear in any matter before any authority, Tribunal or Court against this company or any one of its directors.
(iii) Shri G.C. Sharma assisted by Shri Anoop Sharma appear, subject to just exceptions before any authority, Tribunal or Court in any matter in which the company considers their appearance necessary.
(iv) For such subsidized facilities and amenities provided to you as are specified in Part I, Shri G.C. Sharma and Shri Anoop Sharma shall make on an ad hoc basis payment of Rs. 36,000 (Rupees thirty-six thousand only) per annum and Rs. 24,000 (Rupees twenty-four thousand only) per annum, respectively to the company, preferably in four quarterly instalments of Rs. 9,000 (Rupees nine thousand only) and Rs. 6,000 (Rupees six thousand only) each, respectively.
(v) In consideration of the furniture, fittings, library and other materials provided to you by the company, Shri G.C. Sharma shall keep a sum of Rs. 30,000 as a fixed deposit with the company, to serve as security, on which he shall be entitled to receive interest @ 15 per cent per annum.
5. The assessee also drew attention of the learned CIT(A) to the tripartite agreement between the landlord, tenant M/s Jhalani Tools (I) Ltd. and the assessee dt. 3rd April, 1997 under which physical possession of the premises was handed over to the landlord and Rs. 30 lakhs were paid. The parties thereafter filed an application under Order 23, Rule 1 of the CPC before the Court to confirm the agreement and pass a decree accordingly.
6. The contentions of the assessee in short noted by the CIT(A) are as under:
(a) I was neither a tenant or a sub-tenant of the said premises at any time within the true meaning of the expression. I never paid any rent to anybody.
(b) I was simply in a representative occupation of the premises being a retained counsel of M/s Gedore Tools (P) Ltd. subsequently changed to M/s Jhalani Tools (I) Ltd. who were admittedly the tenants.
(c) I was paid a compensation of Rs. 30 lakhs for bearing inconvenience, discomfort and dislocation bound to be caused to me on immediate dis-occupation, as agreed upon by M/s Gedore Tools (P) Ltd. with Mr. T.R. Anand.
The assessee made further reference to Section 55 of IT Act to contend that compensation received even for relinquishing a tenancy was not regarded as a "capital gain" as tenancy rights were not a capital asset. Only through an amendment, such compensation was brought to be charged as capital gains. But in the present case, assessee claimed that he had no capital interest in the premises which could be transferred or relinquished. Therefore, question of charging receipt of Rs. 30 lakhs under Section 45 of IT Act did not arise. The possession of property as a retainer of M/s Jhalani Tools was not a capital asset as defined in Section 2(14) of the IT Act. The AO was wrong in taking the assessee as a sub-tenant. The assessee was occupying the premises merely as retainer of M/s Jhalani Tools who throughout remained the tenant of the premises. No interest in the premises was ever transferred or created in favour of the assessee. The assessee was merely a licensee to use the premises which could be terminated at the sweet will and pleasure of the tenant at any time. M/s Jhalani Tools (I) Ltd. never parted with the possession of the premises or made the assessee a subtenant. The assessee was not granted any right but had an obligation to perform by rendering services as a retainer from the premises itself for a fee. The exclusive possession of the premises always remained with the tenant, i.e., Jhalani Tools. All the above submissions advanced on behalf of the assessee are duly noted by the learned CIT(A). He also examined various clauses of the agreement.
As regards payment of Rs. 36,000 per annum by the assessee, the learned Counsel had submitted that this could not be termed as rent. The above amount or any part thereof did not represent consideration for providing-intangible services by agreeing to give first priority to the matters of the said company. It was submitted that if intangible services were provided to the tenant company then it was for fees to be received rather than by making payment. This way it was argued that there was a contradiction in the finding of the AO relating to payments made by the assessee and termed as "rent" by the AO. Actually the payment agreed to be made was partial reimbursement of expenditure incurred by the company in providing necessities for carrying on professional services and other facilities like use of furniture, secretarial services, telephone, library, etc. It was accordingly submitted that agreement between the company and the assessee could not be termed as agreement of sub-tenancy rather than an agreement of retainership. It was further submitted that assessee had no interest which could be held to be capital asset in terms of Section 2(14) or was capable of transfer in terms of Section 45 of the IT Act.
7. The submission advanced on behalf of the assessee,' terms of agreement dt. 5th Aug., 1977 under which the assessee was permitted to occupy the premises, settlement deed under which Rs. 30 lakhs were paid to the assessee on surrender of possession were noted and reproduced in the impugned order up to page 18 of the impugned order. After considering submissions of the assessee in detail in the light of material available on record, the learned CIT(A) decided the matter in favour of the assessee as per the following observations:
Finally, the learned advocate submitted that the appellant did not own any 'capital asset' in the nature of sub-tenancy rights in the said premises which would make him liable to pay tax on the receipt of Rs. 30,00,000. There is no relinquishment of any right, much less the sub-tenancy rights and, therefore, the receipt is merely a capital receipt and not amounting to "capital gains". It is submitted that where in a given case a sub-tenant agrees to restore back the legal possession of the premises to the tenant and vacates them, the consideration, if any, should flow from the tenant to the sub-tenant. In the case of the appellant, it is an undisputed fact that the money in question has been received in cash from the landlord of the premises by the appellant for the reasons mentioned above. Actually, there is no previty of contract between landlord and the appellant. That by itself will show that the appellant had no vested right in the premises created either by the landlord or the tenant. In that view of the matter also there is absolutely no case for holding that the appellant owned capital asset which he can be said to have parted with in favour of any one. It is finally submitted that the learned AO has assumed that the privilege unilaterally granted by the tenant for its own advantage, i.e., to render professional services for them while occupying the premises in question, in a representative capacity was a "capital asset" but this is not.
I have considered the submissions and various reasons advanced by the AO for concluding that the assessee had a right and an interest in the subject property as a sub-tenant and I have also considered the various submissions made by the learned Counsel of the assessee. The case of the appellant is that the appellant Shri G.C. Sharma has been in physical occupation and representative of the said premises on behalf of the second party being a retained counsel of the second party as is evident from the. memorandum of understanding, in fact it is the tenant who was in need of specialized services of the appellant in the field of legal matters which induced the tenant to allow the appellant to stay in the premises taken on rent from the third party. The so-called agreement on which lot of reliance has been placed by the AO is not a sub-tenancy agreement rather it is a retainership agreement. The payment made by the appellant is not consideration for occupying the premises but for using services provided to the appellant like telephone, furniture, fixture, etc. Therefore, on the strength of the fact that a nominal amount has been paid by "the appellant annually to the tenant it cannot be held to have acquired any right and interest in the subject property. The right, interest and possession was always with the tenant and not with the appellant which is clear from the various clauses of the agreement between the appellant and the tenant. To sum up the appellant has worked as a retainer of the tenant and has worked on priority basis for the tenant, thereby the appellant has obliged the tenant by rendering specialized services in the field of legal matters. In process, the appellant has not acquired any interest or right in the subject property which can be termed as a 'capital asset' as defined under Section 2(14) of the IT Act, 1961. Therefore, the receipt of money of Rs. 30,00,000 can be treated as a capital receipt which is not taxable.
8. The Revenue is aggrieved and has brought the issue in appeal before the Tribunal. Learned Departmental Representative submitted that assessee was in occupation of the premises and was paying rent to the tenant. He was, therefore, a sub-tenant. Thus, consideration received on surrender of subtenancy was liable to be taxed as "capital gains" in terms of Section 45 r/w Section 55(2)(a) of the IT Act. The learned Departmental Representative accordingly supported the order of the AO. He relied upon decision of Hon'ble Bombay High Court in the case of Cadell Weaving Mill Co. (P) Ltd. v. CIT . The learned Departmental Representative further submitted that if above receipt was held to be not liable to tax as capital gain, then the same is liable to be charged as a casual and non-recurring receipt under Section 10(3) of the IT Act. He supported above argument by referring to the decision in the case of Steel Containers Ltd. v. CIT . The learned Departmental Representative also referred to and relied upon decision of Tribunal in the case of Gynendra Bansal v. Asstt. CIT (2003) 81 TTJ (Del) 240 : (2003) 86 ITD 421 (Del). It was accordingly contended that order of the CIT(A) should be set aside and receipt in question be held to be liable to tax. After the hearing was completed, the learned Departmental Representative brought to the notice of the Bench the decision of Delhi High of CIT v. Hindustan Times Ltd. to contend that on identical facts, a similar receipt was held to be revenue receipt liable to tax. Above decision was duly brought to the notice of the assessee.
9. The assessee, Shri G.C. Sharma himself appeared and supported the impugned order of the learned CIT(A). He, in particular, raised the following submissions challenging the order and findings of the AO:
(a) That the learned AO (Jt. CIT) had committed a grave error of law in holding that the assessee had transferred "capital asset" for Rs. 30 lakhs, which would be liable to taxation as "capital gains". It was urged that the assessee did not possess any capital asset nor could transfer any capital asset and consequently the provisions of Section 45 of the Act are not at all applicable in this case.
(b) In particular the learned Jt. CIT has erred in recording the following findings:
(i) That the assessee had a right and interest in the ground floor of 152, Golf Links, New Delhi as a sub-tenant albeit without a formal tenancy agreement.
(ii) That the assessee remained in actual possession of the property for 20 years by paying consideration partly in money and partly in terms of professional services.
(c) That the learned Jt. CIT had ignored from relevant consideration the following facts:
(i) That the assessee was regularly receiving fees for appearances, opinions and consultations from Gedore Tools for the professional services rendered being much more than the fee receivable as "retainer". The representative occupation was not for any consideration paid by the assessee. It was an obligation imposed on him by Gedore Tools (I) Ltd. Gedore Tools who never recognized the assessee as a "sub-tenant". No enquiry was made from Gedore Tools in this behalf.
(ii) That there was no evidence of the assessee having paid any rent at any time to the tenant, i.e., Gedore Tools (I) Ltd. to obtain the rights of a sub-tenant.
(iii) That the ad hoc payment of Rs. 36,000 per annum was subsidized for availing of facilities, furniture, library, telephone, etc. And not for any rent for occupation of the premises. In any case, it was not paid in fact to Gedore.
(iv) That the assessee was obliged under the agreement to occupy the premises on behalf of the tenant-client-Gedore Tools (I) Ltd. in order to be able to render the professional services required of him as a retainer more conveniently and efficiently.
The further submissions made before CIT(A) were the following:
(v) It was wrong to allege that the assessee had paid consideration in the form of money as well as in the form of providing intangible services by agreeing to give first priority to the matters of Gedore Tools (I) Ltd. It could not be ignored that he was to be paid regularly as a "retainer"--which meant he could not accept brief against Gedore Tools (I) Ltd. in any matter.
(vi) That the learned Jt. CIT had no jurisdiction to act like a rent controller and give a finding that the appellant was sub-tenant of the premises merely on the basis of incomplete and erroneous construction of an agreement and ignoring relevant evidence. In any event such a finding was adverse to the provisions of the Delhi Rent Control Act and the Transfer of Property Act.
Before us the assessee reiterated his submissions made before the AO and the CIT(A), as referred to above.
10. The assessee further raised the following points before us:
(i) The amount received by the assessee was a capital receipt not giving rise to any capital gains received on transfer of any capital asset owned by the assessee. The amount of Rs. 30 lakhs received by the assessee was for speedy release of the physical possession of the premises of 152, Golf Links, New Delhi occupied by the assessee at the behest of Gedore Tools for rendering professional services to them more swiftly and efficiently.
(ii) M/s Gedore Tools as was clear from the terms had retained full legal possession over the premises.
(iii) The premises were occupied and used by the assessee as directed by Gedore Tools who were the legal tenant of the premises.
(iv) The amount received by the assessee was not in the capacity of any tenant or sub-tenant nor it was in respect of transfer of any capital asset for the alleged transfer of which he received an amount of Rs. 30 lakhs from the attorney of the owner Shri T.R. Anand. The tenancy rights have all along and exclusively vested in Gedore Tools.
There was no question of the assessee owning any asset, The owner of the premises paid the sum in question to the assessee only for removing a nuisance or obstruction in getting the possession of the premises swiftly, when Gedore had agreed to surrender it.
(v) The assessee's licence to occupy the premises on behalf of, and for the purposes of, M/s Gedore Tools became ineffective with the termination of tenancy rights of M/s Gedore Tools Ltd. in the said property.
(vi) The assessee obviously had no right or interest in the premises which he could assign to anyone else. It was only a personal right not creating any right in the property.
(vii) There has never been any agreement/arrangement/understanding between the assessee and the landlord, particularly at the time of granting tenancy rights to M/s Gedore Tools, who were tenants of the premises since much earlier than the assessee came into picture. The surrender deed dt. 3rd April, 1997 (at pp. 29 to 32 of the paper book which is on the record) is only between the parties named in the preamble of the surrender deed filed in Court that is M/s Gedore Tools/Jhalani Tools and the owner Dr. (Mrs.) N.D. Khanna. This surrender deed clearly mentions at p. 30 of the paper book that M/s Gedore Tools, the lessee is in full occupation of the ground floor of the premises in property No. 152, Golf Link, New Delhi-110 003 and the lessor had initiated the eviction proceedings against the lessee only that is M/s Gedore Tools at page 31 of the paper book. The surrender deed also speaks of what has been done earlier. Thus, the amount paid by the landlord to the assessee was merely for removing an encumbrance in surrendering a tenancy right by the Gedore Tools in the property owing to physical occupation by its representative. If the assessee had not surrendered the physical possession immediately as wanted by Gedore Tools, he would have been treated as a tress passer and separate suit would have to be filed against him in the Court for removing him from the premises. Thus, the AO was legally and factually wrong in holding that the assessee earned capital gain from transfer of the capital asset owned by the assessee. The assessee further urged that the Revenue cannot be permitted to advance or put up entirely a new case at the time of hearing before the Tribunal that is if the receipt is not liable to be subjected to tax under the head "Capital gain", the same is liable to be treated as a revenue receipt under Section 10(3) of the Act. Such a case was never built-up by the AO. In the first instance, the Departmental Representative could not be allowed to plead entirely a new case before the Tribunal, which also is completely demolished by the AO's finding itself. Because, it should be noticeable that Section 10(3) of the Act is not applicable where the Revenue seeks any receipt giving rise to capital gain. This Section itself prohibits treatment of any receipt as a revenue receipt once it is sought to be taxed as capital gain. Having failed to establish that the receipt gave rise to any taxable capital gain; the Departmental Representative could not be allowed to put up a new case on behalf of the AO that if the receipt is not taxable under the head "Capital gain", it should be taxed as revenue receipt under Section 10(3) of the Act. Reliance in this connection was placed on the decision of Cadell Weaving Mills Co. Ltd. v. CIT (supra).
Lastly, it was urged by the assessee that if the terms of the agreement of this retainership right from the beginning to the end were fully read and analyzed, the only conclusion that could be drawn was that the assessee had no subtenancy rights in the said property. The payment stipulated be made to M/s Gedore Tools was only for availing some subsidized facilities like library, secretarial assistance, furniture and fittings, etc. which would have provided necessary infrastructure to the assessee to render proper services as a lawyer to the Gedore Tools. There is only one agreement between the assessee and M/s Gedore Tools and that is with regard to the terms of retainership of assessee's professional services to be rendered by the assessee. This agreement read as a whole by no stretch of imagination can be construed as an agreement between the assessee and Gedore Tools as one establishing the relationship of the subtenant between the assessee and M/s Gedore Tools. No reliance could be placed as sought by the Departmental Representative on the decision of the Delhi High Court in the case of Hindustan Times Ltd. (supra).
11. We have given careful thought to the rival submissions of the parties and also examined material available on record. On perusal of letters/agreement dt. 5th Aug., 1977 and other facts and circumstances of the case, we are of view that Revenue has failed to establish that assessee owned any capital asset, particularly in the form of sub-tenancy rights allegedly granted by M/s Jhalani Tools (I) Ltd. The said agreement is clearly a retainership agreement to take advantage of services of the assessee as company's lawyer. It created no interest in favour of the assessee which could be called a capital asset as put forth by the assessee with which we fully agree. Therefore, there is no scope to accept the case of the AO that a capital gain accrued to the assessee in the surrender of possession. We are also in agreement with the assessee's argument that Departmental Representative cannot be allowed to put up entirely a new case before us relating to application of provision of Section 10(3) of the IT Act. The above provision is not applicable to cases where provisions of capital gain are applied as done by the AO in this case. So a diagonally opposite case to the one made out by the AO in the assessment order could not be permitted to be raised, more particularly when no such ground is raised in the memo of appeal. Therefore, the plea of the Revenue based on provision of Section 10(3) is not entertained.
As regards assessment of capital gains, learned CIT(A) in the impugned order has elaborately discussed the agreement under which possession of the demise premises was given to the assessee and has held that assessee had no right, title or interest in the premises. The learned CIT(A) has also considered the circumstances and relevant papers under which Rs. 30 lakhs were paid to the assessee for surrendering physical possession. It is clear that amount was paid by the landlord to the assessee to avoid hazards of litigation and the delay which would have diminished value of property on account of physical possession with the assessee. The amount was not paid to the assessee to acquire any right, title or interest in the premises. Thus transfer of no capital asset was involved in the deal leading to payment of Rs. 30 lakhs in question. There was no justification to treat receipt in dispute as giving rise to capital gains. We agree with the elaborate discussion made by the learned CIT(A) in the impugned order.
12. It may be noticed that the decision of Delhi High Court in the case of Hindustan Times Ltd. (supra) was based entirely on different facts. There the assessee purchased the building in London in February, 1947. The property purchased was in occupation by one Mr. Martin who was a tenant at the time of purchase and also the assessee's representative in London. He was paying £25 per month as rent which was being reimbursed by the assessee to Mr. Martin since he was representing the assessee in London. The assessee transferred the property by way of sale on February, 1973 to M/s Salisbury Square Investment Ltd. The sale was subject to the condition that Mr. Martin would continue to occupy the portion which was occupied by him earlier as a monthly tenant. The right of Mr. Martin to continue as a tenant was protected by a deed executed on 1st Feb., 1973 in favour of the assessee. It was clear from the record that Mr. Martin agreed to vacate the premises and Salisbury agreed to pay a sum of £24,000 as compensation. Salisbury wrote a letter in that behalf in which it was promised that he would be paid a sum of £24,000 as contribution towards rent for five years on the alternative accommodation which he will be occupying and further a sum of £24,000 towards rent and outgoing. Such sum to be paid five years after the first payment. However, it appears that the assessee received £24,000 and credited them to his P&L a/c stating that the same represented compensation for termination of tenancy in London office. The assessee, i.e., Hindustan Times claimed that the said sums of £24,000 were not the Revenue receipts in his hands and were only capital receipts. The High Court negatived the contention raised before the Tribunal and held that the said sums were revenue receipts in the hands of the assessee. The facts and issues of that case are entirely different. The assessee is a person who was never a tenant of the premises even before the premises came to be tenanted to M/s Gedore Tools and they cannot be compared with the assessee in the said case. Nor, Mr. Martin can be compared with the assessee in the present case. The question in this case was whether the amount received is a revenue receipt or capital receipt. The question in the case of the assessee is whether the sum of Rs. 30 lakhs received by him is capital gain or not. The question has already been answered above. The case sallied by the learned Departmental Representative is apparently of no relevance.
13. In the light of what we have observed hereinbefore, we have no hesitation on dismissing the Revenue's appeal. We do so.
14. In the result, the appeal of the Revenue is dismissed.