2002 (10) TMI 54 - HC - Income Tax

Through this petition which is under article 226 of the Constitution of India the petitioners seek quashing of order and the criminal proceedings initiated in pursuance thereof under section 276AB r.w.s. 278B, on the request of learned counsel for the petitioners the Division Bench of this court treated this petition as an application under section 482 of the Criminal Procedure Code. - In the present case also it is clearly stipulated in lease deed that the lease was extendable purely at the discretion and option of the lessee on the second part for a further period of nine years. On a conjoint reading of paras. 1 and 12 of the lease deed, is becomes clear that the lessor intended the lease to last for 18 years. The lessor could not have refused to renew/extend the lease after the first term if the lessee complied with the conditions for renewal/extension. So in view of the Explanation to section 269UA(f)(i), the total terms of lease will be 18 years no matter whether it is for a single term of 18 years or two terms of nine years each or three terms of six years each or six terms of three years each. Whether the subsequent terms are described as extensions or renewals is immaterial for the purpose of section 269UA(f)(i). If the aggregate of the original term and stipulated extension/ renewal comes to more than 12 years, such a lease will fall under the purview of the Explanation to section 269UA(f)(i) and it will be considered to be a lease for not less than 12 years thereby making the provisions of Chapter XX-C applicable thereto. Petition fails

Summary

Issues: Interpretation of lease deed under Income-tax Act

Issue 1: Interpretation of lease deed for applicability of Income-tax Act provisions
The judgment revolves around the interpretation of a lease deed to determine if it falls under the provisions of Chapter XX-C of the Income-tax Act. The court analyzed the lease deed dated May 31, 1991, to ascertain if the lease was for a period exceeding 12 years, making it a "transfer" as defined in section 269UA(f) of the Act, thus applying Chapter XX-C. The court referred to the Explanation attached to section 269UA(f) to clarify that the aggregate term of the lease, including any extensions, exceeding 12 years would trigger the Act's provisions. It emphasized that the authorities should assess the lease's terms to decide the applicability of Chapter XX-C without waiting for the lease's actual extension or renewal after the original term.

Issue 2: Distinction between "extension" and "renewal" in lease agreements
The judgment addressed the distinction between "extension" and "renewal" in lease agreements concerning the interpretation of the lease deed. The court highlighted that the word "extension" in the Explanation to section 269UA(f) encompasses scenarios where the lease term is prolonged without the need for a new lease, whereas "renewal" involves executing a fresh lease. The court cited legal precedents to support this distinction, emphasizing that the terms of the lease agreement, whether described as extensions or renewals, are crucial for determining if the total lease period exceeds 12 years, thus falling under the Act's purview.

Analysis:
The court dismissed the petition seeking to quash criminal proceedings initiated under the Income-tax Act, emphasizing the importance of interpreting lease agreements accurately to determine their applicability under relevant legal provisions. It clarified that the total term of a lease, including any extensions or renewals, exceeding 12 years would subject the transaction to the Act's provisions. The judgment highlighted the significance of assessing the lease terms themselves rather than waiting for actual extensions or renewals to decide on the Act's applicability. Moreover, the court's analysis of the distinction between "extension" and "renewal" in lease agreements underscored the need to consider the specific language and intent of the lease deed to ascertain the total lease duration accurately. The legal precedents cited in the judgment further supported the court's interpretation regarding the implications of lease extensions or renewals exceeding 12 years under the Income-tax Act.