TaxTMI 
TaxTMI 
2024 (7) TMI 151
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....e respondent assessee is engaged in various business activities. For the assessment year 2006-07 it disclosed in its return total income of Rs. 3041,42,53,870/- which was revised by return of Income dated 19.03.2008 to Rs. 3040,47,74,966/-. In assessment proceedings one of the addition made by the assessment officer was of Rs. 32.42 crore received by the assessee from ELEL under an award/consent terms dated 11.05.2005 which the assessee claimed as long term capital gains while the assessing officer treated it as revenue receipt. The CIT (A) and the ITAT held it to be long term capital gain. Hence the revenue has filed the present appeal asserting that the aforesaid receipt of Rs. 32.40 crore is revenue receipt and not long term capital gain. 3. Under an agreement dated 03.05.1986, the owner namely, M/s. ELEL Hotels & Investment Ltd. (hereinafter referred to as 'ELEL') granted licence to the respondent herein i.e., ITC to operate the hotel 'Sea Rock' from the first day of July, 1986 for a period of 25 years with an option to renew the licence for a further period of 25 years on giving notice to ELEL of such intention of not less than 24 months before the expiry of the licence. Th....
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....7. 6. In appeal filed by the respondent ITC before the CIT[Appeal], the appeal was allowed and the receipt of the aforesaid amount of Rs. 32.42 crores was held to be a capital receipt. Aggrieved with the order of the CIT[A], the revenue filed an appeal being ITA Nos. 253 and 336/KOL/2011 which has been dismissed by the Income Tax Appellate Tribunal, Kolkata Bench "B". 7. Aggrieved with the aforesaid impugned order of the ITAT, the revenue has filed the present appeal which has been admitted by this court by order dated 12.7.2018, on the following substantial question of law: "Whether receipt of money by the Assessed on account of relinquishment of its right to operate a hotel as a licensee would constitute capital receipt exposing the Assessee to capital gains tax or the same shall be treated as business receipt ?" Operating Licence Agreement dated 03.05.1986:- 8. The licence agreement in question is most relevant for the purposes of the controversy involved in this Appeal which is reproduced below:- "THIS AGREEMENT made at Bombay this third day of MAY One Thousand Nine Hundred and Eighty Six between ELEL HOTELS & INVESTMENTS LIMITED, a Company having ....
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....hings and moveable equipment, except operating supplies, at any time installed or kept in the Hotel for use in connection with the operation of the Hotel. 1.3 "Operating Supplies" shall mean all silver, linen, chine, cutlery, glass, cooking utensils, guest room supplies and consumable supplies, used or intended for use in connection with the operation of the Hotel. 1.4 "Agreement" or "This Agreement" shall mean this instrument as originally executed and delivered, if amended or supplemented as so amended or supplemented. 1.5 The "Term of the Agreement" shall mean the term of this Agreement as hereinafter provided in Article IV but subject to earlier termination or determination thereof in terms of Article XVII hereof. 1.6 The term "Gross Turnover" of the said Hotel means total amount of revenue as herein below defined. "Revenue" shall mean revenue on account of rooms, restaurants, banquet parties, poolside, snack bar, bar-b-cue, public rooms, function rooms, laundry, shopping area rental, entertainment show, counter space, show windows, showcases, barber shop and beauty shop, as well as any other income which directly accrues from operating the s....
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....ments to conduct and operate the said Hotel, the intention being that ITC shall have an unfettered right to run the said Hotel, so long as ITC does not commit any breach or default of any terms agreed under these presents. 2.3 EHIL shall execute from time to time or as may be required by ITC one or more specific powers of Attorney or such other documents or instruments as ITC may require in order to conduct, operate and run the said Hotel. ITC hereby indemnifies and keeps EHIL indemnified against any loss or damage EHIL may sustain or any costs, charges and expenses EHIL may suffer as a result of any irregular or illegal or mala fide exercise of the powers in the Power of Attorney to be executed by EHIL in favour of ITC. 2.4 These Powers of Attorneys will not include powers to borrow, sell or mortgage Hotel and EHIL's property. ARTICLE III: EMPLOYMENT OF WORKMEN, STAFF, ETC. 3. All workmen, employees and members of the staff including managerial staff as may be decided by ITC shall be on the payroll of EHIL and their salaries, wages and other emoluments and perquisites shall be granted and disbursed by ITC, but expressly for and on behalf of ....
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....to time. 5.4 ITC will endeavour that minimum annual growth of 5% (five percent) of the gross turnover over the base year, i.e. the year ending 30th June 1986, is achieved from year to year and should in any financial year such growth be not achieved, over the base year, then and in such cases ITC will pay EHIL Licence Fee at the stipulated rate of 23% (twenty three percent) of the gross turnover and an additional 2% (two percent) on gross turnover for that financial year in which growth falls short by 5% (five percent) over the base year. Provided, that should the growth in any financial year be 5% (fifteen percent) or more over the growth which should have been achieved under the foregoing provision, then ITC shall be entitled to deduct from the Licence Fee the amount equivalent to 0.75% (i.e. the net Licence Fee payable will be 22.25%) of the gross turnover payable to EHIL and if the growth is 20% (twenty percent) or more as stated herein, then the deduction in fee will be 1% (i.e. the net Licence Fee payable will be 22%). ARTICLE VI: SECURITY DEPOSIT 6.1 ITC shall place as Security Deposit for the specific performance of this agreement immediately on s....
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....adjusted immediately against the monthly Licence Fee until liquidation of the advance. ARTICLE VIII: PERMISSIONS, LICENCES, ETC. 8.1 EHIL agrees to leave with ITC all Agreements, Permissions, and Licences for purpose of operating the said Hotel and will assist ITC in obtaining such other Permissions and Licences as may be required from time to time. 8.2 EHIL agrees that it will be EHIL's responsibility to keep in force and renew all Licences and permissions and ITC agrees to pay the Fees for these renewals, and perform terms and conditions of all Licences and Permissions applicable to the said Hotel and keep them in force and alive on EHIL's behalf. 8.3 EHIL agrees to assign their Agreement in to dated 19.10.1984 with Sheraton International Inc. (Sheraton) to ITC subject to the approval of Sheraton, and ITC shall be authorised to alter, amend, renew or cancel the agreement in terms thereof. ITC indemnifies EHIL against any loss or claim arising from any such action on the part of ITC. 8.4 All of the terms and provisions of this Agreement shall be binding upon and innure to the benefit of the parties hereto and their respective su....
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....bsistence of this agreement. Provided, however, that a block amount of Rs. 10 Lakhs (Rupees Ten Lakhs) per annum shall be borne by EHIL during the pendency of the agreement to meet expenses towards Rents, Rates, Taxes and Insurance. EHIL shall pay the said sum of Rs. 10 Lakhs (Rupees Ten Lakhs) per annum to ITC at the end of each financial year. Provided, however, that Income Tax, Wealth Tax on EHIL'S Licence Fees, and Profits from all other sources shall be. ARTICLE XII: ASSIGNMENT 12. ITC shall have right to assign or transfer all rights and benefits of this Agreement to any of the ITC Group of Companies only, and none else but without in any way absolving ITC from its monetary obligations and warranties Bank Guarantees under these presents, and obtains necessary formal confirmation from the said Assignees that they will abide by all the terms and conditions of these presents. ARTICLE XIII: ASSETS AND LIABILITIES 13. It is agreed between EHIL and ITC that the current Assets and Liabilities of the said Hotel will be as per a statement to be drawn up and agreed to by both EHIL and ITC reflecting the state of affairs as on 30th June 1983. The ....
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..... The Security Deposit of Rs. 7.75 Crores (Rupees Seven Crores Seventy Five Lakhs) will be returned by EHIL to ITC immediately as recited in Article 17.3. 17.3 EHIL will be entitled to terminate this Agreement if there is any continuing default in payment of the Licence Fee or Bank Guarantee becomes invalid or ineffective for any reason or ITC commits a breach of any terms and conditions of this Agreement or an order is made or resolution passed for compulsory or voluntary of ITC. winding up EHIL before exercising the said right will give a notice of not less than three calendar months to ITC to rectify the said default. In case the said default is not so rectified, EHIL will terminate the Agreement without further notice. The Security Deposit of Rs. 7.75 Crores (Rupees Seven Crores Seventy Five Lakhs) will be returned by EHIL to ITC immediately after deducting therefrom all unpaid Licence Fee and other dues agreed by the parties under this Agreement, including any unpaid bills for which EHIL is held legally liable subject to Article 13 above. 17.4 Notwithstanding anything herein contained, ITC will be entitled to terminate the contract by giving to EHIL not less ....
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....umber any of the Hotel property to the detriment of ITC. 17.15 EHIL will make available the entire Terrace Floor within three months of signing of this Agreement to enable ITC to extend the Hotel facilities and/or guest rooms. The registered office and M.D.'s secretary shall be shifted to new block. 17.16 ITC shall no do any act, deed, matter or thing whereby the insurance coverage under any of the Policies of Insurance is prejudiced or adversely affected or becomes ineffective or invalid. ARTICLE XVIII: NO TENANCY RIGHTS CREATED 18.1 It is clearly agreed and understood between the parties that possession of the property is not delivered to ITC under this Agreement and no interest or no tenancy or lease or other interest in EHIL's properties or assets is created or intended to be created in favour of ITC, the intention of the parties being that ITC will be authorised to conduct, operate and run the said Hotel on the terms, conditions and stipulations herein contained. It being clearly and distinctly understood that the property and assets as defined in the schedule are and will continue to be the exclusive property and asset of EHIL....
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....ring the tenure of this Agreement and thereafter as provided in the Clause 22 of these presents and will guarantee regular and prompt payment of the Licence Fee to EHIL under Clause 5 of these presents immediately upon demand and without. 22. The said Bank Guarantee shall also guarantee to EHIL payment of the Licence Fee in the manner aforesaid notwithstanding termination or expiry of the Agreement by efflux of time if ITC fails or refuses to leave or remove themselves and their workmen and agents from the Hotel and such Bank Guarantee for payment of Licence Fee will continue unti! ITC actually leaves the property and provides EHIL with a declaration that they have done so without claiming any right title or interest in the Hotel or other property and Assets of EHIL. IN WITNESS WHEREOF the Parties hereto have hereunto set their hands the day and year first above written. THE FIRST SCHEDULE ABOVE REFERRED TO: All that piece and parcel of land bearing Survey No. B 1150 and measuring 30960 sq. mtrs., which includes land-in-sea and the boundaries of the same are:- On the North - Arabian Sea On the South - Arabian Sea On the West - Arabian Sea ....
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....e "Suit") have been filed before the High Court, Mumbai; 4) By Order (s) dated December 21, 1998 the disputes covered by the Suits (excluding Suit No. 3832 of 1995) have been referred to arbitration (the "Arbitration") of Mr. Justice H. Suresh (Retd.) (the "Arbitrator"); 5) The Parties have fully and finally compromised, adjusted and settled all Disputes and desire to record the terms thereof by this Settlement Agreement; IN CONSIDERATION of the mutual covenants and other good consideration (the sufficiency and validity of which each Party acknowledges) this Settlement Agreement RECORDS AND CONFIRMS: DEFINITIONS 1. In this Settlement Agreement, unless the context otherwise requires: a) "Affiliate" means:- (i) in relation to a Party, any Person controlling or controlled by or under common control with the Party; and (ii) specifically, in relation to ELEL:- (I) means each of Excalibur Assets and Capital Management Pvt. Ltd. ('Excalibur') and Sheena Investment Pvt. Ltd. ('Sheena') both with registered offices at 9th floor, Hotel Searock, Behramji Jeejeebhoy Road, Bandstand, Bandra (West), ....
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....g so ascribed; 1.2 Words denoting the singular shall include the plural and vice versa; 1.3 Words denoting any gender include all genders; 1.4 Unless the context otherwise requires reference to clause sub- clause or schedule or annexure is to a clause sub-clause or schedule or annexure (as the case may be) of or to this Settlement Agreement; SETTLEMENT 2. All Disputes are fully and finally adjusted, compromised and settled. No Disputes or claims whatsoever are now outstanding between the Parties (including any director(s)/officer (s)/ employee (s) of the other Party);" 3. This Settlement Agreement is by way of settlement compromise and adjustment and is not (nor shall it be construed as) an admission of wrongdoing by either ELEL or of ITC. CONSENT TERMS 4. The Parties shall promptly sign the terms set out in Annexure A (the "Consent Terms") and with diligence request and obtain the Award from the Arbitrator. The terms of Annexure A shall form an integral part of this Settlement Agreement. AWARD 5. Each Party shall use its best endeavor to obtain the Award on signing of the Consent Terms. ....
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....ch authorities) fees in respect of operation of the Hotel. ELEL has no further claim against ITC towards any further licence fees and waives the same, if any. 15. All powers of attorney (if any) or other authority of any nature conferred or delegated by ELEL to ITC or by ITC to ELEL will stand revoked and cancelled with effect from the date of execution of this Settlement Agreement. 16. ELEL acknowledges and confirms that ITC is exclusively entitled to the Effects and the Record. ELEL shall not use any of the Effects or the Record for any purpose nor have nor raise, at any time, any claims to or in relation to the Effects or the Record or any of them. ITC shall have reasonable access to the Hotel for a period of thirty (30) days from the execution of this Settlement Agreement for removal of the Effects and of the Record. Pending removal by ITC, ELEL shall take reasonable care of the Effects and of the Record. In the event that ITC is unable to have access to the Hotel and remove the Effects and Records as aforementioned, the time period during which ITC is entitled to such access shall stand extended appropriately. 17. ELEL has no claim whatsoever in resp....
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....re employees of ELEL. 24. Payment of salary and emoluments including statutory contribution (Employee Payment) shall be pro rated. ITC confirms that the salaries payable to the Employees upto 30th April, 2005 have been paid. ITC has paid to ELEL a sum equivalent to Employee Payment for the period 1st May, 2005 to the date of this Settlement Agreement. After this date ELEL will be liable for Employee Payment. ELEL will timely disburse to the Employees the Employee Payment for the month of May 2005. All revisions (if any) in respect of Employee Payment agreed or implemented by ELEL (even if relating to any period prior to the date of the Consent Terms) shall be to the account of and borne by ELEL. 25. ITC has provided to ELEL the list of pending litigation in relation to the Hotel as per list set out in Annexure C. ELEL will take over and be responsible for the conduct/defence of such litigation. ITC shall provide all reasonable cooperation as may be required for the conduct/defence of such litigation for a period of six months from the date hereof. ELEL INDEMNITY 26. ELEL will indemnify and keep indemnified at all times ITC (including its director....
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.... employees) are not out of pocket nor required to make any payment towards or relating to any Claim. ITC IDEMNITY 27. ITC will indemnify ELEL in respect of the claim of any statutory authority for non-payment of any fees relating to any Licence for the period of operation of the Hotel by ITC under the Operating Licence Agreement. INSURANCE POLICIES 28. ITC shall terminate the policies of insurance as provided in the Consent Terms and ELEL shall be entitled to take out such policies of insurance as ELEL considers appropriate. CONFIDENTIALITY 29. Each Party shall maintain confidential this Settlement Agreement and shall refrain from any comment or announcement (in any media whatsoever) in relation to the contents of this Settlement Agreement; 29.1 Nothing contained in this clause shall preclude either Party: 29.1.1 From enforcing this Settlement Agreement (including but not limited to obtaining the Award) or relying upon this Settlement Agreement as a defence; or, 29.1.2 From making any disclosure to comply with law or order or direction of any court or tribunal (provided such disclosure is restricted to....
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.... ITC under the Consent Terms and this Settlement Agreement; 35.2 the executant of this Settlement Agreement and of the Consent Terms is / will be duly authorized to represent and bind ELEL; 35.3 the owner(s) of the Flats are Affiliate(s) of ELEL; 35.4 the owner(s) of the Flats have authorized and empowered ELEL to enter into and implement this Settlement Agreement so far as concerns each of the Flats; 35.5 the authority conferred by the owners is valid and subsisting and shall so remain through the implementation of this Settlement Agreement. COMPROMISE AND ADJUSTMENT 36. This Settlement Agreement and the Consent Terms are by way of settlement compromise and adjustment. This Settlement Agreement and the Consent Terms are not nor shall be construed as an admission of wrongdoing by either of ELEL or of ITC. 37. Neither ELEL nor ITC have any claim whatsoever outstanding by or against each other (including any director(s)/ officer(s)/ employee(s) of the other) relating in any manner to the Hotel and / or relating in any manner to any and all arrangements/understandings / agreements including the Operating Licence and whethe....
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.... 2) All Disputes are hereby finally compromised and settled. 3) Declared that: a. All arrangements understandings and agreements relating to the Hotel including the Operating Licence stand terminated with effect from the date hereof with no claim of any nature whatsoever remaining outstanding between Elel and ITC and / or any Person claiming through, under or in trust for either of Elel or ITC; b. All allegations made by or against Elel and ITC by the other, whether in the arbitration or in the Suits referred to in clause 1 above, stand withdrawn; c. (i) All powers of attorney (if any) or other authority of any nature conferred or delegated by Elel to ITC stand revoked and cancelled with effect from the date hereof; (ii) Any authorisation or consent or power of attorney given by ITC in favour of Elel or any of its Directors or officers stand revoked and cancelled with effect from the date hereof; d. Elel acknowledges that all actions (including omissions) taken or implemented hitherto by ITC pursuant to powers of attorney (if any) or other authority of any nature conferred or delegated by Elel to ITC are in proper exercis....
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.... ITC has made bookings/reservations for patrons / guests upto May 18, 2005. No advances have been received by ITC in respect of such bookings; (iii) Elel will service the patrons/guests presently occupying the Hotel and will honour bookings / reservations made by ITC upto May 18, 2005. Billing for the period on and after the date hereof shall be done and collected and appropriated by Elel; (iv) ITC will cancel all reservations and booking (if any) made for the period subsequent to May 18, 2005; i. (i) Elel has no claim whatsoever in respect of the 'ITC' / 'Welcomgroup' / other brand(s)/logo(s)/mark(s) belonging to or used by ITC; and (ii) Elel shall not, in the course of trade or otherwise use any of the said brand(s)/logo(s)/mark(s) and shall not attempt to register the same or otherwise claim any rights in any of the brand(s)/logo(s)/mark(s); j. On and from the date of these Consent Terms neither of Elel nor ITC shall claim to be associated with the other for or in relation to the Hotel or otherwise in the course of business and neither of them shall make any claim or representation as being associated with the other; ....
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.... sum of Rs. 32.42 crores (Rupees thirty two crores forty two lakhs only) as and by way of relinquishment of rights to operate the Hotel under the Operating Licence; o. ITC has provided to Elel a list of employees engaged in respect of the Hotel (the "Employees") as set out in Annexure D. Elel acknowledges that such employees are employees of Elel; p. Litigation in relation to the Hotel is pending as per list set out in Annexure E. Papers in relation to such litigation have been handed over by ITC to Elel on or prior to the execution of these Consent Terms. On and after the date of these Consent Terms Elel shall be solely responsible for the conduct / defence of such litigation. ITC shall provide all reasonable cooperation as may be required for the conduct/ defence of such litigation for a period of six months from the date hereof, q. Elel will indemnify and keep indemnified at all times ITC (including its directors, officers and employees) against all claims, demands, actions and consequences thereof (including reasonable legal / professional fees and costs) from any Person(s) including (but not limited to) any present or former shareholder(s)/ director(....
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....ly the Claims) r(2). Any Claim(s) received by ITC will be notified to Elel which shall be promptly defended by Elel at its cost through legal counsel reasonably acceptable to ITC; r(3). ITC shall be entitled to participate in the conduct or defence of any claim through legal counsel of ITC's selection. In such event reasonable legal and professional fees and costs shall be reimbursed by Elel to ITC; r(4). Elel's indemnity obligations shall arise on any Person making or raising any claim or demand or commencing any action or initiating any proceedings and shall be discharged by Elel such that ITC (or any of its director(s), officer(s), employees) are not out of pocket nor required to make any payment towards or relating to any claim; s. ITC confirms to Elel that all fees relating to any Licence in relation to the operation of the Hotel have been paid upto the date of the Consent Terms. ITC will indemnify Elel in respect of the claims of any statutory authority for non-payment of fees relating to any Licence for the period of operation of the Hotel by ITC under the Operating Licence Agreement; t. Payments in respect of contracts en....
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.... agreement dated 3.5.1986 is a licence and it does not confer any right, title or interest in the respondent ITC Ltd. The receipt of Rs. 32.42 crores was the result of a business transaction. No question can arise for relinquishment of any right, title or interest in the immovable property in question. Under the circumstances, by no stretch of imagination, the receipt of Rs. 32.42 crores can be said to be capital receipt. On the contrary, on bare reading of various clauses of the agreement dated 3.5.1986, it is clearly a revenue receipt. Licence in question excluded any interest in the property i.e., the hotel. Licence has not conferred upon the respondent any right, title or interest in the property in question. Hence, the amount received by the respondent under settlement is not a capital receipt but a revenue receipt. iii) In support of his submission he relies upon judgment of Hon'ble Supreme Court/High Courts as follows : I. 1959 SCC OnLine SC 62 : AIR 1959 SC 1262 (Associated Hotels of India Ltd. Vs. R. N. Kapoor); [para 28]; II. (2014) 2 SCC 657 (Yazdani International Private Limited vs. Auroglobal Comtrade Private Limited & Others); [para 43]; ....
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....1 of the agreement dated 03.05.1986 does not confer any right, title or interest or tenancy or lease or other interest in ELEL's properties or assets created or intended to be created in favour of the ITC and the only intention of the parties is that ITC will be authorized to conduct, operate and run the said hotel on the stipulated terms and conditions yet Clause 18.2 conferred some type of right upon the respondent ITC that in the event the ELEL calls upon the ITC to purchase the hotel then it shall be purchased by the ITC at the mutually price is specified. Therefore, ELEL could have called upon the ITC to purchase the hotel and in that event ITC was bound to purchase it. Although, this power has not been exercised by ELEL, yet it confers some type of right upon the respondent ITC in the hotel property in question which has been relinquished by the settlement agreement dated 11th May, 2005. iv) The right to property in question under the agreement dated 3rd May, 1986, is a property right. The right so conferred under the agreement is a property right. This right has been transferred by way of relinquishment resulting in a long-term capital gain. The word "property" ....
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....f Delhi High Court in Khanna and annadhanam vs. Commissioner of Income Tax reported in [2013] 351 ITR 110 (Delhi) (paras 2,5,6 and 7). vii) The judgment relied upon by learned Counsel for the appellant are distinguishable on facts of the present case and the correct position of law is stated as submitted and also as reflected from the judgements relied by the respondent/assessee. Discussions and Findings:- 13. Before we proceed to examine the terms and nature of contract involved in the present appeal and rival submissions of the learned counsels for the parties. It would be appropriate to reproduce the relevant provisions of the Act, 1961 as under:- Section 2 (14) of The Income Tax Act 1961:- "(14)"capital asset" means- (a) property of any kind held by an assessee, whether or not connected with his business or profession; (b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); [(c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does....
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....ceeding ten lakh; or (III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh. Explanation.-For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year; (iv) 6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government; (v) Special Bearer Bonds, 1991, issued by the Central Government ; (vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central Government. Explanation.-For the removal of doubts, it is hereby clarified that "property" includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever;" Section 2 (29) AA of The Income Tax Act 1961:- "[(29AA)] "long-te....
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....s or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically; (b) a non-fungible token or any other token of similar nature, by whatever name called; (c) any other digital asset, as the Central Government may, by notification in the Official Gazette specify: Provided that the Central Government may, by notification in the Official Gazette, exclude any digital asset from the definition of virtual digital asset subject to such conditions as may be specified therein. Explanation.-For the purposes of this clause,- (a) "non-fungible token" means such digital asset as the Central Government may, by notification in the Official Gazette, specify; (b) the expressions "currency", "foreign currency" and "Indian currency" shall have the same meanings as respectively assigned to them in clauses (h), (m) and (q) ....
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....re, it signifies every possible interest which a person can clearly hold or enjoy. The meaning of the word "property" has come up for examination before this Court in a number of cases. Reference may be made to one of them in which the question arose whether Mahantship or Shebaitship which combines elements of office and property would fall within the ambit of the word "property" as used in Article 19 (1) (f) of the Constitution. It was observed in the Commissioner, Hindu Religious Endowments, Madras v. Shri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt [(1954) SCR 1005, 1019] that there was no reason why that word should not be given a liberal and wide connotation and should not be extended to those well-recognised types of interests which had the insignia or characteristic of proprietory right. Although Mahantship was not heritable like the ordinary property, it was still held that the Mahant was entitled to claim protection of Article 19 (1) (f) of the Constitution. It is stated in the Halsbury' Law of England, Vol. 32, 3rd Edn., pages 534 that an annuity (which is a certain sum of money payable yearly either as a personal obligation of the grantor or out of property not co....
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....uch right does not amount to an easement or an interest in the property, the right is called a licence." Under the aforesaid section, if a document gives only a right to use the property in a particular way or under certain terms while it remains in possession and control of the owner thereof, it will be a licence. The legal possession, therefore, continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose. But for the permission, his occupation would be unlawful. It does not create in his favour any estate or interest in the property. There is, therefore, clear distinction between the two concepts. The dividing line is clear though sometimes it becomes very thin or even blurred. At one time it was thought that the test of exclusive possession was infallible and if a person was given exclusive possession of a premises, it would conclusively establish that he was a lessee. But there was a change and the recent trend of judicial opinion is reflected in Errington v. Errington [(1952) I All ER 149], wherein Lord Denning reviewing the case-law on the subject summarizes the result of his discussion thus at p.....
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....l is run cannot make any difference in the character of the holding. The intention of the parties is clearly manifest, and the clever phraseology used or the ingenuity of the document-writer hardly conceals the real intent. I, therefore, hold that under the document there was transfer of a right to enjoy the two rooms, and, therefore, it created a tenancy in favour of the respondent." (Emphasis Supplied) 18. Learned counsel for the respondent has heavily relied upon the judgement of Hon'ble Supreme Court in M/S. Techno Shares & Stocks Ltd vs Commissioner Of Income Tax-Iv 2010 V-327 ITR 323 SC (para 19) and Section 32 (1) (II) of the Act 1961 to contend that depreciation is admissible in respect of a license used for the purpose of business of profession. In the aforesaid case Hon'ble Supreme Court dealt with the right to nominate a membership card of Bombay Stock Exchange and in the light of the provision of Section 32 of the Act 1961, held it to be a "license". In the present set of facts the question of nomination or transfer of license is not involved. Even at the time of execution of the operating license agreement in question no amount was paid by ITC to ELEL as co....
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....e gross turnover. No premium or any non-refundable amount was paid by the ITC to ELEL under the operating license agreement. As per Clause 6.1, the ITC merely deposited adjustable security amount of Rs. 7.75 Crores to be appropriated towards payment of license fees for the last 24 months prior to the expiry or termination of the agreement. As per Article VII the ITC facilitated the ELEL for a bank loan of Rs. 3.50 Crores to be adjusted against monthly license fees referred in Article V until liquidation of the advance. As per Article IX, depreciation of the movable asset installed by the ITC shall be claimed by the ITC and on expiry of the agreement by efflux of time asset shall belong to the ELEL and ITC shall have no right in them. As per Article XI all rents, rates and taxes and insurance premium of the hotel was to be paid by the ITC throughout the subsistence of the agreement and a block amount of Rs. 10 lakh per annum was be borne by the ELEL to meet the said expenses. As per Article XII ITC shall have right to assign or transfer all rights and benefits of this Agreement to any of the ITC Group of Companies only, and none else. As Per Article XIII a statement of all current a....
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....t under the agreement the ITC was authorised to run and operate hotel with all the employees, staff including managerial staff of the ELEL. No right, title or interest of any kind was created by the ELEL in favour of the ITC in any of the assets/properties of ELEL (Hotel) to carry on the aforesaid commercial activity of operating the hotel. The ELEL was to get 23% of the gross turnover as license fees (subject to some variation as provided in clause V). Considering the terms of the licence operating agreement in its entirety, it is a Trading contract. 21. The settlement agreement dated 11.05.2005 between ELEL and ITC shows that to fully and finally adjust, compromise and settle disputes between the parties, the settlement agreement was entered. Clause I(f) of the settlement agreement defines "disputes" to mean that all allegations, claims, counter-claims and disputes forming the subject matter of the Suits and/or the Arbitration and includes all allegations, claims, counterclaims and/or demands between the Parties, of any nature, arising, in any manner, out of or touching or relating to the Hotel and/or any and all arrangements / understandings / agreements relating to the Hotel....
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....r claims and case pending in counts arising out of or relating to operating licence Agreement to run Hotel in question. The amount so received under the Award (consent terms) by the ITC in the matter of a Trading Contract, to settle all disputes, claims and counter claims, is certainly not the transfer of any capital asset. 24. In Commissioner of Income Tax, Nagpur vs. Rai Bahadur Jairam Vaiji, & Ors. AIR 1959 SC 291 (Para 11) Hon'ble Supreme Court considered the question "whether in the circumstances of the case the sum of Rs 2,500,000 received by the assessee as damages or compensation for the premature termination of the contract is income assessable within the meaning of the Indian Income Tax Act." and held it to be a treading receipt, as under :- "11. Examining the facts of the present case in the light of the above decisions, the question to be considered is whether the contract dated May 9, 1940, was entered into by the respondent in the usual course of his business. If it was, then the amount paid for the termination of the contract must be held to be a trading receipt. That the respondent has been carrying on business in the production and supply of limestone i....
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.... in settlement of loss in a trading transaction. 31.........Venkatarama Aiyar, J., observed, in an agency contract the actual business consists of dealings between the principal and his customers, and the work of the agent is only to bring about the business : What he does is not the business itself, but something which is intimately and directly linked up with it. The agency may, therefore, be viewed as the apparatus which leads to the business rather than the business itself. Considered in this light the agency right can be held to be of the nature of a capital asset invested in business. But this cannot be said of a contract entered into in the ordinary course of business. Such a contract is part of the business itself, not something outside it, and any receipt on account of such a contract can only be a trading receipt. Because compensation paid on the cancellation of a trading contract differs in character from compensation paid for cancellation of an agency contract, it should not be understood that the latter is always, and as a matter of law, to be held to be a capital receipt. An "agency contract which has the character of a capital asset in the hands of one perso....
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....cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt." (Emphasis Supplied) 27. In Oberoi Hotel Pvt. Ltd. Vs. Commissioner of Income Tax (1999) 3 SCC 127 (para 6 and 9) Hon'ble Supreme Court held as under:- "6. Applying the aforesaid test laid down by this Court in the present case, in our view the Tribunal was right in arriving at a conclusion that it was a capital receipt. The reason is that as provided in Article XVIII of the first agreement, the assessee was having an option or right or lien, if the owner desired to transfer the Hotel or lease a part of the Hotel to any other person, the same was required to be offered first to the assessee (Operator) or its nominee. This right to exercise its option was given up by a supplementary agreement which was executed in September 1975 between the Receiver and the assessee. It was agreed that the Receiver would be at liberty to sell or otherwise dispose of the said property at such price and on ....
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....c of India". 28. The distributorship agreement was a part of the assessee's business. At the cost of repetition, in the recital to the distributorship agreement, it is stated that the assessee was "actively engaged in the business of sale and distribution of several engineering and electrical products throughout the territory of the Republic of India". The termination thereof and the compensation allegedly paid in respect thereof were also only a part of the normal running of the business of the assessee." (Emphasis Supplied) 29. Vide in Commissioner of Income Tax, UP., Lucknow vs. Gangadhar Baijnath, Generalganj, Kanpur (1972) 4 SCC 28 (para 14) Hon'ble Supreme Court noted that one way of distinguishable capital from revenue receipts, is to take the classical economists distinction between fixed capital and circulating capital receipts in respect of former is capital while the later is not. Fixed capital is what is retained by the owner and turned to profit while circulating capital is parted with in order to yield profit. The ITC had not any fixed capital investment to run the hotel under the "Operating Licence Agreement". On the other hand from perusal of various cl....