TaxTMI 
TaxTMI 
1991 (3) TMI 203
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....ting 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 ....
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.....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 on11-3-1981. 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 condition....
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.... 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 II -3-1981 and in the aforesaid decree dated11-3-1981in 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 dated11-3-1981. 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 (....
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....lhi 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 from11th March, 1981which 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 cro....
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....he 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 year wise 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 on11-3-1981at a cost/expenses of Rs. 4,52,163 expanded between 1977 to 1981. The Income-tax Officer further estimated at Rs. 40,000 the co....
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.... 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. I 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....
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....here 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 from11-3-1981when 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 ....
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....t 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 itse....
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....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....
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....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 he 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 carry 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 beco....
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....shable 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 ....
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....tal 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 on11-3-1981could 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 earli....
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....s 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 224-1982 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 from11-3-1981though it was executed on22-4-1982. 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 dated18th 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 not 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 ag....
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....rder. 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. CIT [1975] 98 ITR 167. The teamed Counsel referred to the decision of the Delhi Hi....
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....t 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 die 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 198....
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....(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 1981 and 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 ....
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....f 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....
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.... 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 dated11-3-1981, 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 lice....
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....h March, 1981and 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 dated11th 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 dated18th June, 1981was the licence obtained on11th March, 1981. 36. Now the question arises wh....
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....he 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 ....
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....sessee-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....
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....red 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 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 ....
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....ater 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 inIndiaas 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....
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....he 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 transferred his rights by the agreement dated18-6-1981and 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 capital 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 R....
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....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 wou....
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.... 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 1/3rd 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....
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....the proposed order of his dated 23-11-1987 on the grounds set hereunder, qua these grounds and to this extent only, I am 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 execut....
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....di, Member-Secretary, New DelhiMunicipal Committee, Town Hall, New Delhi. Dear Sir, With reference to your D.O.No. 739/PS/M. Secy./D/76 datedthe 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 atBarakhamba 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, ForDelhiAutomobiles Private Limited, Sd/- (Lalit Suri) Executive Director." 2.2 N.D.M.C. rejoined the issue with the assessee vide its letter ofMarch 9, 1977in the following terms : "No. 276/PG/M.Secy/D/77 New DelhiMunicipal 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 dated19th July, 1976offering a sum of Rs. 11 lacs per annum as licence fee for the hotel site at Barakhamba Complex. Although origin....
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....ge 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....
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.... 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 3/15A,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....
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....nce 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 ninety six) 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 dated10-3-1977, 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 sai....
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....3-1977written 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 ofNew 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 t....
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.... 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 St....
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....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 plaintiff's 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 ....
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....formance 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 on20-4-1978when the notice under section 80 CPC and 49 Punjab Municipal Act dated15-7-1978was 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....
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....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 fo....
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....gned 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 atBarakhamba 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....
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....nion 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 si....
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....i 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 Laneor proposed Road and Food Corporation ofIndia Building. West by : Service Lane Govt. Bungalows, Food Corporation ofIndiaBuildingand 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 lac....
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.... 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 ....
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.... opportunity to the licensees in this behalf. 9. The licensees shall first obtain the approval of the licens or 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 theFiveStarHotelBuildingbefore the said plans, elevation cross-sections and drawings are duly sanctioned by all the authorities concerned. 10. The construction work in theFiveStarHotelBuildingwill 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 a....
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....obiles 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 const....
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....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....
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....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 descript....
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....sm, 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 officer(s) shall have the following rights and powers i.e. to say :--- (a) The right for the licensor and ot....
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....etion 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 b....
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.... toDelhiwith 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 wit....
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....ncluding 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/alterations 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 t....
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....nt 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: P....
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....i. Signature of licencees Dated:11-3-81. For Delhi Automobiles Pvt. Ltd. Witness (1) Sd/- Lalit Suri Sd/- Ram Singh (Director) (F.A., N.D.M.C.). Signature of the licensor Witness (2) Sd/- Nihal ChandJainSd/- P.N. Behl (O.S.D., N.D.M.C.) (Administrator) New DelhiMunicipal Committee Witness (3) Sd/- D.R. Mahajan Countersigned (Advocate) Sd/- Mahesh Chandra Delhi Secretary New DelhiMunicipal 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 register....
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....e 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 dated11th March, 1981was 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 tra....
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....quirements 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 maybe 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 ....
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.... 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 11 th 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 ....
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....eed 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 ....
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.... 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,....
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.... 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 ....
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....Please refer to your letter No. BHL/1 dt.18-6-1981and letter No. BHL/2/2 dt.24-7-1981on the above cited subject. I am desired to convey the approval for the transfer of licence deed dt. 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.11-3-81on 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 5 8 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 questio....
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....d 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 tran....
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....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 licence to 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 ....
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....ders 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 Per K.C. Srivastava, Accountant Member - 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 a....
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....o be quoted in extenso "CONFIDENTIAL D.O.No. 739/PS/M.Secy./D/76 NEW DELHIMUNICIPAL COMMITTEE V.S. ALLAWADI, IAS, Member-Secretary TOWN HALL NEW DELHI DatedJune 30, 1976 Dear Sirs, The New Delhi Municipal Committee have finalised the layout for the development of a Commercial Complex atBarakhamba 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 between3.00 PM to 5.00 PMon all working days. I would request you to send your offer in a sealed cover in duplicate addressed to the undersigned latest bythe 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 ....
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....tion 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....
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....5 acres to the plaintiff and grant WI 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 on12-12-1978. This suit was decreed by the Hon'ble High Court on11-3-1981in 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 dec....
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....ding 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 '....
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....-3-1981 and is given for the same period as mentioned in the licence deed dated 11-3-1981." It was on22-4-1982that 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 dated11-3-1981. The NDMC had also in a letter addressed to the assessee company on1-10-1981conveyed the approval of the transfer of licence deed dated11-3-1981in 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 atBarakhamba Lane, New Delhi. Dear Sir, Please refer to your letter No. BHL/1 dated18-6-1981and letter No. BHL/2/2/dated24-7-1981on 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 ....
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..... 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....
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....ed 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 . The Revenue, on the other hand, contended that it was clearly business income, that there was an ....
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....otels 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(1) (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....
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....y 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....
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....- (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 opera....
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....ssee-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 dated11-3-81. 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 ....
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....ovable 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 on11-3-1981pursuant 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 atBarakhamba Lane,New Delhior in the alternative for the payment of damages in the sum of Rs. 64,40,000. It is further to be noted that on10-2-1981the 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 delivery of the possession of the....
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....mber, 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 whethe....
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....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 compe....
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.... 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 on10-3-1977was 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 I do not wish to reproduce again. Suffice it to say that the sequence and the acknowledgment by the NDMC do indicate that the o....
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....77. 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 p....
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....xistence 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 ....
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....tted 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 on11-3-1981and 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 counter offer 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 earlie....