9911796707
TMI Blog1995 (4) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... mpleted during the year and the space was allotted to the users. For computing the income of the assessee in respect of this source of income, the expenditure incurred by the assessee on construction was deducted from the total receipts by way of shop deposits. 3. Assessee appealed to the CIT (Appeals), who vide order dated 20-3-1991 in Appeal No. 38/90-91 set aside the assessment to be framed de novo in accordance with law. The Assessing Officer accordingly passed a fresh assessment order vide order dated 30-3-1993. 4. The relevant facts are that in March 1981, Delhi Automobiles (P.) Ltd. (DAPL) entered into an agreement with New Delhi Municipal Committee (NDMC) by virtue of which DAPL was granted a licence to enter and occupy a plot of land measuring about 6 acres at Barakhamba Lane, New Delhi. The licence was granted on the following terms : (i) an annual licence fee of Rs. 1,45,000 was payable by DAPL as a consideration for the licence ; (ii) the licence was for a period of 99 years, from the date of agreement ; (iii) the said plot of land was to be used for constructing a building with a life of 100 years, to house a five-star hotel and other business appurtenant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts received as shop deposits were refundable and could not be termed as trading receipts as assessee had not traded in any property and that in any case, the amount received by way of deposits were refundable. The Assessing Officer rejected the contention of the assessee for the following reasons : (a) the receipts of money by the assessee is integrally linked to the right of sub-licensee to use the space in WTC. The assessee has received the money from persons to whom it has allotted space and granted the right to use the said space through a sub-licence agreement ; (b) the sub-licensee cannot demand the money back at his free will. If any sub-licensee wants the money back, it has to vacate the space allotted to it ; (c) The occasion for refund of security deposit arises only when sub licensee vacates the space of his own free will or the assessee terminates the sub-licence in certain exceptional circumstances. In normal circumstances, the assessee cannot evict the sub licensees and, therefore, the occasion for refund does not arise. (d) It is also seen that the amount of security deposit is related to the area of space allotted/allotable. This means more area more depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a part of the quid pro quo. The assessee having allowed the use of the space in WTC and collected the shop deposits from the sub-licensees, the said security deposits were refundable only when space was handed over voluntarily by the sub-licensee or the sub-licensee was evicted under exceptional circumstances as provided in the agreement. According to the Assessing Officer, the assessee was having full and free user of the money without any hinderance or restriction from the sub-licensees. 10. In appeal in the first round before the CIT(Appeals), assessee had made following points : (i) it had no legal right in the plot and that the building also vests in NDMC ; (ii) it had received moneys from persons to who occupancy rights have been granted. These moneys were to remain with the assessee during the subsistence of the sub-licence agreement ; (iii) the granting of sub-licence only confers right to occupy and exploit the allotted space ; (iv) the assessee has submitted that it was not the owner of the land or the building and, therefore, it could not transfer what it did not own. (v) The assessee has also claimed that the sub-licensee is a creditor of the company and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the Assessing Officer, the facts in the case of C.J. International and those in the case of assessee in any case are different insofar as in the case of C.J. International, there was no separate building for a shopping-cum-commercial complex. It was accordingly held that the two cases are not comparable. The learned Assessing Officer has referred to the observation of the Hon'ble High Court in the case of C.J. International where a comparison was sought to be made with the arrangement between NDMC and BHL as under : " Rights of the parties even otherwise arise out of contractual obligations and any comparison with BHL is not only misplaced but thoroughly inappropriate." It was accordingly held that the decision in the case of C.J. International of the Hon'ble High Court of Delhi was irrelevant and inapplicable to the facts of this case. Reference has been made to the decision of the Bombay High Court in the case of Shree Nirmal Commercial Ltd. (hereinafter SNCL v. CIT [1992] 193 ITR 694 and the similarities with the case of the assessee highlighted. It has been held that in the case of SNCL the so-called deposits were held by the assessee-company as long as the members/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its was linked to the area made available to the sub-licensees. The Assessing Officer further held that the sub-licence could be terminated only when there was a breach of contract and in the absence of the same, neither the assessee nor the sub-licensees could be evicted. It was further observed by the Assessing Officer that the sub-licensee had the right to transfer the unexpired portion of the sub-licence to others and earn profits thereon or to allow third party to use the premises and earn rental income thereon though with the consent of the assessee. Assessing Officer had referred to the one instance in the case of Mrs. Ritu Suri, who is the sub-licensee of the assessee and who had given her space on a monthly rent of Rs. 14,000 to a public company. According to the Assessing Officer, the security deposits collected by the assessee was not a debt and as such the amount was assessable as a trading receipt. The findings of the Assessing Officer may thus be summarised as under : (1) The WTC is an integral part of business of assessee, who has invested its resources for the construction of superstructure housing WTC. (2) The shopping-cum-commercial space in WTC is a valuable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged itself in purchasing, acquiring, constructing and letting out on lease shopping arcade, shops, etc., as a business and that the transfer of office-cum-shops space in WTC had been undertaken by the assessee as an organised business activity and the receipts in the name of deposits were the trading receipts of the assessee. The CIT(Appeals) observed that the deposit received from the sub-licensees were not refundable at all. On the basis of enquiries made from some of the sub-licensees, the CIT (Appeals) observed that the amount paid by them was considered as a purchase price for the space and in their respective balance sheets they have declared the space as fixed assets. 15. Referring to the contentions raised on behalf of the assessee that refunds had been granted to some of the sub-licensees, the learned CIT(Appeals) held that in most of the cases, the deposit has been transferred in the name of the nominees. Assessee had given opinion of the former Chief Justice of India Shri Y.V. Chandrachud and that of Shri N. Palkhiwala in support of the contention that the deposits received by the assessee were not taxable as income. The CIT(Appeals) has rejected these opinions on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording to the learned counsel, assessee had no ownership rights in respect of the building which was vested in the NDMC. In this connection, our attention was drawn to the agreement between DAPL and NDMC and subsequent agreement between assessee and the NDMC. It was pointed out that assessee has not been assessed to house tax as the company is not the owner of the property. The learned counsel explained the circumstances under which the assessee had been allotted the land and allowed to raise construction of the Five Star hotel and a commercial complex. The assessee, according to the learned counsel, was allowed to raise finances against the commercial complex, parking space and cycle shed. Assessee had invested some money of its own, borrowed some money from financial institutions and also raised finances from the prospective sub-licensees. Assessee, according to the learned counsel, was not engaged in the real estate business. Our attention was drawn to clause 30 of the sub-licence agreement by virtue of which assessee was duty bound to refund the deposits received from the sub-licensees. Our attention was also drawn to the decisions of the Tribunal in the cases of Divya Internat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty as security deposit. In order to secure the deposit the Indian Oil Corporation demanded the mortgage of the property. A special permission was sought from NDMC which was granted and accordingly the property mortgaged to the IOC as security for the refund of the deposit. This necessitated execution of supplementary agreement between assessee and NDMC on 16-8-1984. The learned counsel further pointed out that the hotel building (Holiday Inn) and WTC was one project of the assessee and the assessee was not the owner either of the Hotel or of the WTC. 20. Shri Ganeshan vehemently argued that assessee had been allowed to grant sub-licences and raise finances for the construction of the hotel building. Assessee undoubtedly has got the finances from the sub-licensees without payment of any interest. Assessee, according to Shri Ganeshan, was paying taxes on the income derived from the hotel building in which the finances generated from the sub-licensees were invested. Therefore, assessee was paying taxes on the benefits derived in respect of the deposits by way of utilising the said deposits in the construction and running of the hotel. There was, according to the learned counsel, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Liquidator, Panipat Electric Supply Co. Ltd. v. CIT [1972] 86 ITR 501, Shri Ganeshan contended that receipt accruing to the assessee must not have any ambiguity attached to it so as to be assessed as income of the assessee. If the deposits would have been income of the assessee, the same could not be returned. Since assessee had obligation to return the deposits on termination or determination of sub-licence agreements, the said deposits could not be treated as income of the assessee. Reliance was also placed on the decision of the Supreme Court in the case of CIT v. Hindustan Housing and Land Development Trust Ltd. [1986] 161 ITR 524, in support of the contention that where a receipt is subject to litigation, no income can be said to have accrued to the assessee. Reliance was also placed on the decision of the Supreme Court in the case of CIT v. A. Gajapathy Naidu [1964] 53 ITR 114 in support of the contention that there must be no ambiguity attached to a receipt in order to be held as income. Shri Ganeshan sought to distinguish the decision of the Bombay High Court in the case of Shree Nirmal Commercial Ltd. on the following grounds : (a) In the case of SNCL, assessee had leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t received by the assessee till the end of the previous year relevant to assessment year 1987-88 was Rs. 16,91,50,527. This included a sum of Rs. 4,68,62,625 in respect of World Trade Tower, construction of which had not been completed by the end calender year 1987. A sum of Rs. 6,74,62,500 included in the aforesaid amount was from Indian Oil Corporation in respect of which possession had been given by the assessee in the calender year 1985. A sum of Rs. 2,45,41,947 was on account of advances in respect of the premises, the possession of which was given in the subsequent years. According to Shri Ganeshan, the deposits in respect of the premises of which the possession was given during the calender year 1986 which is the previous year for the assessment year 1987-88, was Rs. 3,02,83,455 only. Even if the finding of the Assessing Officer relating to assessability of the deposit is upheld, the amount of Rs. 3,02,83,455 less deduction on account of cost of construction, alone would be assessable to tax in the year under appeal. This, according to the learned counsel, is on the basis of the principle laid down by the Bombay High Court in the case of Shree Nirmal Commercial Ltd. 25. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent in the agreement between the assessee and the NDMC and in the subsequent activities of the assessee. Shri Sharma contended that as per the agreement between the assessee and the sub-licensees, there was a clear camouflage in description relating to the licence as well as relating to the deposit. Relying upon the decision of the Supreme Court in the case of Associated Hotels of India Ltd. v. R.N. Kapoor [1960] 1 SCR 368, Shri Sharma contended that it was necessary to go into the substance of the agreement between the parties in order to arrive at the conclusion as to whether there was a licence or lease between the parties. In that case, their Lordships of the Supreme Court came to the conclusion that notwithstanding the description in the agreement of the licence between the hotelier and Shri R.N. Kapur, there was in substance a lease between the parties. Shri Sharma contended that the distinction between the licence and the lease has been identified by their Lordships of the Supreme Court in the afore-mentioned decision at page 383. Relying upon the decision of the Supreme Court in the case of Tara Kishewar Thakurji v. Bardas Dey Co. AIT [1979] (SC) 1669, Shri Sharma conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as having transferable rights in respect of the property which have been transferred to the sub-licensees yet Shri Sharma contended that transferring of enjoyment of rights of possession and user of the property for a period of 99 years cannot be a licence. It was clearly a lease. A permission to hold a fair or grazing of cattles laying of tents on the immovable property would amount to sub-licence whereas on the contrary allowing any person to enjoy the rights of the properties in exclusion to the owner, of such rights would amount to the leasing of the property. Shri Sharma contended that assessee had itself argued that part of the property in question had been mortgaged to the Indian Oil Corporation. if assessee has no rights in the property how could it mortgage the property to the Indian Oil Corporation. According to Shri Sharma the 'interest in the property' was the stock-in-trade of the assessee. Assessee had not only given the right to do something in the premises but also transferred the rights in respect of the property subject to certain limitations. Referring to the agreement between the assessee and the sub-licencees, Shri Sharma contended that the amount received by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Ltd. Reliance was also placed on the decision of the Supreme Court in the case of Chowringhee Sales Bureau (P.) Ltd. v. CIT [1975] 87 ITR 542 in support of the contention that notwithstanding the fact that assessee had not shown the receipts as taxable in the books of account, the trading receipts could be assessed to tax. Shri Sharma contended that even if clause 30 of the agreement was interpreted in plain terms, the amount described as deposit would not be a debt owed as the said amount was not payable for a period of 99 years. Distinguishing the decision of the Special Bench of the Tribunal in the case of Detective Devices (P.) Ltd.'s the learned counsel contended that in that case gas was the commodity in which the assessee was trading. The price recovered for the supply of gas was held taxable. An extra amount had been collected by the assessee for providing the cylinders for the supply of gas. The said amount was held to be security as the transaction of supplying cylinders was held to be separate, independent of the supply of gas. Shri Sharma relied upon the decision of the Tribunal in the case of Century Hotels (P.) Ltd. v. ITO [1983] 3 ITD 185 (Bangalore) in support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is held that the sub-leases or sub-licences were in the course of business, whether all the receipts in the course of the said business are assessable to tax as revenue receipts and in particular whether the amounts described as deposits in the aforesaid agreements made by sub-licencee with the assessee are part of the trading receipts and assessable to tax as revenue receipts. 31. We shall first consider as to whether the agreement between the assessee and the NDMC was an agreement granting leasehold rights or was merely a grant of licence. In order to consider this issue, we may usefully refer to some important decisions of the Hon'ble Supreme Court. In the case of Associated Hotels of India Ltd.'s case, there was an agreement between the landlord and Shri R.N. Kapur granting the latter lease and licence to use and occupy the space allotted in the ladies and gents cloak room at the Hotel Imperial, New Delhi for yearly payment of Rs. 9,600. A dispute arose between the parties and their Lordships of the Supreme Court were required to consider as to whether there was a lease granted by the Imperial Hotel, New Delhi to Shri R.N. Kapur or was there a mere licence. The facts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id section, if a documents 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." 32. Their Lordships further held that 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 that although a person who is let into exclusive possession is prima facie considered to be a tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy. Their Lordships further laid down the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f it is in fact intended to create interest in the property, it is a lease, if it does not, it is a licence. In determining whether the agreement creates a lease or a licence, the test of exclusive possession though not decisive, is of significance. Their Lordships noted that Laxmidas, being the respondent in that case, had been put in exclusive possession of the loft and Shri Sohan Lal being the plaintiff in that case, had not reserved possession of any part of the loft or tight of entry therein. Their Lordships, considering the facts and circumstance of the case held that an attempt had deliberately made to camouflage the real nature of the agreement by reciting in several clauses that the agreement was for leave and licence and to emphasise it was also recited that the defendant was not to have any right as tenant or subtenant in respect of the loft. Their Lordships of the Supreme Court referred to section 52 of the Easement Act which defines a licence as under : " Section 52 of the Easements Act : Where one persons grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immovable property of the grantor. something which wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nferred from the circumstances and conduct of the parties. Similarly, where the terms of the documents are not clear, the surrounding circumstances and the conduct of the parties have to be borne in mind for ascertaining the real relationship between the parties. The fact that the premises are in exclusive possession of a person would not make him a lessee. If, however, exclusive possession to which a person is entitled under the agreement with a landlord is coupled with the interest in the property, the agreement would be construed not as a mere licence but as a lease. 39. In the case of B. V. D'Souza v. Antonio Fausto Fernandes [1989] (SC) 1860, their Lordships of the Supreme Court held " For ascertaining whether a document creates a licence or an' lease, the substance of the document must be preferred to the form. It is not correct to say that exclusive possession of the property is irrelevant but at the same time it is not conclusive. The other test, namely, intention of the parties and whether the document creates any interest in the property or not, are important considerations. 40. On the facts of this case, their Lordships held as under : "Although the document has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement must be preferred to the form to ascertain the intention of the parties. (e) Whether a document creates lease or licence the intention of the parties is crucial and the same must be ascertained from the document and surrounding circumstances. If the document creates an interest in the property, it is a lease. (g) The phraseology of lease or licence used by the parties in the agreement is of no consequence if the intention of the parties gathered from the surrounding circumstances is to the contrary. 42. Now let us test the case of the assessee in the light of aforementioned principles of law. In this case, an agreement has been executed between the NDMC on 22nd April, 1982 granting a licence to the assessee w.e.f. 11th March, 1981 for a period of 99 years. The licence was granted to use the plot of land measuring 6.0485 acres (approximately) in commercial complex at Barakhamba Lane, New Delhi for the construction and commission of 5-Star Hotel Building latest by 31st December, 1984 in full and in all respects 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 licensee on lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, taxes, charges, claims and out-goings chargeable against an owner or occupier in respect of the said land and any building or erection to be built there on 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." 44. Clause 15(xv) provides as under : The licensees, M/s Bharat Hotels Ltd. will as soon as the said building to be erected on the said plot of land is roofed insure at the cost of the licensees and keep insured the same under written intimation to the licensor from time to time in the joint names of NDMC and the licensees, M/s Bharat Hotels Ltd. against damage by fire, riots, civil commotion, earthquake, electric fire and flood etc. in some well established ...... " 45. Clause 18 of the agreement provides as under : " The licensor shall have a pre-emptive right to purchase the property built on the site after deducting the market value of the land at the market price then prevalent." 46. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he event of breach of the terms and conditions of the licence, the licensor shall terminate and revoke the licence. On the revocation being made, it shall be the due/of the licensees to quit and vacate the premises without any resistance and obstruction and give the complete control of the premises to the licensor." 51. Clause 47 provides as under : "Any servant quarters constructed by the licensees shall not without the written permission of the licensor or such officer as may be authorised in this behalf be occupied." 52. Clause 49 provides as under : "All arrears of licence fee and other payments due in respect of the premises hereby demised shall be recoverable in the same manner as arrears of land revenue under the provisions of the Punjab Land Revenue Act, 1887 (Act XVII of 1887) and any Amending Act for the time being in force." 53. On consideration of the terms and conditions of the agreement in the light of the ratio laid down by their Lordships of the Supreme Court in the cases referred to above, we find that some of the terms of the agreement are likely to create an impression that the agreement was a lease agreement. Such clauses, for example, are clause 5 (re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the licensee during the tenure of the licence would not transfer, assign or part with the building permanently or temporarily to anybody else. Clause 38 restricting the display of name boards etc. without the permission of the licensor in writing. Clauses 40, 41 42 providing for termination and revocation of the licence. Clause 49 providing for recovery of the arrears of licence fee and other payments due as arrears of land revenue. 55. When we analyse two sets of the conditions refer-red to above, keeping in view that phraseology used in the agreement may be deceptive, the dividing line may seem to be very thin and even blurred. However, the fact that the agreement is between the assessee and the NDMC and not between the two private parties should give an edge against allegation of camouflage by the parties in using the phraseology in the agreement. In the absence of any material, there cannot be presumption of collusion between the NDMC and the assessee. Keeping that in view, the substance of the agreement will clearly stand out to be an agreement of licence and not an agreement of lease as the intention of the parties seems to be abundantly clear for not transferring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow : " That the sub-licence hereby granted shall always be subject to, and consistent with, the terms and conditions of the original Licence Deed dated 22-4-1982 executed between Bharat Hotel and NDMC and such other terms and conditions as may further be agreed by and between the said Bharat Hotel and NDMC." It has also been specifically provided that in the event of termination or determination of licence by NDMC, the sub-licence agreement between the assessee and the sub-licensees would get terminated or determined. 57. Clause 7(b) of the sub-licence agreement is very relevant, in our view, for the purposes of determination of the intention of the parties. This clause reads as under : " 7(b) If at any time hereafter the agreement of licence dated 22nd April, 1982 between Bharat Hotels and NDMC is converted into an agreement of lease or freehold property and on that account Bharat Hotel is obliged to pay certain additional levies, taxes, cesses or further amount of money over and above the amount of Rs. 1,45,00,000 (Rupees one crore and forty-five lakhs) which is presently being paid by Bharat Hotel to NDMC as licence fee on the date of this agreement, in that event the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and the sub-licensees were lease agreements and not sub-licence agreements. 61. We, however, find merit in the contention raised on behalf of the revenue that assessee had the right of occupation and right of running of business for a specified period in the property. Assessee was authorised to transfer this right of occupation and right to use the space to others by means of granting sub-licences. This is also authorised by the agreement between the assessee and the NDMC. Therefore, by entering into sub-licence agreements with the allottees though there is no transfer of interest in the land or the structure in favour of the licensees yet the assessee has transferred the right of occupation and right of carrying on the business in the allotted space to the sub-licensees. 62. A question arises as to whether the transfer of right of occupation etc. was done as an organised activity and as an activity of business. It is not disputed that assessee had entered into an agreement with NDMC for allotment of the land for the purposes of carrying on the business. The business of assessee was to construct 5-star hotel, which also included the construction of commercial space. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets are provided on lease against agreed payments. Apart from periodic payments, more often than not, security is demanded for the grant of lease of goods or other properties. In such cases, though the entire receipts on account of leasing of goods or other property and the security are in the course of business yet every receipt cannot be termed and treated as a trading receipt. In this transaction the refundable security deposit received by the lessor would not form part of his trading receipts. 66. On the other, if the lessor receives a lump sum amount for grant of licence with or without periodic payments, the amount so received would be a business receipt and taxable as income. Therefore, it is clear that in such types of transactions every receipt would not be taxable. Taxability of the receipt would always depend on the nature of the transaction and the nature of the receipt. In leasing contracts if the deposit is refundable it cannot be treated as part of trading receipt. The terms of the agreement between the parties, in our view, would be decisive in determining the nature of the receipt in every business transaction. 67. Even in the case of first type of transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions before the Tribunal assessee has also admitted these receipts to be as business receipts. Therefore, the contention raised on behalf of the assessee that the transaction of granting sub-licences to the allottees and the amounts recovered from such allottees would not be business receipts, as already held by us, is unfounded. 71. Now the question for our consideration is as to whether the deposit received by the assessee in the course of the business is a part of the business receipt and taxable as a revenue receipt. In order to resolve this controversy it would be useful to refer to the relevant decided cases. 72. In the case of K.M. S. Lakshmanier Sons v. CIT [1953] 23 ITR 202 (SC) the assessee was sole selling agent for yarn manufactured by a textile mill and they distributed yam to customers under forward contracts in respect of which they obtained from their customers advances of moneys which were adjusted towards the final payment of purchase price at the time of delivery of goods. From 5th May, 1944 the assessee changed this arrangement. They treated the amount as advance payments in relation to each contract and kept them under the heading " contracts advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee from 5th May, 1944 to 14th February, 1945 were held to be more of the nature of the trading receipts than of security deposits. The said deposits were held not to be regarded as borrowed money for the purposes of Rule 2A. 73. In the case of Punjab Distilling Industries Ltd. the assessee carried on business as a distiller of country liquor. After the war, difficulty was felt in finding bottles in which the liquor was to be sold. A scheme was devised whereby the distiller was entitled to charge the wholesaler a price for the bottle in which the liquor was supplied at rates fixed by the Government which he had to repay when the bottles were returned. In addition to the Government scheme, assessee took from the wholesaler certain further amounts described as security deposits without Government sanction and entirely as a condition imposed by itself for the sale of its liquor. The moneys described as security deposit were also returned as and when the bottles were returned. In this case, the entire sum taken in one transaction was refunded when 90 per cent of the bottles covered by it were returned. The price of the bottles received by the assessee was entered by it in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the wholesalers were actually taken under a trading contract to constitute a trading receipt of the assessee ". 76. In this case the Punjab and Haryana High Court had taken the view that as a result of the amendment of the rule made under the Punjab Excise Act, 1914, which came into effect from 1st April, 1948, the charges collected after that date were not covered by the earlier judgment as the amended rule made the ratio decidendi of the judgment inapplicable to the charges collected after that date. Their Lordships further held that it was compulsory for the licensee to return at least 90 per cent bottles issued to him by the licensed distiller. 77. " The licensed distiller at the time of issue was empowered to demand security and confiscate the security to the extent falling short of 90 per cent of the limit ". 78. Their Lordships at page 82 observed that the liquor passed through the three stages before it reached the consumer : first distiller sold it to a wholesaler. Then the wholesaler to a retailer and the retailer to the consumer. If the rules created obligation on a wholesaler to return the bottle to the distiller then the rules would provide for a return of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from them, the members were also required to pay what was styled as compensation at such rates as the directors might, from time to time, determine. On these facts the Tribunal held that the building was not constructed by the assessee by way of investment and that it was a business venture. It further held that, under cover of taking the deposits, the appellant-company had in fact sold the occupancy right of the floor area and, that, notwithstanding the nomenclature " deposit " and the apparent grant of interest thereon, the deposits in question partook the character of trading receipts. 81. In reference under section 256(1) the Bombay High Court held as under : " (i) that having regard to the manner in which non-refundable deposits were taken from the shareholders, the shareholders were allotted floor space area which they were not only entitled to occupy but were also entitled to assign to others on payment of compensation and to transfer their occupancy rights by sale of shares, and the purpose for which the compensation was charged, the whole transaction was, in reality, a sale of floor space by the assessee-company to its shareholders. The assessee-company had kept with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t previous year ending on March 31, 1956 and therefore, was not taxable in the assessment year 1956-57. On a reference, the High Court affirmed the decision of the Tribunal. On an appeal to the Supreme Court, the decision of the High Court was affirmed. it was held that although the award was made by the Arbitrator on July 29, 1955, enhancing the amount of compensation payable to the respondent, the entire amount was in dispute in the appeal filed by the State Government and the dispute was regarded by the Court as real and substantial because the respondent was not permitted to withdraw the amount deposited by the State Government without furnishing a security bond for refunding the amount in the event of appeal being allowed. There was no absolute right to receive the amount at that stage. If the appeal were allowed in its entirety the right to payment of enhanced compensation would have fallen altogether. The extra amount of compensation of Rs. 7,24,914 was not income arising or accruing to the respondent during the previous year relevant to the assessment year 1956-57. Their Lordships of the Supreme Court at pages 529 530 quoted with approval the following observation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tury Hotels (P.) Ltd. the assessee-company had its main object of running hotels and restaurant. In April 1974 it entered into an agreement with two parties to acquire on permanent lease an immovable property on payment of monthly rent and a lump sum of Rs. 10 lakhs. On the very same day it executed another agreement with the companv leasing out in perpetuity a portion of the property and similar agreement was executed in May 1974 with yet another party leasing out the balance property. In both the cases the consideration fixed was monthly rent plus deposit amount aggregating Rs. 18 lakhs and the deposit was refundable only on the termination of the lease a contingency which could happen only if the rent was not paid for three continuous years even after giving due notice. The Assessing Officer held that such a contingency could never arise and that the transaction was in reality a business venture in which the assessee made a clear profit of Rs. 8 lakhs. The contention of the assessee that the property was leased out due to fear of its acquisition by the Municipal Corporation and that the transaction was not pre-planned, was rejected. The CIT(A) had confirmed the addition. The Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is found that the said amount was really extra price for the goods or for packing material, the amount would be assessable as a trading receipt. The security deposit being refundable on the return of the packing material would not alter the character of the receipt if there was no right of the seller for the return of the packing material (bottles) and the refund of the deposit was contingent. (iii) In each transaction, it would be necessary to find out as to what was the amount charged by the assessee as cost for supply of goods. The mere fact that assessee has an obligation to pay taxes in respect of the transaction which is recovered from the customers would also not alter the character of the receipt. How the assessee reflects the receipts in the books of account or in the bills is also not decisive. (iv) If it is found that assessee has sold the occupancy right of the floor area for a consideration described as deposit and there was apparent grant of interest in the property, the deposits would partake the character of trading receipts. (v) If there is an existing liability, the mere fact that the payment is postponed to the future would not detract that liability f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posits received by the assessee for allotment of the space are really the deposits constituting a debt or were these deposits in fact consideration for the transfer of certain rights. In this connection, it is important to note that concept of accepting deposits from the licensees or sub-licensees is not something unusual out of the novel and unique thinking of the assessee. In some of the Five Star Hotels, space for carrying on business is provided to various persons on leave and licence basis on the condition of making a deposit and payment of licence fee and service charges, etc. It is clear that there is a practice of accepting the deposits from the licensees or sub-licensees by the Five-star hotels. There is not a single case brought to our notice by the department where such deposits have been taxed as revenue receipts of the hoteliers. 92. We have also seen the sub-licence agreement of C.J. International Hotels (P.) Ltd., copy of which has been provided to us and it is observed that they have also allotted space on sub-licence basis on the condition of making the deposits by the sub-licensees. Other conditions such as payment of licence fee, service charges etc. are simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... builder (though that would not have made any difference) but also that of a Five-star hotel. The commercial complex is part of the hotel complex permitted by the NDMC. 94. Admittedly the facts in the case of Shree Nirmal Commercial Ltd. are very near to the facts of the present assessee. There is however a small but very vital distinction in so far as in the case of SNCL the deposits are " non refundable " whereas in the case of assessee the deposits are refundable on termination or determination. The termination of the lease as pointed out elsewhere in this order, may be contingent but determination of the licence is a certainty after the expiry of 99 years from 1-11-1981 i.e., the date of allotment of the licence by the NDMC in favour of the assessee. The NDMC has granted the lease of the land in favour of the assessee for 99 years. Assessee has by virtue of clause 4 of the sub-licence agreement incorporated a condition that the terms and conditions of the agreement between the NDMC and the assessee shall be binding upon the sub-licensees. The premises including the structure has been declared to be a public premises for the purposes of Public Premises (Eviction of Unauthorised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has got the deposits for utilising the same in the business without any liability of interest. To that extent a benefit is derived by the assessee. The said benefit would be to the extent of interest ordinarily payable on such finances. However, it is clear from facts of this case that the money received as deposits from the sub-licensees have been utilised by the assessee in business. Assessee has neither paid nor claimed any interest in respect of these deposits. If any interest were payable on deposits, assessee would be entitled to deduction corresponding to the liability. In that event income of the assessee would be reduced to that extent. However, by not paying any interest and by not claiming any deduction, the benefit derived by the assessee is in effect taxed in so far as in the final annual results in the books of account, the income of the assessee reflected would be more than the income that would have otherwise been declared. It is thus seen that the benefit derived by assessee on raising finances by way of interest-free deposits stands merged with the income declared by the assessee from business. We are, therefore, of the considered view that no separate addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not sent the estimate referred to in that clause. Section 209A makes it obligatory for every person whose current income is likely to exceed the amount specified in sub-section (2) of section 208 of each financial year on or before the date of which the first instalment in the case of regular taxpayers and on or before the date on which the last instalment of advance-tax is due in the case of such assessees who have not been previously assessed. Section 209A(a) provides the manner in which the advance-tax payable is to be computed by the existing taxpayers whereas clause (b) of section 209A provides for computation of advance-tax in the case of assessees not previously assessed. 101. In this case the last assessed income and the last returned income in respect of which tax under section 140A had been paid, whichever was higher, was a negative figure. On that basis, no advance tax was payable by the assessee. In the case of Patel Aluminium (P.) Ltd., the assessee had been assessed to nil income for the previous assessment year. It was held by their Lordships of the Bombay High Court that since the provisions of section 209(1) did not make the petitioner liable to payment of ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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