9911796707
TMI Blog1991 (3) TMI 203X X X X Extracts X X X X X X X X Extracts X X X X ..... Hotel site. It was stated that the land could continue to be on lease with the N.D.M.C. and a licence would be given for a period of extending from 33 years to 99 years for the construction of the Hotel, which would be in the possession and enjoyment of the licensor, and annual license fee was also contemplated. After some discussion, the assessee-company offered a license fee of Rs. 28,11,000 on the terms and conditions to be mutually agreed upon. Later on the proposed area was increased and the license fee was also proportionately increased. The N.D.M.C. asked the assessee to deposit the advance license fees. In March 1977 the assessee informed the N.D.M.C. that the payment of increased tender price was acceptable to them on the terms and conditions contemplated. It was, however, stated that considering the huge financial involvement the assessee would be forming a separate public limited company for this project and a request was made that the necessary provision may be made in the license agreement for this permission at a later stage. There were certain other suggestions in respect of the draft agreement to be finalised in this respect. The assessee had proposed that he should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee-company and a deed known as a agreement of license was executed on11-3-1981. Under this license agreement, land having an area of more than 6 acres was to be used for the construction of the Hotel and Commercial Complex. The annual license fees was determined at Rs. 1 Crore 45 lacs. It also appears from this license deed that an amount of Rs. 50 lacs had been paid on 1-12-1980 and various amounts had also been paid up to the date of the signing of this lease deed. Rs. 95 lacs was to be paid at the time of the handing over of the vacant and unencumbered possession of the land by the Licensor to the licensee. This license deed was for a period of 99 years and it was clearly stipulated that within a period of 12 calendar months from the date of commencement of the license agreement a Public Limited Company was to be formed by the assessee and that company shall apply to the Licensor within six months thereafter for the transfer of the license to the said Public Limited Company so constituted and the Licensors shall transfer the license to the said Public Limited Company so constituted on the terms and conditions incorporated in the agreement. It was made clear that the land for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icense in favour of Bharat Hotels Ltd. The first two clauses of this agreement are important and may be noted here :--- " 1. Party No. 1 hereby transfers all its rights, title and interest in and arising out of the license deed dated II -3-1981 and in the aforesaid decree dated11-3-1981in favour of Party No. 2. Party No. 2 shall observe all the terms and conditions of the licence deed dated 11 -3-1981 which shall be binding on Party No. 2 and if Party No. 2 had itself submitted the order referred to above to the N.D.M.C and as if the licence deed has been entered into by the Party No. 2 self with the N.D.M.C. 2. Party No. 2 shall construct a 5-star Hotel are aforesaid land in accordance with the terms and conditions in the aforesaid licence deed dated11-3-1981. As a consideration for the transfer of the aforesaid license, Party No. 2 shall pay to Party No. 1, by way of the goodwill, a sum of Rs. One crore and also give to the Party No. 1 sub-licence of an area approximately 1,00,000 square feet in the proposed hotel, which is earmarked for shopping-cum-office-cum-commercial area besides Car Parking Space (hereinafter referred to as Shopping Complex). This sub-license is in acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 11-3-1981. This licence was also for a period of 99 years with effect from11th March, 1981which was the date of the earlier licence granted to the assessee-company. 9. Prior to the above licence deed the N.D.M.C. had informed the assessee-company on 1-10-1981 about their approval for the transfer of the licence dated 11-3-1981 granted in favour of M/s. Delhi Automobiles Pvt. Ltd. in favour of M/s. Bharat Hotels Ltd. on the same terms and conditions. 10. Before the Income-tax Officer the question arose about the treatment for tax purposes of Rs. 1 crore agreed to be paid and actually paid by M/s. Bharat Hotels Ltd. to the assessee-company. After noting the facts which have already been given above, the Income-tax Officer also noted that the assessee-company was reimbursed by M/s. Bharat Hotels Ltd. by the amount of Rs. 50,23,000 which was paid towards the licence fee and certification fee, etc. and also the expenses incurred on behalf of M/s. Bharat Hotels Ltd. from 12-3-1981 to 30-6-1981 amounting to Rs. 3,61,483. 11. Before the Income-tax Officer it was contended that the amount of Rs. 1 crore was not taxable as a revenue receipt as it was a capital receipt being rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in that account and bank charges were also shown. The Income-tax Officer analysed the Hotel Project account and found that considerable expenses were incurred in the filing of the suit and by way of court fees, and stamps etc. He also noted that the amount of interest debited in the years 1978-79 and 1979-80 were credited in the assessment year 1981-82. After analysing the year wise position the income-tax officer came to the conclusion that considerable amounts were spent in respect of Hotel Project and it was not correct to say that for obtaining the rights by way of licence fee the assessee-company had not incurred any amount. The Income-tax Officer observed that for the purpose of computing capital gains all expenditure for acquisition or improvement of the capital asset had to be taken into consideration. After considering the contentions of the assessee, the Income-tax Officer came to the conclusion that the licencing rights were acquired by the assessee-company on11-3-1981at a cost/expenses of Rs. 4,52,163 expanded between 1977 to 1981. The Income-tax Officer further estimated at Rs. 40,000 the cost of acquisition of the sub-licencing rights and the balance was taken by him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and but for this the new company could not have come into existence. It was the company to be floated which was to run the Hotel business by obtaining the licence. According to him, there was no existence of ingredients of a trade. 15. Coming to the treatment of the amount for computing capital gains, it was not disputed before the Commissioner of Income-tax (Appeals) that the payment was received in consideration for a capital asset. The CIT (Appeals) observed that in the agreement between the assessee-company and Bharat Hotels Ltd., the description of Rs. I crore being paid for the goodwill did not represent the correct factual position. He observed that there could be no goodwill of a business which was yet to commence. He, therefore, considered the arguments regarding goodwill or Pugree to be not at all applicable to this case. According to him, this was also not a consideration for licence of as the assessee was not in fact or in law competent to hold or transfer the right. The right to hold or transfer the licence, according to him, did not at any point of time vest with the assessee-company and hence no consideration could possibly be received for the so-called transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. We will revert to the detailed arguments later on in this order. As against this the learned Counsel for the Revenue contended that it was clearly a business income and should be assessed as such. Regarding the alternative of the capital gains, it was contended that the CIT (Appeals) erred in holding that it was a long term capital asset as the asset which was subject-matter of transfer had been acquired only from11-3-1981when the licence was granted. It was also contended by him that in the face of all the facts it was not possible to argue that the asset which was transferred by the assessee did not cost him anything as it had taken so much effort and expenditure before the licence was granted to the assessee. Thus, the whole issue was gone into before us at a great length, is both the sides relying on large number of High Courts and Supreme Court decisions for various arguments advanced in support of the contention. 18. Now dealing, in some detail, with the arguments advanced by the assessee, we may first deal with his argument regarding the income being an income from business. It was contended that the assessee had never carried on any Hotel Business and when the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hree years before it was transferred. The learned Counsel contended that this asset did not cost anything to the assessee and it was main agreement to the transfer of tenancy which had been held as not chargeable to capital gains as held by the Delhi High Court in the case of Bawa Shiv Charan Singh v. CIT [1984] 149 ITR 29. In respect of the cost of acquisition the learned Counsel gave detailed arguments. He submitted that as the right had come to the assessee in 1977 the cost has to be determined up to that date and the further expenses which might have been incurred in litigation or in any other item could not be taken into consideration for the cost of acquisition of the capital asset. He referred to the cost of acquisition as determined by the Income-tax Officer and pointed out that interest as well as travelling expenses were only notional adjustments without there being any actual expenditure on the Project. According to the learned Counsel, they were either by way of internal approvals or by way of defending the title or right in licence and thus it was not for acquiring of the licence itself. He submitted that the amount of Rs. 20 lacs which had been paid as earnest money w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in question was in respect of a right in land and therefore, there could be no transfer of such a right in the immovable property without registration of the document evidencing such a transfer. He, therefore, submitted that any such transfer would be ineffective and the charge of capital gains could not at all arise. He referred to the provisions of section 17 of the Acquisition Act and pointed out that without compliance of the provisions, the transfer would be ineffective and the mere possession could not result a transfer of an immovable property or a right in it. 22. Further advancing an argument, which was also given in the course of reply, was whether the assessee, who had been granted a licence by the N.D.M.C. could transfer it to another company. He submitted that what has happened is that the licence was agreed to be transferred but it was for the N.D.M.C. to grant licence to M/s. Bharat Hotels Ltd. It was further contended that this licence was granted to M/s. Bharat Hotels Ltd. in April 1982 and was, therefore, beyond this accounting period. He, therefore, submitted that even if his arguments are not accepted, the transfer could be taken to have been effected not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess venture and it was also known from the beginning that after the licence is acquired it would he transferred to another limited company. He, therefore, contended that the intention to transfer was from the beginning and it was with that intention that the assessee-company deposited the earnest money of Rs. 20 lacs and undertook to take various steps and incur expenses. It was also pointed out that the assessee-company had entered into another Hotel project about which the Income-tax Officer has made a mention in his order. It was, therefore, contended by the learned Counsel that the whole objection of the assessee was to acquire a right by getting a licence and then to make a profit by transferring it to another company to be floated for this purpose. The learned Counsel submitted that adventure in the nature of trade is not a systematic business but there should be an intention to carry on an activity which is in the nature of business. He pointed out that the assessee-company had intention to do a hotel business in 1974 itself and when the present project was being finalised it had become clear that another company would be floated to take over this project. He, therefore, sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been allocated to the Hotel project. He further submitted that the decision of the Supreme Court in the case of Kishan Prasad Co. Ltd. v. CIT [1955] 27 ITR 49 was based on different facts, and the present case was a clear case of carrying on business. He relied on the decision of the Supreme Court in the case of Rajputana Textiles (Agencies) Ltd. v. CIT [1961] 42 ITR 743 where it had been held that the profit on the sale of certain shares was a commercial transaction as from the beginning there was intention to sell and transfer the shares to the Managing Agency. It was, therefore, pointed out that the intention at the beginning was important and in this case there was an intention to transfer the licence from the inception of the negotiation. 26. Referring to the other limb of the arguments relating to the applicability of capital gains tax, it was submitted that there was no dispute in this case that the right belonging to the assessee was a capital asset. He submitted that what has to be determined is whether the capital asset has been transferred in this year and whether the asset had any cost of acquisition so as to make the provisions regarding capital gains applicable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and had resulted in a capital gain. He submitted that the earlier correspondence and letters only were the essential procedures to be fulfilled prior to the grant of licence. Till the licence was actually granted, it was merely a right to receive the licence and this right has not been transferred as such. At the time of transfer the licence had already been granted and it was that right as a licencee that had been transferred by the assessee. He, therefore, contended that the contention on behalf of the assessee that this capital asset had been acquired in 1977 was absolutely wrong and whatever rights the assessee might have acquired at an earlier period was not the subject matter of transfer by this agreement. He, therefore, contended that the licence which had been created on11-3-1981could not be taken to be held by the assessee on a date prior to it. The licence itself was not effective from any earlier date. He also pointed out that the land in question belonged to the Government and it had been leased out to the NDMC immediately before the licence had been granted and not at any earlier time like 1976 or 1977. The learned Counsel further submitted that in earlier negotiations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the Supreme Court. The learned Counsel further submitted that when the new licence was granted on 224-1982 in the name of Bharat Hotels Ltd., it was also with reference to the agreement between the NDMC and the assessee as well as the assessee-company and Bharat Hotels Ltd. That licence was also effective from11-3-1981though it was executed on22-4-1982. He submitted that there was no transfer by the assessee in 1982 as whatever the assessee possessed he had surrendered it in favour of Bharat Hotels Ltd. by the agreement dated18th June, 1981. 28. Addressing us regarding the cost of acquisition of the capital asset, the learned Counsel submitted that the cost has to be the cost to the assessee and it did not mean the price payable for acquiring the cost. He contended that it was nobody's case that the assessee-company had transferred any goodwill to Bharat Hotels Ltd. as the assessee-company had never acquired any goodwill when the business itself had not been carried on for any period by the assessee company. He, therefore, submitted that the mention of goodwill in the agreement was without any substance and one has to only look to the language to find out as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquired by the assessee in 1977, he had included in the cost of acquisition litigation expenses which had been incurred much later. In the travelling expenses incurred after 1977 had been partly taken by the Commissioner. He pointed out that the Commissioner had referred to the various grounds relating to various expenses which had not been pressed before him and it had also been held that the expenses relating to the Hotel project were disallowable. It was further submitted by the learned Counsel that the assessee had not raised any ground regarding the quantum of cost of acquisition and the only question which had been submitted was that there was no cost of acquisition in this case. Referring to the notion of cost, the learned Counsel submitted that all the expenses which go into the acquisition of an asset constitute its cost though it may not be its price. Certain expenses for outlay for acquiring the asset are included in the cost as held by the Supreme Court in the case of Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167. The teamed Counsel referred to the decision of the Delhi High Court in the case of Mithlesh Kumari where it had been held that interest paid by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definition of 'transfer' as given in the Income-tax Act and pointed out that it is a wide definition and includes relinquishment of the asset and the extinguishment of any rights therein. He, however, submitted that in this case there was a transfer itself as stated in clear words in the agreement between the assessee and Bharat Hotels Ltd. It was pointed out that though it was for the NDMC to grant the licence to the assessee, it had been agreed in advance that the licence will be so granted after obtaining it. Where there was clear prior understanding or an agreement for die transfer of the licence in favour of the other company and it is given effect by the parties there was a transfer of the asset within the meaning of the definition so given in the Income-tax Act. The moment the assessee's rights ceases so that the other party may obtain the licence later on the transfer takes place. As this has taken place in this year at the time of agreement between the assessee and Bharat Hotels Ltd., it should be held that there was a transfer in this year. The actual grant of licence in 1982 does not result in the transfer which had already taken place at an earlier date. 32. Replying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n its capacity as a lessee it had granted a licence first in favour of the assessee and then in favour of Bharat Hotels Ltd. as agreed between the parties. He submitted that such a document not creating any right in an immovable property did not require registration. It was, therefore, contended that the transfer of the capital asset was complete in this year and there was a cost of acquisition of the capital asset and, therefore, the transfer of this capital asset resulted in a capital gains in the hands of the assessee. The capital asset transferred was the right as a licencee and this right came to be held by the assessee only in 1981 and not in 1977. Thus, the capital gains which arises in the hands of the assessee is assessable as a short term capital gain. The CIT (Appeals) also, it was submitted, erred in holding that it was a long term capital asset. After having noted the rival submissions And arguments, we may now proceed to consider the arguments on various aspects. We have to determine the nature of the receipt of Rs. 1 crore and then we have to decide whether this was a business receipt or a consideration for the transfer of capital asset. After that we have to conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beginning. However, in our opinion, this could not make the transaction as an adventure in the nature of trade. It was not the intention of the assessee to hold the licence as a commercial asset and to exploit it but to acquire the right and then to transfer it. It is true that in 1977 itself the assessee-company had taken steps to work out the details of the Hotel project and the Directors of the assessee-company travelled for procuring collaboration in respect of the running of the Hotel. It was for acquiring the licence that a suit was filed and ultimately the licence was granted by the NDMC. In reply to the queries made by the Income-tax Officer in this regard, the assessee has pointed out that the Hotel business as such had never been commenced by the assessee-company. It was also pointed out that it was not a stage where the business was even set up. It had also been pointed out that there was no continuous activity so far as this business was concerned. In our opinion, in this case the assessee having decided not to carry on the Hotel business itself was trying to acquire the rights to construct such a Hotel with a view to transfer it to a sister concern. The basic motive f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat this receipt was not from business in Hotel as there was no adventure in the nature of trade. 34. Coming to the other limb of the question, which relates to the charge of capital gains, we have first to determine whether there was a transfer of a capital asset in this year and if there was a transfer of a capital asset, what was precisely the capital asset which had been transferred. A reading of the agreement between the assessee-company and Bharat Hotels Ltd. leaves one in no doubt that what has been Transferred is not the goodwill as in respect of the Hotel business the assessee-company had never acquired any goodwill and the description in the agreement was not correct. The language of clauses (1) and (2) of the agreement which have already been reproduced, is important. The assessee had transferred its right, title and interest in and arising out of the licence deed dated11-3-1981, and Bharat Hotels Ltd. agreed with all the terms and conditions of the licence. Clause (1) itself provided that Bharat Hotels Ltd. would step in the shoes of the assessee-company as if the licence deed has had been entered into by Bharat Hotels Ltd. and the assessee. It is the licence deed dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the licence was transferred to Bharat Hotels Ltd., it was the licence dated11th March, 1981, which was relevant. In order to understand this question, we may take an example. There may be an agreement to sell a property between two parties and that agreement to sell may remain pending for several years. Before the sale takes place, it is open to a party to transfer the right to obtain the conveyance and in that situation, it would be that right which would be the subject matter of transfer. However, once sale deed is executed, it is only the property which can be transferred to another person. The capital asset changes from the right to obtain a conveyance deed to the property itself. It would be with reference to the particular asset that one will have to determine the date from which it is being held by the assessee. It is in respect of that capital asset that one has to ascertain the cost of acquisition. We, therefore, hold that the subject matter of transfer in the agreement dated18th June, 1981was the licence obtained on11th March, 1981. 36. Now the question arises whether the right which has been transferred can, in any way, be stated to be held by the assessee since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm capital asset or not and we have held that it was the right under the licence granted in March, 1981 which was the subject matter of the transfer. The capital asset must be held to have been acquired at that time and not in 1977. 38. Connected with this aspect, is the objection that the licence deed being in respect of an immovable property (land) it had no effect as it had not been registered as required under the Registration Act. It has also been submitted that the assessee could not transfer the right in the immovable property without there being a registered deed for this purpose. The learned Counsel for the Department had objected to this argument being raised at this stage, particularly at the stage of reply. It was pointed out by him that the assessee had accepted the position that there was transfer by the agreement dated 18-6-1981 and in this connection he referred to the assessee's letter written to the Income-tax Officer, which is being placed at pages 99, 101, 102 as well as 108 of Paper Book-I. He also referred to the finding of the Income-tax Officer as well as the CIT(Appeals) that the licence was transferred by the agreement dated18-6-1981. He had also referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed above. The intention of the parties is very clear from the terms of the licence deed and no part of the deed can be construed as transferring the rights in the land to the assessee or by the assessee to transferee. in our view, therefore, there was no question of requirement of registration in order to make the whole transaction legal, The licence deed itself as a licence deed, was valid and the agreement between the assessee and Bharat Hotels Ltd. was also valid without any registration, which was not applicable to the facts of the case. 39. An argument was raised that the assessee-company could not transfer the licence to another company as it was a personal right given to the assessee-company and again it was the NDMC which had to grant the licence to Bharat Hotels Ltd. It was, therefore, contended that the assessee could not transfer the licence to Bharat Hotels Ltd. This argument of the learned Counsel ignores the basic understanding which had been there throughout the negotiations and which had been clarified in repeated correspondence. It was also put in the licence deed that the NDMC was a certain party to the transfer of the licence rights in favour of another company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n consideration of such transfer that the consideration of Rs. 1 crore was provided in the agreement. The contention of the assessee that the capital asset had been acquired in 1977 which resulted in the restriction of the concept of cost of acquisition as worked out by the assessee. It is not possible to accept that it is like an agreement to transfer the tenancy in favour of another person. The decision of the Delhi High Court in the case of Bawa Shiv Charan Singh does not apply to this case. It had been contended by the learned Counsel for the assessee that the licence did not have any cost of acquisition and in 1977 the assessee had not incurred any expenditure for acquiring the rights. According to him, the delay by the NDMC could not result in the inference that the right had not been acquired by the assessee. As against this the Income-tax Officer has worked out the cost of acquisition with reference to the expenses debited in the Hotel project as given in the books of the assessee. The details of the Hotel project account have been given in the order of the Income-tax Officer and had also been discussed by the CIT (Appeals). Before us there was no challenge to the quantum o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned Counsel for the Revenue pointed out that prior to the grant of licence the Directors of the assessee-company had travelled inIndiaas well as abroad in connection with the Hotel project. The fact that some of these expenses might have been reimbursed later on by Bharat Hotels Ltd., would not mean that there was no cost of acquisition for the asset. 42. Having considered these rival arguments, we are of the view that there was definitely cost of acquisition of the licence acquired by the assessee and later on transferred. The bank charges had to be paid for obtaining a draft for payment of earnest money. Litigation expenses have been incurred and it is not possible to accept the plea of the assessee that it was incurred for improvement of the title of the assessee as the title to the capital asset had arisen only In 1981. There is also force in the submission of the learned Counsel for the Revenue that the substantial amount had been paid by way of earnest money and the assessee-company had been borrowing loans and paying interest to outsiders and that the assessee-company had been allocating a part of interest to the Hotel project on actual circulation, no part of it had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not the determinative event as far as the assessee was concerned. The transferred his rights by the agreement dated18-6-1981and got a consideration for that. As far as the assessee was concerned, its transaction with Bharat Hotels Ltd. were completed by giving effect to the terms of this agreement. It had, therefore, been contended that there had been a transfer of the capital asset in this very year and not in the next year. 44. We agree with the counsel for the Revenue. We cannot hold that after the agreement dated 18-6-1981 had been executed and an amount of Rs. 1 crore had been paid by the other company in consideration of the transfer of licence and note was taken on this fact by the Directors in their report, there was still something to be done by the assessee for transferring its rights in the licence to Bharat Hotels Ltd. We agree that the grant of licence on a later date-will not determine the date of transfer for the capital asset which the assessee was transferring to Bharat Hotels Ltd. 45. In brief, our conclusion regarding this point is that Rs. 1 crore had not been received in the course of any adventure in the nature of trade, but had been received as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the assessee. As this has not been done, we would restore back this matter to the Income-tax Officer to reconsider the accounts in the light of the observations of the Tribunal and the High Court in the assessment year 1976-77 and then to decide this issue. 47. The third ground relates to the disallowance of Rs. 97,814 out of entertainment expenses. Out of the total expenses incurred, the disallowance had been made of such expenses debited under sales promotion expenses or entertainment expenses. The CIT (Appeals) here also had followed the earlier years' orders. It has, however been submitted that all such expenses treated as entertainment expenses there is participation by the employees of the assessee-company and to that extent it should not be treated as entertainment expenses under its definition after the amendment. We find that this submission of the assessee requires consideration. However, before us there is no material on the basis of which we would determine the proportion which could be related to the employees of the assessee-company. We would, therefore, direct that the proportion of the employees' participation in such expenses should be determined after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Directors was excessive. Having considered the facts, we are of the view that 1/3rd of the total expenses of Rs. 1,09,587 may be considered as for the personal benefit of the Directors. It should be this amount that should be taken for working out the disallowance under section 40(c) of the Income-tax Act. 52. The next ground is against the disallowance of Rs. 6,000 out of car expenses and Rs. 4,000 out of the hired car. Considering the total amount of expenditure and the earlier history we see no reason to interfere with the estimate as confirmed by the CIT (Appeals). 53. The last ground in the assessee's appeal in respect of the disallowance of Rs. 38,790 out of Pooja expenses. The Income-tax Officer had found that the assessee had incurred expenses on purchase of idols of gods and goddesses which were stated to be installed in the workshop and the offices of the company. According to the assessee, it was the requirement of the employees and it should be treated as staff welfare expenses. Reliance was placed on the judgment of the Punjab Haryana High Court in the case of Atlas Cycle Industries Ltd. v. CIT [1982] 134 ITR 458. It had been claimed before the CIT (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined to jot down by note of dissent as under :--- (1) Ground by the assessee in its ITA No. 2448/Del/86 --- Rs. 1,00,00,000 for "goodwill" received being exempt from tax, instead treated by CIT(A) as long term capital gain. (2) Grounds by the Revenue in its ITA No. 4155/Del/86 --- "1. The CIT(A) was not correct in law and on facts in holding that in the absence of evidence of intention of purchase for resale, the finding with regard to income assessable under the head 'Business' must be rejected as non-sustainable, especially when the intention for resale was not necessary and the CIT(A) has not appreciated the decision of the Bombay High Court relied upon by the ITO in his order." "2. The CIT(A) was not correct in law and on facts in holding that the right or asset was acquired by the assessee only on 22-3-1977, when offer and acceptance of the contract between the assessee and NDMC were completed and ratified and thereby further holding that its transfer resulted in long term capital gains; (especially when ownership conveyance deed is executed and registered and not otherwise)." 2. The facts giving rise to the controversy are summarised as under: 2.1 New Delhi Muni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30th June, 1976, we quote below our price for rent of one year for Five Star Hotel site of about 4.5 acres with sufficient green area around it in Commercial Complex atBarakhamba Lane. Our offer is for the terms and conditions mentioned by you and or mutually agreed upon at the time of signing of the agreement, for the sum of Rs. 28,11,000. (Rupees......) Thanking you, Yours faithfully, ForDelhiAutomobiles Private Limited, Sd/- (Lalit Suri) Executive Director." 2.2 N.D.M.C. rejoined the issue with the assessee vide its letter ofMarch 9, 1977in the following terms : "No. 276/PG/M.Secy/D/77 New DelhiMunicipal Committee Town Hall,New Delhi. Dated:March 9, 1977. To, Delhi Automobiles Pvt. Ltd. 3/15-A,Asaf Ali Road, New Delhi. Sub : Your quotation for the allotment of Hotel site at Barakhamba Complex. Dear Sirs, I am to refer to your letter dated19th July, 1976offering a sum of Rs. 11 lacs per annum as licence fee for the hotel site at Barakhamba Complex. Although originally the area of the hotel site was expected to be about 4.5 acres on the basis your offer was made, this area has now come to be about 6.0185 acres. It is presumed that the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee) also will be payable at the time of actual possession being handed over to us. This again is necessary since the plot has some odd structures over it which are required to be cleared by the licensor before the actual handing over of the possession. (iv) Reference page 2 para 11 of the draft agreement The licence period should be 99 years and it should be made coterminous with the period for which the lease is granted by the Central Government to the New Delhi Municipal Committee. Permission may also be granted to us for raising the finance for the construction of the hotel complex from financial institutions and/or banks subject to the usual terms and conditions on which such loans are granted. Licence for 99 years will be greatly justified since we would be required to invest a large sum of money on the construction and commissioning of the hotel and the period of 99 years as now proposed will be totally inadequate even to meet our assets and the discharge of our liabilities. (v) Reference para 37 page 11 of the draft agreement A provision may be added to this clause whereby the licensee is authorized to transfer the possession of rooms, shops, offices, etc. for any period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er referred to as "Company". It has its registered office at 3/15A,Asaf Ali Road,New Delhi. Sh. G. Sagar Suri S/o Late Shri Udho Ram Suri is the Managing Director of the plaintiff Company and as such is authorised to sign, verify and institute this suit on behalf of the plaintiff company. He is further authorised to sign, verify and institute this suit by means-of a resolution No. 5 dated 26-10-1978 passed by the company in that respect. A true copy of the resolution is submitted with the plaint. (2) That the Defendant Committee by the letter of its Member Secretary vide letter No. 779/PS/M.Secy./D/76 dated 30-6-1976 (acting for and on behalf of the defendant Committee) approached the plaintiff and invited it to send its offer in a sealed cover for the grant of a licence for constructing and running of a 5 Star Hotel in Barakhamba Road Complex. The said letter gave details of the various terms and conditions which the plaintiff was required to take note of while making the offer. Similar offers were invited from other interested parties in respect of the said Hotel site in Barakhamba Road Complex. (3) That in response to the aforesaid invitation, the plaintiff sent its offer da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 977 drawn on the Punjab Sind Bank Ltd., and also undertook to pay the balance amount so as to make the total of the said sum of Rs. 37,78,296 (Rupees thirty seven lacs Seventy-eight thousand and Two Hundred ninety six) at the time when the actual vacant and unencumbered possession of the site would be handed over to the plaintiff. (6) That the Defendant Committee duly acknowledged the receipt of the said draft vide its letter No. 280/PS/M-Secy./D/77 dated10-3-1977, wherein the plaintiff was informed that a formal receipt for Rs. 20,00,000 (Rupees Twenty lacs) would follow in due course. (7) That the offer of the plaintiff for a sum of Rs. 37,78,296 (Rupees Thirtyseven lacs Seventyeight thousand and Two hundred Ninetysix) per year as licence fee being the highest offer [in fact about Rs. 3,00,000 (Rupees Three lacs) higher than the next lower offer given by any party amongst those from whom the Committee had invited offers] for the said hotel site, was accepted by the Committee and a binding contract in law came into existence between the parties. (8) That the defendant in the meeting held on23-6-1976passed a resolution No. 3A, to the effect that the defendant Committee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pose of executing and drawing up of formal deed of licence agreement containing all the terms that had been mutually agreed upon between the parties. The said licence agreement in quadruplicate was sent as desired by the defendant as all the terms and conditions which had been agreed upon between the parties had been incorporated therein. (13) That it was one of the terms of the agreement that the 5 Star Hotel had to be constructed within a short period of two years. The plaintiff was therefore, obliged to make immediately arrangements to ensure that the said condition in the agreement was not breached. The plaintiff accordingly secured the services of M/s. Kothari Associates, the leading Architect firm ofNew Delhi. The said Architects prepared the plan for the construction of the hotel and took other necessary steps to make sure that the project would be complete in all respects within the stipulated period. (14) That in order to ensure the construction of the hotel on the site for which the licence was granted to the plaintiff, it made all necessary financial arrangements with various financial institutions/banks and also for collaboration with internationally known chain of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the licence agreement and refund the balance amount to the plaintiff. In spite of the aforesaid letter and personal approach of the Managing Director of the plaintiff to the Lt. Governor, Delhi no action was taken by the Committee or any of the concerned authorities concerned to either hand over the possession of the site or to temporarily refund a major part of the earnest money/licence fee after retaining the token amount. (17) That the plaintiff also wrote its letter dated 2-7-1977 to the Hon'ble Minister for Works and Housing giving details of the concluding binding and valid agreement between the plaintiff and the defendant on account of acceptance of the highest offer given by the plaintiff to the defendant. The Hon'ble Minister was duly informed in that letter that for the purpose of converting the site, the plaintiff had already made commitments and agreements with different parties, collaborators, Architects, and Staff etc., and the Committee was not giving possession in spite of repeated demands. The plaintiff brought to the knowledge of the Minister that the plaintiff was being subjected to uncalled for hardships and losses inasmuch as had suffered damages and woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dant having committed breach thereof, the plaintiff is entitled to receive and recovery from the defendant compensation and damages for the loss and damage caused to the plaintiff which is detailed in this plaint and which has naturally arisen in the usual course of things from the defendant's breach. (21) That the plaintiff are also carrying on business of motor dealership as they have got the franchise rights in respect of Premier Fiat cars. If the plaintiff would have paid Rs. 20,00,000 (Rupees Twenty lacs) to their principals for the supply of Fiat cars, the plaintiff would have been given at least 180 cars, in a month and by that method in the period of 15 months of this business of Fiat cars dealership the plaintiff would have earned a profit of Rs. 43,20,000 (Rupees Forty-three lacs and Twenty thousand). (22) That because of the breach committed by the Committee in not handing over the possession of the hotel site the plaintiff has suffered the following damages :--- (a) Interest on Rs. 20 lacs (Rupees Twenty lacs) calculated at the rate of 18 per cent per annum with monthly rest for the period10-3-1977to25-5-1978. Rs. 5,50,000 (b) Money payable by the plaintiff to K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertained and grantified. (27) That cause of action accrued to the plaintiff against the defendant on 10-3-1977 when a sum of Rs. 20,00,000 (Rupees Twenty lacs) was paid by the plaintiff and again on 25-7-1978 when without assigning any reason whatsoever the said sum of Rs. 20,00,000 (Rupees Twenty lacs) was refunded to the plaintiff without specifically performing the contract and without making payment of the damages/ representation. It again arose on20-4-1978when the notice under section 80 CPC and 49 Punjab Municipal Act dated15-7-1978was duly served on the defendant and it failed to give any. (28) That value of the claim for specific performance the purpose of court fee is Rs. 37,78,296 (Rupees Thirty-seven lacs Seventy eight thousand and Two Hundred Ninety six), the amount of licence fee for one year and the value of the claim in the alternative for recovery of Rs. 64,40,000 (Rupees Sixtyfour lacs and forty thousand). Appropriate court fee on the higher of the two amounts i.e. on Rs. 64,40,000 (Rupees Sixtyfour lacs and Forty thousand) has been paid. The value of the suit for purpose of jurisdiction is Rs. 64,40,000 (Rupees Sixtyfour lacs and forty thousand). (29) That a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... particularly of handing over immediate physical possession of the total site in the Barakhamba Road Complex measuring 6.0486 acres to the plaintiff and grant all other facilities, sanctioned plans, grant licence etc., necessary for the completion of the 5-Star Hotel project on the site. (b) In the alternative for payment by the defendants to the plaintiff of a sum of Rs.64,40,000.00 (Rupees sixtyfour lacs and forty thousand only). (c) Cost of this suit in favour of the plaintiff, against the defendants. 11th day of March, 1981 CORAM: Hon'ble Mr. Justice O.N. Vohra. For the plaintiff : Shri D.R. Mahajan, Adv. For the Defendant: Shri S.N. Suri, Adv. For Defendant No. 1 and Shri C.L. Chaudhary Adv. for defendant No. 2. This suit coming on this day for final disposal before this Court in the presence of counsel for the parties as aforesaid it is ordered that a decree for specific performance and possession in respect of the land in question is hereby passed in favour of the plaintiff company and against the New Delhi Municipal Committee, defendant No. 1 in terms of the statements dated 11-3-1981 and the licence deed, dated 11th March, 1981, Ex.P- 1. It is further ordered t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is a claim for damages and other reliefs. In view of the settlement between the parties, the plaintiff confines itself to the relief of specific performance and possession and gives up the other reliefs as well as costs. The plaintiff shall remain ever bound by the terms and conditions of the Licence Deed and so would be the New Delhi Municipal Committee. Sd/- March 11, 1981. Judge" Statement of Mr. S.M. Suri, Advocate, Counsel for defendant No. 1 I have heard the Statement of Mr. D.R. Mahajan just recorded and agree with the same. The Licence Deed, Exhibit P- 1 duly executed between the plaintiff and the New Delhi Municipal Committee. I acknowledge its execution on behalf of the New Delhi Municipal Committee. A decree for specific performance and possession in terms of this compromise may be passed in favour of the plaintiff and against the New Delhi Municipal Committee and the parties be left to bear their own costs. The New Delhi Municipal Committee shall ever remain bound by the terms and conditions of the licence deed. Supplementary Statement of Mr. D.R. Mahajan, Advocate, Counsel for the plaintiff. Defendant No. 2 has already allotted the land in question in fav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to allot the land in question to the New Delhi Municipal Committee. Today it was represented by the counsel for the plaintiff company and the New Delhi Municipal Committee that settlement had been arrived at. The counsel for the Committee produced licence deed, dated March 11, 1981, Exhibit P- 1, executed by the administrator, New Delhi Municipal Committee, and countersigned by the New Delhi Municipal Committee, in favour of the plaintiff-company. Accordingly, statements of the counsel for the New Delhi Municipal Committee have been recorded in respect of the settlement that has been arrived at between the plaintiff and the New Delhi Municipal Committee. Mr. D.R. Mahajan, counsel for the plaintiff company, has stated that the allotment in regard to the land in question made by the Union of India in favour of the New Delhi Municipal Committee has since been accepted by the said Committee and in the circumstances it is the committee alone which is competent to create the licence in favour of the plaintiff company and no relief is, therefore, sought against defendant No. 2, and in fact, none can be sought. Mr. Choudhry has stated that the land in question has been allotted by the U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad. South by :Service Laneor proposed Road and Food Corporation ofIndia Building. West by : Service Lane Govt. Bungalows, Food Corporation ofIndiaBuildingand Govt. Bungalows. East by :School Lane. and more particularly described in a sketch plan attached hereto as Schedule-I, for the construction and commission of a Five Star Hotel Building latest by 31st December, 1984 in full and in all respect 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 licensees on licence basis on terms and conditions mentioned hereafter at an annual licence fee of Rs. 1, 45,00,000 (Rupees one crore fortyfive lacs) only from the date of handing over the said plot of land to the licensees. And whereas the licensees have deposited Rs. 50,00,000.00 (Rupees Fifty lacs) only vide draft No. 648837/2226/80 dated 1-12-1980 for Rs. 20,00,000 (Rupees twenty lacs) only and draft No. 988862 dated 10-3-1981 for Rs. 6,00,000 (Rupees Six lacs) only drawn on Punjab Sind Bank, Connaught Circus, New Delhi and draft No. 075142 dated 10-3-1981 for Rs. 24,00,000 (Rupees twenty four lacs) only drawn on Grindlays Bank Ltd., C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rupees one crore forty-five lacs) per annum only in respect of the said plot of land shall commence from the date of handing over the possession of the said plot of land by the licensor to the licensee and the licence fee Rs. 1,45,00,000 (Rupees One crore forty-five lacs) only shall be payable annually in advance latest, on the anniversary of handing over the possession of the said plot of land on which the annual advance licence fee falls due in each year. The licensees shall pay an interest of 15 % per annum to the licensor on the licence fee remaining outstanding beyond the due date and falling in arrears. Such interest shall be charged for full month if the payment of licence fee is not made by the due date with arrears, if any, and such interest shall continue to accrue to the licensor month by month till the accounts are finally squared up. 5. In the event of the licensees failing to make the payment of licence fee, interest due thereon or any other payment due against the licensees for any reason whatsoever of the amount demanded by the licensor in full or in part, the licensor shall have absolute discretion without further reference to the licensees to revoke/ cancel the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and cross-sections of the hotel buildings together with drawings showing the sanitary, drainage, water and other systems, which are to be installed therein, sanctioned in writing by the New Delhi Municipal Committee and any other authorities concerned within 30 days from the date of handing over of the possession of the said plot of land. The licensees shall not start construction of theFiveStarHotelBuildingbefore the said plans, elevation cross-sections and drawings are duly sanctioned by all the authorities concerned. 10. The construction work in theFiveStarHotelBuildingwill commence within a period of 30 days from the date of obtaining the aforesaid sanction/approvals. Further, latest before the commencement of Asian Games, 1982, the licensees shall at their own cost and expenses complete the construction and commission of at least 100 to 150 rooms in the said Hotel Building according to the approved plans and drawings with new and sound materials and with complete water, sanitary, electrical and air-conditioning and other installations, furnishing, fittings etc. as prescribed for the Five Star Hotel Category to the satisfaction of the licensor and the Director General of Tour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licensees M/s. Delhi Automobiles Pvt. Ltd., will have to accept unencumbered and vacant possession and the licensees, M/s. Delhi Automobiles Pvt. Ltd., shall observe and perform the stipulation following, that is to say: (i) Within 30 days of the date of handing over possession of said plot of land, the licensees M/s. Delhi Automobiles Pvt. Ltd., shall submit to and get the plans, elevations and cross-sections of the Five Star Hotel Building together with drawings showing the sanitary, drainage and water systems which are to be installed therein with regard to their suitability for running Five Star Hotel in conformity with the approved Five Star rating prescribed by the Tourism Department of the Government of India, for approval of the licensor. The licensees, M/s. Delhi Automobiles Pvt. Ltd., shall not start the construction of the Five Star Hotel building before the said plans, elevations, cross-sections and drawings are duly sanctioned by the licensor and any other appropriate authority. (ii) The construction of theFiveStarBuildingon the said plot of land will commence within a period of 30 days from the date of obtaining the approval referred to in the preceding sub-claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f India. (vi) The licencees, M/s. Delhi Automobiles Pvt. Ltd., shall obtain the prior approval in writing of the Director General of Tourism, Government of India to the tariff to be charged at the said Five Star Hotel, so as to have the proposed Five Star rating recognised by the Department of Tourism, Government of India. (vii) That the licencees shall do all such other acts, deeds and things as may be required by the licensor, New Delhi Municipal Committee, and the Director General of Tourism, Government of India, for the purpose of obtaining the recognition of proposed Five Star rating from the Department of Tourism, Government of India to the running of Five Star Hotel in the building to be constructed on the said plot of the land for continuing the same throughout the terms of the licence. (viii) That the licencees, M/s. Delhi Automobiles Pvt. Ltd., will not construct any portion of the building above the plinth level unless the plinth certificate is obtained from the licensor, New Delhi Municipal Committee and the Director General of Tourism, Government of India. (ix) The licencees, M/s. Delhi Automobiles Pvt. Ltd., will not put to use the building unless the building ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of the said land and any building or erection to be built thereon 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. (xiii) The licencees will not any time do, cause or permit any nuisance in or upon the said plot of land and building to be constructed thereon or anything which shall cause unnecessary annoyance, inconvenience or disturbance to the occupiers of any other property in the neighbourhood and they will not erect or permit to be erected on any part of the premises any stable, shed and other structure of any description whatsoever for keeping horses, cattle, dog kennel and cages for pet of normal dimension in reasonable number. (xiv) If as a result of excavation etc. any material in excess of the bona fide requirements of the licencees for the purpose of construction of the Five Star Hotel Building, in question, remains unutilised, such material would be the property of the licensor an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement and if possession as licencees has been given to the licencees, authorised officer(s) of the licensor may, notwithstanding the waiver of any previous clause or right or re-entry by the licencees, entire upon the said land and building and structure, if any, put on the whole of the plot of land, and thereupon the land and the building and structure thereon shall remain to the use of land be vested in the licensor and the licence deed so executed shall absolutely determine and the licencees shall not be entitled to any compensation whatsoever. 17. Until the building and works have been completed and certified as completed in accordance with this agreement the licensor or its authorised officer(s) shall have the following rights and powers i.e. to say :--- (a) The right for the licensor and other officers under the direction at all reasonable times to enter upon the said premises to view the state and progress of the said work, to inspect and test materials and workmanship and for other reasonable purposes connected with this agreement. (b) In case the licencees shall commit any breach or make default in the performance of all or any one or more of the covenants on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quired to give or assign any cause or reason therefor require the licencees to appoint another Engineer or Architect with the approval of licensor, until such other Engineer or Architect is so approved and appointed no further building work shall proceed without the previous written consent of the said officer. 18. All notices, consents and approvals to be given under the licence agreement shall be in writing and shall be signed by the officer(s) authorised in this behalf by the licensor, and any notice to be given to the licencees shall be considered as duly served if the same shall have been addressed to the licencees and delivered to, left at or posted to the usual or last known place or residence or business in Delhi of the person served by ordinary post or on the said land hereby proposed to be demised or if the same shall have been affixed to any building or erection whether temporary or otherwise, upon the said land. 19. 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. 20. That the trees, if any, standing on the plot shall remain as licensor's property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... awn up jointly by the representatives of the licensor and the licencees on completion of the said accommodation/building and the same shall form part of the licence deed. 26. Life of the building to be constructed should be per usual practice be 100 years. 27. The allotment will be made on licence basis and the licensed premises including building to be constructed will be a public premises within the meaning of the Public Premises (Eviction of Unauthorised Occupants) Act, 1971 or such Acts, as may be enforced from time to time in this behalf. 28. On revocation of the licence and/or vacation of the premises by the licencees for any reasons whatsoever, the licencees shall not remove from the premises furnishings, fittings and fixtures of the movable types belonging to the licencees without prior written permission of the licensor and, if required, the licensor shall have the option to retain the same with payment of compensation as may be mutually agreed upon. In case of licensor deciding not to retain the same, the licencees shall remove the same peacefully and restore the space to the condition as existing at the time of completion of the building, at their own cost. 29. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or hindrance and the licencees shall not claim any compensation from the licensor for the space occupied for running the Sub-station. The licensor shall be responsible for the maintenance of all electric installations and appliances up to meter boards. 36, Save as otherwise provided, the licencees after completion of the building shall not make any additions/alterations in the said building and installations without prior permission of the licensor and even then permitted by the licensor, the said additions/alterations shall be carried out by the licencees at their own cost. 37. No encroachment of any kind on the Municipal land or on the space other than the space that will be licensed out to them shall be permitted/tolerated. 38. The licencees shall not employ or permit to be employed or allow to enter into or remain in the said premises any person suffering from any contagious, loathsome or infectious disease. 39. The licencees shall not display any Name Board, Neon Sign Board or advertisement board in any part of the building or in the open space allotted to them without obtaining prior permission of the licensor in writing. 40. The licencees shall name the Five Star ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r or order for administration of his estate made against him or shall take any proceeding for liquidation or composition under any Insolvency Act for the time being in force or made any conveyance or assignment of his effects or enter into any arrangement or compensation with the creditors or suspend payment or shall introduce a new partner or shall change the constitution of the partnership or if the firm is dissolved under the Partnership Act; or (2) If the licencees being a company shall pass a Resolution or the court shall make an order for the liquidation of its affairs or a receiver or manager on behalf of the debenture holders shall be appointed or circumstances shall have arisen which entitle the court or debenture holders to appoint a receiver or manager: Provided always that such determination shall not prejudice any right to action of remedy which shall have accrued or shall thereafter accrue to the licensor. 47. The licensor accepts and reserves into himself all mines, minerals, coals, gold washing, earth oils and quarries in or under the said land and full right and power at all times to do all acts and things which may be necessary or expedient for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee. 3.2. Agreement executed on 18th day of June, 1981 between the assessee and M/s. Bharat Hotels Ltd. reads as under :--- Agreement This agreement executed this 18th day of June, 1981 between M/s. Delhi Automobiles Private Limited, a company registered under the provisions of the Companies Act, 1956 and having its registered office at 3/15-A, Asaf Ali Road, New Delhi through its Director duly authorised to enter into this agreement vide its Board of Directors resolution dated 17-6-81 (hereinafter referred to as Party No. 1) of the first part which expression shall, unless- repugnant to the context and meaning thereof, mean and include their administrators, legal representatives and successors and M/s. Bharat Hotels Ltd., a company registered under the provisions of the Companies Act, 1956 and having its registered office at 6, Tilak Marg, New Delhi through its Director Shri G. Sagar Suri, duly authorised to enter into this agreement vide its Board of Directors Resolution dated 17-6-81 (hereinafter referred to as Party No. 2) of the other part, which expression shall, unless repugnant to the context and meaning thereof, mean and include their administrators, legal represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the contract by handing over physical possession of the aforesaid site and completing all other formalities which may be necessary in this behalf ; AND WHEREAS as a result of mutual discussions an amicable settlement was arrived at and licence deed dated11th March, 1981was executed by the NDMC in favour of Party No. 1; AND WHEREAS on an application being filed in the High Court of Delhi, the settlement between the parties was recorded in suit No. 144/79, and a decree dated 11-3-81, incorporating the aforesaid licence dated 11th March, 1981 was passed in terms of the settlement ; AND WHEREAS one of the conditions of the aforesaid licence is that Party No. 1 shall form a public limited company and apply to the NDMC for the transfer of the licence granted to the said public limited company; AND WHEREAS Party No. 2 has been promoted and formed by Party No. 1 to whom the aforesaid licence is to be transferred ; AND WHEREAS party No. 1 has written a letter dated18-6-81to NDMC intimating them about the information of Party No. 2 and requesting for the transfer of the aforesaid licence in favour of Party No. 2; AND WHEREAS in consideration of Party No. 1 agreeing to transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Party No. 2 actual out of pocket costs and expenses on a bill being submitted for telephone and other services, and for maintenance, repairs and other outgoings. (iii) To pay or cause to be paid electricity charges and meter hire in respect of electricity consumed in the shops comprised in the Shopping Complex on presentation of the bills thereof. (iv) To bear and pay such share as may be decided by Party No. 2, from time to time, of any new or additional or excess ground rent, rates or taxes which maybe levied or imposed by the Government (Central or State) or the New Delhi Municipal Committee or any other public body or authority in addition to the existing ground rent, rates, taxes and ceases. (v) To keep the interior of all shops in the Shopping Complex in a good state of repair (including the interior or plant work) at all times during the subsistence of this Agreement and Party No. 2 shall be at liberty to send its representative to respect the same from time to time and Party No. 2 shall be entitled to call upon Party No. 1 to carry out or cause to be carried out at its own expenses interior repairs or repainting or renovation or work of any other kind which Party No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained, Party No. 2 shall not be entitled. to revoke the sub-licence, but its remedy for any such breach on the part of the Part No. 1 shall only be in damages. (xiv) Not to change the lock on the main entrance door of the said shopping complex without the consent in writing of Party No. 2. (xv) Not to make or allow to be made any additions, variations or alterations in the said Shopping Complex or any part thereof without obtaining first the consent in writing of Part No. 2. (xvi) Not to store or keep or allow to be stored and kept any hazarduous and/or inflammable goods or articles in the said Shopping Complex. (xvii) Not to do or permit to do any act which may invalidate or in any way affect the insurance of the said property or which render Party No. 2 able to pay any extra or excess insurance premium. (xviii) To ensure observance of all municipal and other regulations in the use of the said Shopping Complex. (xix) Not to cause or to allow to be caused nuisance or annoyance either to Party No. 2 or to other users of the property and it is agreed that the decisions of Party No. 2 whether the nuisance or annoyance has been caused or not shall be final and conclusive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract. Party No. 2's decision as to the time when the amounts become payable under clause 4(d) below shall be final and binding upon Party No. 1. If Party No. 1 fails to pay any instalment on its due date, Party No. 2 shall be entitled to terminate this agreement and immediately on such termination all amounts paid by Party No. 1 hereunder shall stand forfeited to Party No. 2. (xxvii) Notwithstanding anything contained herein it is agreed and understood between the parties hereto that the sub-licenced premises shall at all times be under the overall control and supervision of Party No. 2 and Party No. 2 shall retain dominion and possession over the said premises and shall at all times have the right to direct the mode and manner of user of the said premises so as to more effectively provide for the facilities and amenities of a 5 Star Luxury Hotel. 4. Parties herein have agreed that, as authorised by the terms of the licence deed dated 11-3-81, Party No. 1 may permit the use by way of a licence of the Shopping Complex to one or more persons and/or their nominees with the information to Party No. 2 and on such terms and conditions as Party No. 1 may deem fit to impose, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es with Party No. 1 as follows :--- (i) Party No. 2 shall be responsible for and ensure the payment of all rates, taxes, charges and assessments on air-conditioning and other service charges or outgoings assessed, charged, imposed or payable in respect of the Shopping Complex but excepting charges for telephones, electricity or other energy consumed by the persons using the said shops in the said Shopping Complex. (ii) To keep the exterior of the building in which the Shopping Complex is located and the drainage thereof in good and substantial repaid order and condition, and to do or cause to be done from time to time all heavy repairs such as in connection with the falling of a wall, ceiling, roof or timber or any other part of the said building and all such repairs as may be necessary for keeping the said Shopping Complex wind and water tight. (iii) To keep or cause to be kept the common entrances, doorways, staircases, landings, lobbies and passages leading to the said Shopping Complex well and sufficiently clean and lighted and in good and sufficient repaired condition. 7. Subject to the provisions of the next clause, Party No. 2 hereby agreed to provide the following s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. (ii) Party No. 2 shall throughout the period of the Sub-licence have full control over the said Shopping Complex and Party No. 1 shall have only the Sub-licence to use it for the period and on the same terms and conditions herein set out. (iii) Party No. 2 shall retain with itself the keys of the main entrance/s of the said Shopping Complex and deliver to Party No. 1 only the duplicate/s thereof. (iv) Any notice to be served upon Party No. 1 shall be deemed to be properly served if addressed to Party No. 1 and if delivered at the said Shopping Complex or it is pasted on the outer door of the said Shopping Complex. (v) Party No. 1 shall bear and pay all the costs, charges and expenses of and incidental to the preparation and execution of the sub-licence in duplicate. 11. That without prejudice to the other rights of Party No. 2 herein contained, the Party No. 1 shall indemnify the Party No. 2 and save Party No. 2 harmless against action, sanction proceedings claims or demands of any person made against Party No. 1 in respect of or as a result of business carried on by Party No. 1 or any of its licencees or Party No. 1 committing any breach of the provisions of the Delh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce deed to be executed by M/s. Bharat Hotels Ltd. will be sent in due course. Yours faithfully, Sd/- MAHESH CHANDRA GUPTA SECRETARY 4. My learned senior brother in para 32 of proposed order has held that on the facts and in the circumstances of the case, qua the issue involved and grounds mentioned on page 5 8 of my order, there was no venture in the nature of trade and to that extent I concur with my learned brother. 4.1 Shri C.L. Chowdhari, advocate, as he then was, as counsel for Union of India Defendant No. 2 in the proceedings taken by the assessee made a statement as on March 11, 1981, to the following effect :--- "The land in question has been allotted by defendant No. 2 in favour of the New Delhi Municipal Committee and the allotment has been accepted by the said Committee." 4.2 In view of the above statement, it is uncertain and none of the learned lower authorities examined this aspect of the case as to whether NDMC did ever own or possess any land, which was subject-matter of transfer by way of 'licence' either to the assessee or to the said M/s. Bharat Hotels Ltd. No body has also verified the title much less the rights of the NDMC, and accordingly what wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in the cases mentioned above viz., CIT v. Bhurangya Coal Co. [1958] 34 ITR 802 at pages 804 and 805, Alapati Venkataramiah v. CIT [1965] 57 ITR 185 at page 192 and Nawab Sir Mir Osman Ali Khan v. CWT [1986] 162 ITR 888 since in the case of an immovable property or any interest thereof the value exceeding Rs. 100, the title to the property on the interest thereof cannot pass to the transferee till a conveyance is executed and registered. Mere delivery of possession of immovable property cannot by itself be treated as equivalent to conveyance of the immovable property. The date of accrual of capital gain has to be taken, the date when the transfer takes place and the entries in the account books are irrelevant for the purposes of determining such dates. 4.4 In the case of K.C. Pal Chowdhury v. CIT [1962] 46 ITR 1 (Cal.), pending negotiations for the sale of a colliery owned by the assessee to a company to be formed, the assessee delivered possession of the colliery on January 1, 1947 to the promoters of the company. OnApril 16, 1947, an agreement for sale was executed reciting the consideration etc. The company was incorporated onMay 2, 1947. The sale deed was executed onF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, there was no transfer in terms of capital gains. 4.8 The assessee vide its letter dated March 10, 1987 (reproduced above in the body of this order), while generally accepting the terms and conditions in the NDMC licence agreement, wanted the NDMC, inter alia, the following to be made stipulation in the said agreement of licence - "Since a huge amount of finance - is involved in the hotel complex, we will be forming a separate public limited company for this project. Necessary provision may be provided in the licence agreement for this permission at a later stage." 4.9 Even stipulation No. 2 in the agreement of 'licence' dated 11th March 1981, already reproduced in the body of this order reads as under :--- "The licensees shall within a period of twelve calendar months from the date of commencement of this licence agreement form a Public Limited Company and shall apply to the licensor within six months thereafter for the transfer of the licence to the said Public Limited Company so constituted and the licensor shall transfer the licence to the said Public Limited Company so constituted on the terms and conditions incorporated in this agreement." 4.10 Now in view of the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. 4.13 In view of my above finding, qua the grounds, mentioned at page 58 of this order, since the issue stands restored to the file of the assessing officer, both the parties shall be deemed to have succeeded for statistical purposes. ORDER UNDER SECTION 255(4) OF THE INCOME TAX ACT, 1961 Per K.C. Srivastava, Accountant Member - We having differed on some points in the above appeals, we proceed to state the point on which we have differed and refer the same to the President of the Income-tax Appellate Tribunal for hearing on this point by one or more of the other Members of the Tribunal. The point of difference is as under :--- "Whether on the facts of the case, the amount of Rupees One crore had been received as a consideration of the transfer of a short-term capital asset and was therefore to be taken for charge of short-term capital gains in the hands of the assessee company as held by the Accountant Member or the orders of the lower authorities on this point were to be set aside to the assessing officer in terms of directions recorded in the order of the Judicial Member. THIRD MEMBER ORDER Ch. G. Krishnamurthy, President --- These matters hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween3.00 PM to 5.00 PMon all working days. I would request you to send your offer in a sealed cover in duplicate addressed to the undersigned latest bythe 20th July, 1976. On the front cover, the words "Offer for hotel site at Barakhamba complex 1976-77" should appear. While giving your offer, you may please consider the following conditions : (a) The land would continue to be on lease with the NDMC and the period of licence would be from 33 to 99 years, as may be decided by Committee. (b) Construction of building would have to be undertaken in accordance with the design and the architechtural control of the NDMC. (c) The licensor would have the complete possession and its enjoyment during the period of validity of the licence. (d) The amount of annual licence fee would have to be paid in lump sum for first two years and this would be adjusted against the annual licence fee as may be payable from the month following the month of completion of the building. (e) The construction of the building would have to be completed within a period of two years of any extended period which may be agreed to by the NDMC. (f) On termination of the licence, it will be the option of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to pay the balance at the time of actual possession of the land. The N.D.M.C. acknowledged the receipt of the cheque for Rs. 20 lacs on the same day. Thereafter the assessee went on writing to the NDMC to finalise the licence agreement and to hand over the subject site. Since the N.D.M.C. failed to hand over the possession of the subject site as promised, the assessee approached the High Court of Delhi by filing a Civil Suit No. 144/79. It was stated in the plaint that the offer of the assessee being the highest offer was accepted by the NDMC and a binding contract in law came into existence, that NDMC in its meeting held on 23-6-1976 passed a resolution bearing No. 3A to the effect that it (NDMC) considered all the facts and accepted what was done by its officers, namely , accepting the offer made by the assessee and that in its another meeting held on 23-3-1977 the NDMC passed another resolution No. 112/76/77 wherein the action of the officers was ratified and thus an enforceable contract between the assessee and the NDMC had come into existence. Even though a complete final and binding contract had come into existence between the assessee and the NDMC and even though the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hamba Lane, New Delhi, measuring 6.0485 acres to the plaintiff company, etc. and, in the alternative, for payment of damages in the sum of Rs. 64,40,000 was originally brought against the New Delhi Municipal Committee, New Delhi. Subsequently, the plaint was amended and the Union of India was impleaded as a defendant No. 2. During the course of proceedings, it was represented that the parties had come to terms of the compromise should be called and the suit decided in accordance therewith. On February 10, 1981 Mr. C.L. Choudhry, counsel appearing for the Union of India informed that the Government had decided to allot the land in question to the New Delhi Municipal Committee. Today it was represented by the counsel for the plaintiff company and the New Delhi Municipal Committee that settlement had been arrived at. The counsel for the committee produced licence deed, datedMarch 11, 1981, Ex-P- 1, executed by the administrator New Delhi Municipal Committee, and counter signed by thenew DelhiMunicipal Committee, in favour of the plaintiff-company. Accordingly, statements of the counsel for the New Delhi Municipal Committee have been recorded in respect of the settlement that has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for the construction of the 5-star Hotel would continue to be on lease with the NDMC in whom the building to be constructed would also vest. In other words, the assessee was to construct the hotel on the land belonging to the NDMC and hand over the building to the NDMC after the expiry of the licence period. By way of a facility it was made clear that the assessee would have the right to raise loans on the security of the structures, building and fixtures etc. It was also provided that the licensees shall not be at liberty in any way to underlet, sublet, encumber, assign or transfer their rights 'and interest or part with possession of the land and the building thereon to any person without the previous written consent of the NDMC. However, sub-licence of the property was permitted. Clause 14 of the licence deed made it clear that the assessee shall have a bare licence only to enter upon the piece of land to be allotted by the NDMC for the purpose of raising a building thereon and that nothing contained in the agreement should be construed as a demise in law of the said land by the NDMC. 3. According to the understanding and the provisions contained in the licence agreement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Managing Director, Delhi Automobiles Pvt. Ltd. Hotel Division, 6, Tilak Marg, Sagar Apartments, New Delhi Sub : Transfer of licence deed dated 11-3-1981 granted in favour of M/s. Delhi Automobiles Pvt. Ltd. in respect of 5-star Hotel atBarakhamba Lane, New Delhi. Dear Sir, Please refer to your letter No. BHL/1 dated18-6-1981and letter No. BHL/2/2/dated24-7-1981on the above cited subject. I am desired to convey the approval for the transfer of licence deed dated 11-3-1981 granted in favour of Delhi Automobiles Pvt. "Ltd. in respect of Five Star Hotel site at Barakhamba Lane in favour of M/s. Bharat Hotels Ltd., a public company limited by shares formed in pursuance of clause No. 2 of the licence deed dated 11-3-1981 on the same terms and conditions as embodied in the licence agreement dated 11-3-1981. The draft licence deed to be executed by M/s. Bharat Hotels Ltd. will be sent in due course. Yours faithfully, Sd/- (MAHESH CHANDRA GUPTA) SECRETARY" 4. Now the question that arose before the Income-tax Officer was as to the treatment to be given to the sum of Rs. One crore agreed to be paid and actually paid by way of adjustment by M/s. Bhar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e intention of selling it or transferring it in the course of its activity to another company and therefore the whole transaction amounted to an adventure in the nature of trade. But his emphasis was not so much on the taxing of the sum in question as income from an adventure in the nature of trade as it was as a short term capital gain. The theory of adventure in the nature of trade was adopted as an alternative argument by the Income-tax Officer to bring the above sum to tax. 6. The matter was then taken to the Commissioner (A). It was argued before him that as "goodwill" it was not liable to tax as there was no cost of acquisition and alternatively even if it was liable to tax as capital gains, it should be treated as long term capital gain on the ground that the assessee acquired the right of licence in 1977 when a valid contract between the assessee and the NDMC came into existence and that what took place in 1981 was only a declaration by way of formalisation of the right already acquired in 1977 at the behest of the High Court order and that even High Court order did not create a right for the first time. It was then the NDMC failed to perform its part of the contract, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount in question could not be a business income nor could it be brought to tax as capital gains, much less as long term capital gains. The emphasis of the assessee was that the asset in question was acquired not in 1981 but in 1977 and as there was no cost of acquisition of that asset, that asset should be regarded as goodwill and any amount received for the transfer of goodwill should not be brought to tax on the authority of the decision of the Supreme Court in the case of B.C. Srinivasa Setty's case . The Revenue, on the other hand, contended that it was clearly business income, that there was an adventure in the nature of trade, which was fully demonstrated by the efforts the assessee has put in to acquire the licence and to promote another company to take over for consideration. In any case it was not a long term capital gain, inasmuch as, the assessee acquired the right of licence and obtained the possession of the property in question only as a consequence of the decree passed by the High Court on 11-3-1981 and the transfer thereafter to another company M/s. Bharat Hotels Ltd. on 18-6-1981 fell within the period stipulated for short term capital gains. The Commissioner (A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er by any party to any party. By referring to the grounds of appeal filed before the Tribunal, particularly ground No. 2, where the department objected to the order of the Commissioner (A) by stating that ownership was not transferred because there was no registered deed, the learned Judicial Member observed that in the absence of a registered deed there could not be acquisition of any right or asset by the assessee on 22-3-1977. He was also of the opinion that transfer of a capital asset for the purpose of capital gain in terms of section 2(47) of the Income-tax Act, 1961, meant effective conveyance of the capital asset to the transferee and that transfer was to be read in the light of the decisions of the Supreme Court in the cases of Bhurangya Coal Co. , Alapati Venkataramiah and Nawab Sir Mir Osman Ali Khan . Mere delivery of possession of immovable property could not by itself be treated as equivalent to conveyance of the immovable property. Therefore the date of accrual of capital gain has to be taken to be the date when the transfer takes place and in this context the entries in the accounts were irrelevant. He then referred to several decided cases in support of the above v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which supported their respective views. 12. I would like to deal first with the question whether the matter needs to be sent back to the authorities below for fresh examination. As I mentioned in my summary of the order of the learned Judicial Member, he was of the opinion that the licence deed required registration under section 17 of the Registration Act. The distinction between a licence and a lease is now very clear. The cardinal distinction between a lease and a licence is that in a lease there is a transfer of interest in land within the meaning of section 105 of the Transfer of Property Act whereas in the case of a licence, there is no transfer of interest in or to the land although the licencee acquires the right to occupy the land if the effect of the instrument is to give the holder an exclusive right of occupation of the land. It is in law not a demise of the land itself. The licence is defined not in the Transfer of Property Act but by section 52 of the Indian Easements Act V of 1881 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property; (c) non-testamentary instruments which acknowledge the receipt of payment of any consideration on account of the creation, declaration, assignment, limitation or extinction of any such right, title or interest; and (d) leases of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent; and (e) non-testamentary instruments transferring or assigning any decree or order of a court or any award when such decree or order or award purports or operates to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immovable property ;" A reading of the section shows that the documents which require registration are such that purport or operate to create, declare, assign, limit or extinguish whether in present or in future any right, title or interest, whether vested or contingent of the value of one hundred rupees and upwards to or in immovable property. Now a licence by definition does not create, declare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the transaction is a licence and since a licence does not create any right, title or interest to or in the immovable property, it does not come within the definition of section 17(1)(b) of the Indian Registration Act so as to require compulsory registration. Section 17(1)(d) of the Registration Act does provide that leases of immovable property from year to year or for any term exceeding one year for reserving a yearly rent shall have to be registered. Since the document in question is not a lease deed but only a licence, this is my opinion and as per the settled law as far as I could Jay my hands upon, does not require any registration, unless to repeat the document is held to be a lease of immovable property, which is not the case of either of my colleagues in this case or of the department at any stage or now before me. So the question of the document requiring registration coming in the way of transfer does not seem right and therefore it is difficult to agree with the view expressed by the learned Judicial Member on this aspect. Nor I am able to agree with him that the NDMC ever possessed the land in question and therefore the NDMC was not the owner of the land so as to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f damages in the sum of Rs. 64,40,000. It is further to be noted that on10-2-1981the counsel appearing for the Union of India informed the High Court that the Government had decided to allot the land in question to the NDMC. It was on 11 -3-1981 that the suit filed for specific performance was decreed in favour of the assessee and physical possession was handed over to the assessee and a licence deed was executed providing for various terms and stipulations. So it is not a question of mere delivery of the possession of the immovable property but it is a delivery of the possession of the immovable property pursuant to the decree passed by the High Court granting specific performance to the assessee followed by the execution of the licence deed, which do not in my opinion require registration. The sequence of events had completed the transaction of transfer and it cannot therefore be said that the transfer still did not take place within the meaning of section 2(47) of the Income-tax Act, 1961. In my opinion reference to section 56 of the Transfer of Property Act and to section 60 they are not relevant for the present issue. Merely because a right exists in the grantor of the licence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a capital asset or not except to state in one sentence that the interest that the assessee acquired by entering into this transaction with NDMC is a property within the meaning of section 2(15) of the Income-tax Act, 1961, capable of being transferred. In fact it was transferred. Therefore, I will leave that question at rest. 14. The significant point which needs to be disposed of at this stage is namely, was there a concluded contract between the assessee and the NDMC and if so at what point of time that contract came into existence. On this finding depends the question whether the transfer gave rise to a long term capital gain or short term capital gain. The department contends that the contract came into existence on 11-3-1981 whereunder the assessee became the owner of the right of licence, which is transferred to M/s. Bharat Hotels Ltd. on 18-6-1981, which gave rise to capital gains and as the period during which this capital asset was held was less than 36 months, it was only a short term capital asset whereas the assessee contends that the contract came into existence on 22-3-1977 and therefore what was transferred on 18-6-1981 was long after the period of 36 months a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the Specific Relief Act. Whether an agreement is a complete bargain or merely a provisional arrangement depends upon the intention of the parties deducible from the language used by the parties on the occasion of the negotiations. Here the events that led to the passing of the decree by the Hon'ble High Court on 11-3-1981 do indicate that there was a concluded contract between the parties and it was only when the NDMC failed to perform its obligation namely, handing over of the possession of the land in question that the assessee was forced to seek relief from the High Court compelling the NDMC to perform its part of contract. it is therefore incorrect to state there was no concluded contract till the High Court passed the decree on11-3-1981. The decree passed by the High Court was only for due performance of the contract by the NDMC which it failed to perform, which showed that there was a contract between the parties, a contract enforceable at law, entered into prior to 11-3-1981. It only declared the prior existing legal relationship. Unless such a contract existed, a suit for specific performance would not have lied and the High Court would not have passed the decree granti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omise. The agreement by the advocate of the NDMC with the contentions raised in the plaint and the execution of the licence deed, which was Ex.P- 1, which ratified the prior existing relationship clearly show that the offer made by the assessee on10-3-1977was accepted by the NDMC. The entire correspondence that took place between the assessee and the NDMC and the copies of the plaint etc. were all reproduced in the order of the learned Judicial Member, which I do not wish to reproduce again. Suffice it to say that the sequence and the acknowledgment by the NDMC do indicate that the offer made by the assessee was accepted by the NDMC but NDMC delayed handing over of the possession of the site to the assessee, which compelled the assessee to seek help of the High Court for specific performance of the contract. In the meantime a settlement was reached by which the licence fee, which was originally fixed at Rs. 38 lacs had substantially been increased to Rs. 1.45 crores. It can be argued that since the licence fee was increased from 38 lacs to Rs. 1.45 crores, a new agreement came into existence and the earlier agreement was given a go-bye but the point to be seen is the earlier agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of proposals and acceptances, respectively are deemed to be made by any act or omission of the party proposing, accepting or revoking by which he intends to communicate such proposal, acceptance or revocation, of which has the effect of communicating it." Section 4 of the Contract Act provides as to when communication is complete. It says : "4. Communication when complete. --- The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. The communication of an acceptance is complete,---as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor ; as against the acceptor, when it comes to the knowledge of the proposer. It is therefore clear from this section that a communication is complete as against the acceptor, i.e. the NDMC, when it comes to the knowledge of the proposer i.e. the assessee. The assessee has come to the knowledge of the acceptance by the NDMC by the resolution dated21-3-1977, which it mentioned in the plaint and which was not disputed by the NDMC and on the other hand it accepted it. It cannot therefore in my opinion be said that no valid contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances, I am of the opinion that a valid contract had come into existence on 23-3-1977 between the assessee and the NDMC and when the NDMC failed to perform its part of the contract, namely, handing over of the possession of the site to the assessee, a breach of contract was committed by it and that the assessee was compelled to approach the High Court for redress and eventually got a decree for specific performance of the contract by which the assessee got the possession of the site but agreeing to pay a higher amount of licence fee. If there had been evidence to show that the NDMC was demanding a higher licence fee from the assessee and for that reason declined to hand over the possession of the site to the assessee, the position would have been different. That not being the case here, I am inclined to agree with the contention canvassed on behalf of the assessee that the contract in this case came into existence only on23-3-1977. I am therefore unable to agree with the view expressed by the learned Accountant Member that the assessee acquired the right to get the licence only on 11 -3-1981 and not earlier. For this view, he relied only on the licence deed dated 11 -3-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the payment of money could not have resulted in a valid enforceable contract. He further argued that there was no unconditional acceptance by the NDMC because the subject-matter of the contract had varied in such a way that the licence fee from a meagre sum of Rs. 38 lacs had gone up to 1.45 crores. Since the subject-matter as it originally existed had been materially changed, no contract could have come into existence. It was the fresh offer made by the NDMC that was accepted by the assessee and therefore the contract had come into existence only on 11-3-1981 and not earlier, I have discussed this matter elaborately above and for the reasons given above I find myself unable to accept these contentions. The second fact that was mentioned in the plaint filed before the High Court was that on23-3-1977the NDMC had accepted and ratified the offer of the assessee by resolution and that fact was not disputed by the NDMC and on the contrary it was accepted and was acknowledged. This shows that there was no counter offer made by the NDMC but on the contrary there was only a breach of contract, which forced the assessee to agree to pay enhanced licence fee. It is therefore difficult to a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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