Letape (India) (P) Ltd. Vs. Assistant Commissioner of Income - Court Judgment

Excerpt:
1. the only effective ground in this appeal by the assessee, as per the learned counsel for the assessee, is the year in which the capital gains arise for being taxed. the assessee was occupying a business premises at new delhi where audio magnetic tapes were being manufactured. this premises was under tenancy with the assessee from 31st aug., 1970. the assessee continued to occupy the premises after the lease period. the landlord/owner had initiated eviction proceedings against the assessee. the assessee gave an undertaking to the owner to vacate the premises for consideration of rs. 8.0 lakhs, out of which rs. 2.0 lakhs was for surrendering the tenancy and rs. 6.0 lakhs was for leaving behind the furniture and fixtures in the premises. the said agreement was entered into on 29th sept., 1995. the ao brought to tax the amount of rs. 2.0 lakhs as capital gains and the amount of rs. 6.0 lakhs as short-term capital gains. as per the assessee, these amounts were offered for taxation in the immediately succeeding year, i.e., asst. yr. 1997-98, since the remaining part of the premises was allegedly surrendered during the previous year relevant to the asst.yr. 1997-98. the learned cit(a) observed that the agreement between the assessee and the owner of the premises clearly indicates the assessee to have surrendered the tenancy rights on that date, i.e., 29th sept., 1995, and that part surrender of the remaining premises upto 30th june, 1996, was merely an arrangement, which did not affect any right of either of the parties to the agreement. it was observed that the assessee was thus occupying part of the premises on the basis of the said understanding and the assessee had no right thereto whatsoever after receiving full consideration from the owner. the learned cit(a) was of the opinion that the assessee had tried to push forward the capital gain to the asst. yr. 1997-98, merely because in the said year, the assessee had, incurred losses and no tax would, therefore, be payable after adjustment of income on surrender of premises. the appeal of the assessee was dismissed.2. the learned counsel for the assessee has taken us through the application under order 23, rule 3 r/w section 151, cpc. in this application, it has been mentioned, inter alia, that the parties were agreeing to enter into a compromise, that however, the, plaintiff/landlord/owner would not execute the decree for compromise for a period upto 30th sept., 1996; that the defendant/assessee undertook to vacate and hand over the vacant peaceful physical possession of the premises to the plaintiff on or before 30th sept., 1996; that the defendant/assessee further undertook that they would not induct any third person in the premises after passing of the decree; that the defendant/assessee was handing over to the plaintiff/landlord vacant and physical possession of a part of the said property at the time of recording of the said compromise between the parties; and that undertaking to the aforesaid effect would be given by the defendant/assessee before the court that they would vacate and hand over vacant and peaceful possession of the premises to the plaintiff/ landlord on or before 30th sept., 1996 and will not induct any third person in the premises after passing of the decree.3. the learned counsel for the assessee has submitted that the aforesaid compromise was acted upon and possession of the property was handed over to the landlord on 30th sept., 1996. this did not fall in the assessment year under which the tax has been imposed, i.e., asst.yr. 1996-97. assessment year 1997-98, was the correct year for this amount to be taxed, as the said date fell in this assessment year. it is this and only this date which is to be taken into consideration.actual possession was parted with on this date. therefore, there is no question of the assessee trying to push forward the capital gain to asst. yr. 1997-98.4. the department would allege that in fact, the agreement entered into between the parties, as depicted in the application under order 23, rule 3, cpc, shows that possession of a portion of the property was handed over on 30th sept., 1995 itself. therefore, it is this date which is to be taken into consideration for the purposes of taxation, and not 30th sept., 1996. it is also alleged that this is a case of transfer within the meaning of section 2(47) of the it act and it has rightly been taxed. attention is drawn to receipt issued by the assessee in full and final settlement as per terms and conditions of the surrender of tenancy rights. it is submitted by the learned departmental representative that in this condition, the appeal of the assessee requires being dismissed.5. the contents of the application under order 23, rule 23 r/w section 151, cpc, have been misread by the department. much is being tried to be made out of the recital contained in para 5, to the effect that the defendant/assessee handed over a portion of the property at the time of recording of the compromise. however, it is not disputed that this portion is merely a common passage existing thereat. the actual physical possession of the main premises of the property was handed over only on 30th sept., 1996. that being so, the cause of action accrued to the department, for levying tax, on this date, i.e., 30th sept., 1996. in this regard, the decision of the hon'ble supreme court in the case of heeralal vallabhlal v. shetkasturbha lalbhai and ors.air 1967 sc 1853, has rightly been relied upon by the assessee. their lordships were dealing with the bombay rents, hotel & lodging house rates control act, 1947. it was observed, inter alia, that the interest of a tenant who, for purposes of section 14, is a contractual tenant, comes to an end clearly only when he is not only no longer a contractual tenant, but also when he has lost the right to remain in possession, which section 12 has given to him and is no longer even a statutory tenant. till the tenancy of the contractual tenant has been determined by notice and the contractual tenant has been ordered to be ejected under section 28 on any of the grounds in section 12 or section 13, or till he gives up the tenancy himself, the interest of a tenant who may be a contractual tenant for the purpose of section 14, cannot be said to have determined, i.e., come to an end completely.6. as per section 5(ii)(b) of the bombay rents, hotel & lodging house rates control act, 1947, "tenant" includes any person remaining, after determination of lease, in possession, with or without the assent of the landlord of the premises leased to such person......." "no ejectment ordinarily to be made if tenant pays or is ready and willing to pay standard rent and permitted increases-- (1) a landlord shall not be entitled to the recovery of possession of any premises so long as the tenant pays, or is ready and willing to pay, the amount of the standard rent and observes and performs the other conditions of the tenancy, in sofar as they are consistent with the provisions of the act, (2) no suit for recovery of possession shall be instituted by a landlord against a tenant on the ground of non-payment of the standard rent or permitted increase due, until the expiration of one month next after notice in writing of the demand of the standard rent or permitted increases has been served upon the tenant in the manner provided in section 106 of the transfer of property act, 1882. (3) no decree for eviction shall be passed by the court in any suit for recovery of possession on the ground of arrears of standard rent and permitted increases if, on the first day of hearing of the suit or on or before such other date as the court may fix, the tenant pays or tenders in court the standard rent and permitted increases then due and together with simple interest on the amount of arrears of such standard rent and permitted increases at the rate of nine per cent, per annum; and thereafter continues to pay or tenders in court regularly such standard rent and permitted increases till the suit is finally decided and also pays cost of the suit as directed by the court : provided that, the relief provided under this sub-section shall not be available to a tenant to whom relief against forfeiture was given in any two suits previously instituted by the landlord against such tenant. (4) pending the disposal of any such suit, the court may out of any amount paid or tendered by the tenant pay to the landlord such amount towards payment of rent or permitted increases due to him as the court thinks fit." 7. it is not in dispute that the premises in question is governed by a similar rent act. a perusal of the agreement of surrender of tenancy rights shows that para 8, thereof, (para 128 of the assessee's paper book), mentions that the portion of the property, of which portion, vacant physical possession was handed over by the assessee to the landlord on 30th sept., 1995, was "a passage to be used commonly by both the parties". it also finds mention that "thereafter, the entire physical possession shall be given to the first and the third parties on or before 30th sept., 1996". in this view of the matter, it cannot but be concluded that the total receipt of rs. 8.0 lakhs was correctly offered for tax in asst. yr. 1997-98 and this was the assessment year in which it should have been taxed, instead of in the asst. yr.1906-97, as has been done. accordingly, the grievance of the assessee is accepted.

Judgment:
1. The only effective ground in this appeal by the assessee, as per the learned counsel for the assessee, is the year in which the capital gains arise for being taxed. The assessee was occupying a business premises at New Delhi where audio magnetic tapes were being manufactured. This premises was under tenancy with the assessee from 31st Aug., 1970. The assessee continued to occupy the premises after the lease period. The landlord/owner had initiated eviction proceedings against the assessee. The assessee gave an undertaking to the owner to vacate the premises for consideration of Rs. 8.0 lakhs, out of which Rs. 2.0 lakhs was for surrendering the tenancy and Rs. 6.0 lakhs was for leaving behind the furniture and fixtures in the premises. The said agreement was entered into on 29th Sept., 1995. The AO brought to tax the amount of Rs. 2.0 lakhs as capital gains and the amount of Rs. 6.0 lakhs as short-term capital gains. As per the assessee, these amounts were offered for taxation in the immediately succeeding year, i.e., asst. yr. 1997-98, since the remaining part of the premises was allegedly surrendered during the previous year relevant to the asst.

yr. 1997-98. The learned CIT(A) observed that the agreement between the assessee and the owner of the premises clearly indicates the assessee to have surrendered the tenancy rights on that date, i.e., 29th Sept., 1995, and that part surrender of the remaining premises upto 30th June, 1996, was merely an arrangement, which did not affect any right of either of the parties to the agreement. It was observed that the assessee was thus occupying part of the premises on the basis of the said understanding and the assessee had no right thereto whatsoever after receiving full consideration from the owner. The learned CIT(A) was of the opinion that the assessee had tried to push forward the capital gain to the asst. yr. 1997-98, merely because in the said year, the assessee had, incurred losses and no tax would, therefore, be payable after adjustment of income on surrender of premises. The appeal of the assessee was dismissed.

2. The learned counsel for the assessee has taken us through the application under Order 23, Rule 3 r/w Section 151, CPC. In this application, it has been mentioned, inter alia, that the parties were agreeing to enter into a compromise, that however, the, plaintiff/landlord/owner would not execute the decree for compromise for a period upto 30th Sept., 1996; that the defendant/assessee undertook to vacate and hand over the vacant peaceful physical possession of the premises to the plaintiff on or before 30th Sept., 1996; that the defendant/assessee further undertook that they would not induct any third person in the premises after passing of the decree; that the defendant/assessee was handing over to the plaintiff/landlord vacant and physical possession of a part of the said property at the time of recording of the said compromise between the parties; and that undertaking to the aforesaid effect would be given by the defendant/assessee before the Court that they would vacate and hand over vacant and peaceful possession of the premises to the plaintiff/ landlord on or before 30th Sept., 1996 and will not induct any third person in the premises after passing of the decree.

3. The learned counsel for the assessee has submitted that the aforesaid compromise was acted upon and possession of the property was handed over to the landlord on 30th Sept., 1996. This did not fall in the assessment year under which the tax has been imposed, i.e., asst.

yr. 1996-97. Assessment year 1997-98, was the correct year for this amount to be taxed, as the said date fell in this assessment year. It is this and only this date which is to be taken into consideration.

Actual possession was parted with on this date. Therefore, there is no question of the assessee trying to push forward the capital gain to asst. yr. 1997-98.

4. The Department would allege that in fact, the agreement entered into between the parties, as depicted in the application under Order 23, Rule 3, CPC, shows that possession of a portion of the property was handed over on 30th Sept., 1995 itself. Therefore, it is this date which is to be taken into consideration for the purposes of taxation, and not 30th Sept., 1996. It is also alleged that this is a case of transfer within the meaning of Section 2(47) of the IT Act and it has rightly been taxed. Attention is drawn to receipt Issued by the assessee in full and final settlement as per terms and conditions of the surrender of tenancy rights. It is submitted by the learned Departmental Representative that in this condition, the appeal of the assessee requires being dismissed.

5. The contents of the application under Order 23, Rule 23 r/w Section 151, CPC, have been misread by the Department. Much is being tried to be made out of the recital contained in para 5, to the effect that the defendant/assessee handed over a portion of the property at the time of recording of the compromise. However, it is not disputed that this portion is merely a common passage existing thereat. The actual physical possession of the main premises of the property was handed over only on 30th Sept., 1996. That being so, the cause of action accrued to the Department, for levying tax, on this date, i.e., 30th Sept., 1996. In this regard, the decision of the Hon'ble Supreme Court in the case of Heeralal Vallabhlal v. Shetkasturbha Lalbhai and Ors.

AIR 1967 SC 1853, has rightly been relied upon by the assessee. Their Lordships were dealing with the Bombay Rents, Hotel & Lodging House Rates Control Act, 1947. It was observed, inter alia, that the interest of a tenant who, for purposes of Section 14, is a contractual tenant, comes to an end clearly only when he is not only no longer a contractual tenant, but also when he has lost the right to remain in possession, which Section 12 has given to him and is no longer even a statutory tenant. Till the tenancy of the contractual tenant has been determined by notice and the contractual tenant has been ordered to be ejected under Section 28 on any of the grounds in Section 12 or Section 13, or till he gives up the tenancy himself, the interest of a tenant who may be a contractual tenant for the purpose of Section 14, cannot be said to have determined, i.e., come to an end completely.

6. As per Section 5(ii)(b) of the Bombay Rents, Hotel & Lodging House Rates Control Act, 1947, "tenant" includes any person remaining, after determination of lease, in possession, with or without the assent of the landlord of the premises leased to such person......." "No ejectment ordinarily to be made if tenant pays or is ready and willing to pay standard rent and permitted increases-- (1) A landlord shall not be entitled to the recovery of possession of any premises so long as the tenant pays, or is ready and willing to pay, the amount of the standard rent and observes and performs the other conditions of the tenancy, in sofar as they are consistent with the provisions of the Act, (2) No suit for recovery of possession shall be instituted by a landlord against a tenant on the ground of non-payment of the standard rent or permitted increase due, until the expiration of one month next after notice in writing of the demand of the standard rent or permitted increases has been served upon the tenant in the manner provided in Section 106 of the Transfer of Property Act, 1882.

(3) No decree for eviction shall be passed by the Court in any suit for recovery of possession on the ground of arrears of standard rent and permitted increases if, on the first day of hearing of the suit or on or before such other date as the Court may fix, the tenant pays or tenders in Court the standard rent and permitted increases then due and together with simple interest on the amount of arrears of such standard rent and permitted increases at the rate of nine per cent, per annum; and thereafter continues to pay or tenders in Court regularly such standard rent and permitted increases till the suit is finally decided and also pays cost of the suit as directed by the Court : Provided that, the relief provided under this sub-section shall not be available to a tenant to whom relief against forfeiture was given in any two suits previously instituted by the landlord against such tenant.

(4) Pending the disposal of any such suit, the Court may out of any amount paid or tendered by the tenant pay to the landlord such amount towards payment of rent or permitted increases due to him as the Court thinks fit." 7. It is not in dispute that the premises in question is governed by a similar rent Act. A perusal of the agreement of surrender of tenancy rights shows that para 8, thereof, (para 128 of the assessee's paper book), mentions that the portion of the property, of which portion, vacant physical possession was handed over by the assessee to the landlord on 30th Sept., 1995, was "a passage to be used commonly by both the parties". It also finds mention that "thereafter, the entire physical possession shall be given to the first and the third parties on or before 30th Sept., 1996". In this view of the matter, it cannot but be concluded that the total receipt of Rs. 8.0 lakhs was correctly offered for tax in asst. yr. 1997-98 and this was the assessment year in which it should have been taxed, instead of in the asst. yr.

1906-97, as has been done. Accordingly, the grievance of the assessee is accepted.