1. The assessee is in appeal before us against the order of the CIT(A) who disallowed the assessee's claim of Rs. 38,12,980 under Section 80-IA.2. The facts of the case as stated in the assessment order are that the assessee company is engaged in the business of running hotel in Kolkata, Port Blair and Mukutmanipur. The assessee claimed deduction under Section 80-IA to the extent of Rs. 38,12,849. The building where the Hotel Peerless Inn is situated had been leased in favour of Peerless General Finance Investment Co. Ltd. by the State Government of West Bengal through the lease deed dated 26-3-1992. Subsequently, the assessee entered into an agreement with Peerless General Finance Investment Co. Ltd. through a lease Deed dated 20-7-1992 and later through another lease Deed dated 1 -4-1996 in which it was stipulated that the assessee-company shall run and the hotel Peerless Inn, Kolkata upon payment of rental charges of Rs. 18 lakhs per year and lease rent of Rs. 32 lakh per annum. The Assessing Officer was of the view that the agreements between the assessee-company and Peerless General Finance Investment Co. Ltd. dated 20-7-1992 and 1-4-1996 are for managing and running an existing hotel or at least running a hotel in a building, plant and machinery once used as a hotel, having a different name as well as different owner/user. It was also noted by him that the agreement aforementioned was not only in respect of the building, but all the plants, machinery, lifts, equipments, furniture fittings, fixture, furnishings and all other assets installed thereon. That implied according to the Assessing Officer, that the assessee-company did not fulfil the conditions prescribed under Section 80-IA. Before the Assessing Officer the assessee submitted that the condition under Section 80-IA was fulfilled ,as the hotel was not formed by splitting up, or the reconstruction of a business already in existence. It was also submitted that the company from which the present assessee undertook the running of the business i.e., Peerless General Finance Investment Co. Ltd. had not carried any hotel business from the building in concern. The State Government which had granted lease of the building to Peerless General Finance Investment Co. Ltd. on 26-3-1992 had also never utilised the building for carrying on the hotel business. The State Government of West Bengal acquired the building when the company which used to carry on hotel business from the building was in liquidation and the hotel was not in existence after the process of liquidation was complete. The Assessing Officer, however, held that the provisions of Section 80-IA is allowed only to an Industrial Undertaking, Hotel etc. which is newly set-up by the assessee for a specified period from the "initial year". According to him, it also implied that the unit shall be 'owned' by the assessee, inasmuch as, the benefit/incentive was meant for the assessee who makes an investment in such specified units to propel industrial growth and would not be available to the lessee or sub-lessee but only to the lessor. With these findings he disallowed the claim of the assessee made under Section 80-IA.3. The CIT(A), without considering whether the provisions of Section 80-IA was applicable in the present case held that in this case the assessee had taken possession of the building in which a hotel was earlier running by Ritz Continental Hotels Ltd. and according to the definition of the transfer by virtue of taking possession of the building by the appellant a transfer had taken place and, therefore, the assessee was hit by restrictive condition of Clause (z) of Sub-section (4) of Section 80-IA and, therefore, the assessee was not eligible for the claim under Section 80-IA.4. The authorized representative of the assessee submitted that it is an admitted fact that the building was previously used as Ritz Continental Hotel by Ritz Continental Hotels Ltd. which went into liquidation in 1980 and the hotel ceased functioning from 1979.
Thereafter Government of West Bengal acquired right, title and interest of the said building. The State Government has not carried any hotel business from such building at any material time.
5. On 26-3-1992 the State Government granted lease of the building for a period of 33 years to the Peerless General Finance & Investment Co.
Ltd. (PGFI) with the following condition: (i) That PGFI will use the building only for the purpose of running a hotel; (ii) That PGFI is empowered to sublet the building to anyone only for the purpose of running a hotel, And save that, it was submitted that PGFI has not been empowered to use the building for any other purpose.
6. On 20-7-1992 the PGFI entered into an agreement of subletting the building with the assessee only for the purpose of running a Hotel. In pursuance of such conditions the assessee has occupied the building as a tenant and is carrying on hotel business on and from 14-4-1993.
7. The representative of the assessee further submitted that all the conditions prescribed under Clauses (ii), (v) and (iv) of Section 80-IA have been fulfilled and the dispute relates only to compliance of conditions prescribed under Clause (i) which provides that: the business of the hotel is not formed by the splitting-up, or the reconstruction, of a business already in existence or by the transfer to a new business of a building previously used as a hotel or of any machinery or plant previously used for any purpose.
It is submitted that the business of the hotel is not formed by the splitting-up or reconstruction of a business already in existence. In fact and in effect there was no existing hotel business in the building and for which formation by way of splitting up or reconstruction does not arise. The key point was whether the business was formed by transfer of a building previously used as hotel or of any machinery or plant previously used for any purpose.
8. Transfer under the Transfer of Property Act, 1882 usually connotes transfer by way of sale, exchange, gift, lease and mortgage. In the case of sale, gift and exchange there may be complete transfer of ownership. But in other two cases of transfers, namely, mortgage of lease, the entire bundle of rights that go to constitute ownership are not transferred but some limited rights or interest in or to the property are transferred. Even in case of mortgage or lease of immovable property, it is well settled that is a transfer of property.
Relying on the decision of Bombay High Court in the case of Capsulation Services (P.) Ltd. v. CIT [1973] 91 ITR 566 wherein it was held that lease is also a mode of transfer as contemplated in Section 80J(4)(n) of the Act, it was submitted that transfer shall have to be reckoned within the meaning of Transfer of Property Act.
9. It was submitted that findings of the CIT(A) that "Transfer" has to be reckoned within the meaning of Section 2(47)(v) of the Income-tax Act, read with Section 53A of the Transfer of Property Act is not correct. It was submitted that CBDT in Circular No. 495, dated 22-9-1997 provides that: The existing definition of the word "Transfer" in Section 2(47) does not include transfer of certain rights accruing to a purchaser, by way of becoming a member of or acquiring shares in a Co-operative Society, Company or association of persons or by way of any agreement or any agreement whereby such person acquires any right in any building which is either being constructed or which is to be constructed. Transactions of the nature referred to above are not required to be registered under the Registration Act, 1908. Such arrangements confer the privileges of ownership without transfer of title in the building and are a common mode of acquiring flats particularly in multistoried construction in big cities. The definition also does not cover cases where possession is allowed to be taken or retained in past performance of a contract of the nature referred to in Section 53A of the Transfer of Property Act, 1882. New Sub-sections (v) and (vi) have been inserted in Section 2(47) to prevent avoidance of capital gains liabilities by recourse to transfer of rights in the manner referred to above. Our attention was drawn to pages 436-437 of Mulla's The Transfer of Property Act, 1882, Ninth Edition which reads as under: "Section 53A : Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the .transfer can be ascertained with reasonable certainty, and the transfer has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract; and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that the contract, though required to be registered, has not been registered, or, where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract. It was submitted that provisions of Section 53A of the Transfer of Property Act are not applicable. It was furthermore submitted that Delhi High Court in the case of CIT v. Reliance International Corporation (P.) Ltd. [1995] 211 ITR 666, 667 discussed the true import, of Section 2(47) of the Act and Section 53A of the Transfer of Property Act. The finding of CIT(A) relating to 'transfer' was not correct.
10. The authorised representative submitted that in pursuance of Section 107 of the Transfer of Property Act, it is mandatory that if a lease is to be created for any terms exceeding one year, it can be made only by a registered instrument. If the instrument is not registered, the corollary is that no lease exceeding one year is created at all.
Such an instrument, if not registered, cannot be admitted as evidence in view of Section 17 of the Registration Act, either for providing the terms of the lease or otherwise.
11. Our attention was also drawn to pages 1040-1041 of Mulla's The Transfer of Property Act, 1922, Ninth Edition wherein lease or Licence has been distinguished:In Associated Hotels of India v. R.N. Kapoor AIR 1959 SC 1262, 1269 the Court set out the following propositions as well established for ascertaining whether a transaction is a lease or licence: (i) to ascertain whether a document creates a lease or a licence, the substance of the document must be preferred to its form; (ii) the real test is the intention of the parties - whether they intended to create a lease or a licence; (iii) if the document creates an interest in the property, it is a lease, but, if it only permits another to make use of the property, of which legal possession continues with the owner, it is a licence, and (iv) if under the document a party gets exclusive possession of the property, 'prima facie' he is considered to be a tenant, but circumstances may be established which negates the intention to create a lease.
A licence is defined in Section 52 of the Indian Easements Act 5 of 1882 as a right to do or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful and such right does not amount to an easement or an interest in the property. There is no simple litmus test for distinguishing a lease from a licence. The character of the transaction turns on the operative interest of the parties. If interest in immovable property, entitling the transferee to its enjoyment, is created, it is a lease, if provision to use the land without the right to exclusive possession is alone granted, the transaction is a licence.
However, exclusive possession itself is not decisive in favour of a lease and against a mere licence, for, even the grant of exclusive possession might turn out to be only a licence and not a lease where the grantor himself has no power to grant the lease. The crucial test in each case is whether the instrument is intended to create or not to create an interest in the property and the subject matter of the agreement. If it is in fact intended to create an interest in the property it is a lease, if it does not, it is a licence.
12. The Agreement dated 26-3-1992 between the State Government and PGFI only empowered the said PGFI: (ii) to sublet the building to anyone only for the purpose of running a hotel.
PGFI has not carried any hotel business from such building. Being empowered to sublet the building only for the purpose of running a hotel, PGFI by virtue of Agreement dated 20-7-1992 sublet the building to the assessee only for the purpose of running a hotel. The assessee is occupying the building simply as a tenant and carrying on hotel business therefrom. The status of the assessee is a tenant and licence.
Accordingly there was no transfer of the building to the assessee.
13. The authorised representative relied on the decision of Bombay High Court in the case of CIT v. Bayer Agrochem Ltd. [1982] 134 ITR 240, 231, 247 and 248 wherein the decision of Supreme Court in Associated Hotels of India Ltd. 's case (supra) was discussed and it was held that there was no transfer of the building in favour of the assessee-company and the arrangement being a licence the assessee is entitled for relief under Section 15C of 1922 Act. It was submitted that the decision of Bombay High Court in the case of Bayer Agrochem Ltd. (supra) is fully applicable and there being no transfer of the building the provisions of Clause (z) of Section 80-IAA(4) has not been contravened. The assessee is accordingly entitled for deduction under Section 80-IA of the Act.
14. It was further submitted that no hotel business was carried in the building from 1979to 13th April, 1993.For 14 long years there was no hotel activities in such building. Building previously used as hotel shall have to be reckoned from the fact whether the building was used as hotel immediate to commencement of hotel business. The conditions of Clause (i) of Section 80-IA(4) evidences whether an existing business was splitted or reconstructed. In respect of building previously used as hotel it has to be considered whether made in the assessment order dated 16-3-2001. The CIT(A) in paragraphs 17, 18, 19, 20, 21 of the order has submitted his findings in detail and based on that has summed up in paragraph 22 of the order that all the conditions stipulated under Sub-section (4) of Section 80-IA have been satisfied and the assessee is entitled to the deduction under Section 80-IA of the Act.
15. We have considered the rival submissions, gone through the agreements between the Government of West Bengal and Peerless General Finance & Investment Co. Ltd., and the assessee. We find that the present business of hotel of the assessee was not formed by splitting-up or reconstruction of a business in the sense Ritz Continental Hotels Ltd. was not reconstructed into PGFI. The erstwhile business of Ritz Continental Hotels Ltd. was liquidated and with its liquidation whatever was owned by the erstwhile company i.e., Ritz Continental Hotels Ltd. came to an end with the liquidation and subsequent acquisition by the Government of West Bengal. We also find out that what the Government acquired was the building and land appurtenant thereto along with other assets as per the Schedule in terms of the agreement between the Government of West Bengal and PGFI.In the list of assets acquired by the Government of West Bengal, there was no mention of any hotel property or any equipment or any machinery or plant of the erstwhile hotel. Therefore, the finding of the Assessing Officer that there was a transfer of the hotel business within the meaning of Section 80-IA(4) is not factually correct.
16. The CIT(A) has applied a logic that in this case the appellant has taken the possession of the building in which a hotel was earlier run by Ritz Continental Hotels and according to the definition, the transfer is concluded under the Transfer of Property Act. By virtue of having taken the possession of the building by the appellant, the transfer has taken place and, therefore, the appellant is hit by the restrictive condition of Clause (z) of Sub-section (4) of Section 80-IA of the Income-tax Act. He has used the words "hotel which was earlier run by Ritz Continental Hotels". The provision of the Act is that the building should not be previously used as a hotel. The meaning of the expression "previously" as appearing in various dictionaries is "immediately before, in order of time, preceding". In Income-tax Act also there is a specific meaning of the word 'previous' which is clear from the wording of Section 3 of Income-tax Act, 1961. In that section 'previous year' has been defined and the word 'previous' means 'immediately preceding'. Therefore, the Assessing Officer's view that the restrictive clause under Section 80-IA applies because the building was at one point of time used as a hotel supported by the CIT(A) is incorrect by the expression used under the Act. It is clear from the facts of the case that immediately preceding the formation of the hotel Peerless Inn, the building was taken on lease by PGFI which did not use the building as hotel. Previous to that Government of West Bengal had bought the right and title of the property from the Official Liquidator of the erstwhile company which was running hotel Ritz Continental. The Government of West Bengal also had, at no point of time, run this building as a hotel. What was transferred by the Government of West Bengal to PGFI is land and building appurtenant thereto and certain equipments, fixtures, etc. as per schedule. On going through the list of the fixtures and equipments, it does not appear that any of the equipments used in hotel had been transferred by the Government of West Bengal to PGFI. The PGFI also did not run the building and land appurtenant thereto as a hotel but handed over the land and building to the present-company. Therefore, by no stretch of imagination, it can be said that the present company bought a property which was previously used as hotel. It has also been established that the present company was not formed by splitting-up or reconstruction of a business already in existence. It is also clear that this company was not formed by transfer of a new business or any machinery or plant previously used for any purpose. It is also made clear now that the company did not occupy the property which was previously used as a hotel. Such being the case, we are of the view that deductions under the provisions of Section 80-IA are fully allowable in the present case. This becomes more relevant by the letter of the Deptt. of Tourism, Government of India. In their letter dated 25-3-1998, approval was accorded to Peerless Hotels Ltd., Kolkata under Sections 80-IA and 80-O of Income-tax Act, 1961. This goes to show that the Ministry of Tourism, while granting approval to the hotel for the purpose of Section 80-IA, also satisfied itself as to the requirements of Section 80HHD and under Section 80-IA before according such approval. Such being the case, we are of the view that the Assessing Officer erred in disallowing the benefit of Section 80-IA to the assessee and the CIT(A), in confirming the same order also followed suit. In superseding their orders, we uphold the contentions raised in this appeal and direct that benefit under Section 80-IA be granted to the assessee.