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TMI Blog2024 (7) TMI 151X X X X Extracts X X X X X X X X Extracts X X X X ..... cial activity of operating the hotel. The ELEL was to get 23% of the gross turnover as license fees (subject to some variation as provided in clause V). Considering the terms of the licence operating agreement in its entirety, it is a Trading contract. The settlement agreement between ELEL and ITC shows that to fully and finally adjust, compromise and settle disputes between the parties, the settlement agreement was entered. Clause I(f) of the settlement agreement defines disputes to mean that all allegations, claims, counter-claims and disputes forming the subject matter of the Suits and/or the Arbitration and includes all allegations, claims, counterclaims and/or demands between the Parties, of any nature, arising, in any manner, out of or touching or relating to the Hotel and/or any and all arrangements / understandings / agreements relating to the Hotel including the Operating Licence. The aforesaid sum was received by the ITC from the ELEL for relinquishment of right to operate Hotel under the operating license as mentioned in Clause 3 (n) (iv) of the Consent Terms. The license operating agreement dated 03.05.1986 is clearly a trading contract and the receipts of ELEL under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstantial question of law is answered in favour of the Revenue/Appellant and against the respondent assessee. It is held that the receipt in question in the hands of the respondent assessee is revenue receipt and not capital receipt. - HON BLE MR. JUSTICE SURYA PRAKASH KESARWANI AND HON BLE MR. JUSTICE RAJARSHI BHARADWAJ ITA 125 of 2018 Appearance: For the Appellant : Mr. Omnarayan Rai, Adv. Mr. Prithu Dudhoria, Adv. For the Respondent : Mr. J. P. Khaitan, Sr. Adv. Ms. Nilanjana Banerjee Pal, Adv. Index Pages I. Facts 2-5 II. Substantial questions of law 5 III. Operating licence agreement dated 03.05.1986 5-20 IV. Settlement agreement dated 11.05.2005 21-34 V. Consent Terms dated 11.05.2005 34-42 VI. Submissions 43-50 VII. Discussions and Findings 50-77 JUDGMENT SURYA PRAKASH KESARWANI, J.: 1. Heard Sri Om Narayan Rai, learned senior standing counsel assisted by Sri Prithu Dudheria, learned junior standing counsel for the appellant and Sri J.P. Khaitan, learned senior advocate assisted by Ms. Nilanjana Banerjee Pal, learned advocate for the respondent. Facts:- 2. The respondent assessee is engaged in various business activities. For the assessment year 2006-07 it disclosed in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fees in addition to interest stated hereinabove as agreed between ITC and ELEL till such time entire purchase price is paid to ELEL. 4. Subsequently, the respondent entered with ELEL a settlement agreement dated 11.05.2005 under which civil litigations going on in certain civil suits and some other disputes were settled on a consideration of Rs. 43.10 crores out of which the settlement amount relating to the licence in question as referable to the agreement dated 03.05.1986, was determined at Rs. 32.42 crores which was again reduced in writing by an award of the sole Arbitrator (Mr. H. Suresh) dated 11.05.2005. 5. The aforesaid amount of Rs. 32.42 crores is the amount in dispute in the present appeal. While the respondent, ITC treated this amount as a capital receipt and accordingly paid tax on capital gain. The Assessing Officer treated it as revenue receipt and according levied tax by assessment order dated 31.12.2009 under Section 143 (3) of the Income Tax Act, 1961 (hereinafter referred to as the Act, 1961 ) relating to the assessment year 2006-07. 6. In appeal filed by the respondent ITC before the CIT[Appeal], the appeal was allowed and the receipt of the aforesaid amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dani by the Government of the State of Maharashtra under an instrument of lease dated 5.5.1976 and sub-leased to EHIL by Messrs. Luthria Lalchandani by instrument dated 3rd August 1976 and the entire structure erected on the lands and all building equipments installed therein presently named as Hotel SeaRock, Playmate Club and Rock International Club (which is closed now) for the purpose of the Hotel, including, but not limited to, all plumbing, heating and lighting equipment, elevators, air-conditioning equipment, exterior and interior designs, telephone equipment, furniture and equipment, operating supplies, and all related facilities, constructed, installed or kept in or appurtenant to the Hotel, as also all additions, alterations, extensions modifications thereto, as may be effected, but excluding Suite 2144, Studio Sea Rock and Registered office of the Company. 1.2 Furniture and Equipment shall mean all furniture, furnishings and moveable equipment, except operating supplies, at any time installed or kept in the Hotel for use in connection with the operation of the Hotel. 1.3 Operating Supplies shall mean all silver, linen, chine, cutlery, glass, cooking utensils, guest room s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd conditions herein contained EHIL hereby grants Licence to ITC to operate the said Hotel in terms of this agreement by maintaining ITC's own books of Accounts from the 1st day of July 1986 for the purpose of running the said Hotel together with all related facilities during the subsistence of this agreement or any renewal thereof. 2.2 It is hereby expressly agreed and understood by the parties that this agreement shall and is meant to confer full and unfettered right to ITC to operate the said Hotel subject to no breach of any of the terms on the part of ITC under this agreement. EHIL hereby irrevocably during the subsistence of this agreement or any renewal thereof, authorise: ITC to do and execute all such acts, deeds, matters, things and documents to conduct and operate the said Hotel , the intention being that ITC shall have an unfettered right to run the said Hotel , so long as ITC does not commit any breach or default of any terms agreed under these presents. 2.3 EHIL shall execute from time to time or as may be required by ITC one or more specific powers of Attorney or such other documents or instruments as ITC may require in order to conduct, operate and run the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be certified by the Auditors, and the same shall be final and binding on the parties. 5.2 ITC shall pay the Licence Fee in arrears. The Licence Fee will become due and payable to EHIL when the Licence Fee accumulates to Rupees One Crore calculated as per Article 5.1 and such payment shall be made by ITC within ten days from the date of such accumulation. The Auditors Certificate in this behalf will be final and binding on the parties. 5.3 The payment of such fee shall be secured, by an irrevocable revolving Bank Guarantee in favour of EHIL for an amount of Rs. 1.50 crores (Rupees One Crores Fifty Lakhs only) during the tenure of the agreement from time to time. 5.4 ITC will endeavour that minimum annual growth of 5% (five percent) of the gross turnover over the base year, i.e. the year ending 30th June 1986, is achieved from year to year and should in any financial year such growth be not achieved, over the base year, then and in such cases ITC will pay EHIL Licence Fee at the stipulated rate of 23% (twenty three percent) of the gross turnover and an additional 2% (two percent) on gross turnover for that financial year in which growth falls short by 5% (five percent) over the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets of EHIL. EHIL shall bear all costs of and expenses relating to such banking facilities. 7.2 The aforesaid advance of Rs. 3.50 Crores (Rupees Three Crores and Fifty Lakhs) if advanced by ITC, together with interest together with all costs and expenses relating thereto shall be immediately adjusted against monthly Licence Fee referred to in Article V above. 7.3 If, however, instead of extending the said advance, ITC arranges banking facilities as provided in Clause 7.1 above, then such facilities shall be for a duration of 18 months from the date hereof and the said advance shall be adjusted immediately against the monthly Licence Fee until liquidation of the advance. ARTICLE VIII: PERMISSIONS, LICENCES, ETC. 8.1 EHIL agrees to leave with ITC all Agreements, Permissions, and Licences for purpose of operating the said Hotel and will assist ITC in obtaining such other Permissions and Licences as may be required from time to time. 8.2 EHIL agrees that it will be EHIL's responsibility to keep in force and renew all Licences and permissions and ITC agrees to pay the Fees for these renewals, and perform terms and conditions of all Licences and Permissions applicable to the said Hot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance from lapsing or being cancelled or invalidated. 10.3 Neither party shall settle or refer to arbitration any claim under any of the foregoing policies without the prior written consent of the other party. ARTICLE XI: TITLE TO THE HOTEL AND OTHER COVENANTS RELATING THERETO 11. EHIL hereby authorises ITC to pay all rents, rates and taxes and insurance premium as well as take out appropriate insurance policies on EHIL's behalf at ITC's cost throughout the subsistence of this agreement. Provided, however, that a block amount of Rs. 10 Lakhs (Rupees Ten Lakhs) per annum shall be borne by EHIL during the pendency of the agreement to meet expenses towards Rents, Rates, Taxes and Insurance. EHIL shall pay the said sum of Rs. 10 Lakhs (Rupees Ten Lakhs) per annum to ITC at the end of each financial year. Provided, however, that Income Tax, Wealth Tax on EHIL'S Licence Fees, and Profits from all other sources shall be. ARTICLE XII: ASSIGNMENT 12. ITC shall have right to assign or transfer all rights and benefits of this Agreement to any of the ITC Group of Companies only, and none else but without in any way absolving ITC from its monetary obligations and warranties Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in Clause 5.4 shall be excluded. 17.2 EHIL will be entitled to terminate this Agreement if the growth in turnover is less than the average of 5% (five percent) over the aggregate period of 10 years. It is, however, agreed that the 5% (five percent) growth computation will be excluded from the said computation during the non-operational period or periods. The Security Deposit of Rs. 7.75 Crores (Rupees Seven Crores Seventy Five Lakhs) will be returned by EHIL to ITC immediately as recited in Article 17.3. 17.3 EHIL will be entitled to terminate this Agreement if there is any continuing default in payment of the Licence Fee or Bank Guarantee becomes invalid or ineffective for any reason or ITC commits a breach of any terms and conditions of this Agreement or an order is made or resolution passed for compulsory or voluntary of ITC. winding up EHIL before exercising the said right will give a notice of not less than three calendar months to ITC to rectify the said default. In case the said default is not so rectified, EHIL will terminate the Agreement without further notice. The Security Deposit of Rs. 7.75 Crores ( Rupees Seven Crores Seventy Five Lakhs) will be returned by EHIL t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts, records, etc. 17. 14 ITC shall not sell, lease, mortgage, charge or encumber any of the property or assets of EHIL and keep them free from all attachments, claims, demands, etc., and likewise EHIL shall not sell, mortgage, charge or encumber any of the Hotel property to the detriment of ITC. 17.15 EHIL will make available the entire Terrace Floor within three months of signing of this Agreement to enable ITC to extend the Hotel facilities and/or guest rooms. The registered office and M.D.'s secretary shall be shifted to new block. 17.16 ITC shall no do any act, deed, matter or thing whereby the insurance coverage under any of the Policies of Insurance is prejudiced or adversely affected or becomes ineffective or invalid. ARTICLE XVIII: NO TENANCY RIGHTS CREATED 18.1 It is clearly agreed and understood between the parties that possession of the property is not delivered to ITC under this Agreement and no interest or no tenancy or lease or other interest in EHIL's properties or assets is created or intended to be created in favour of ITC, the intention of the parties being that ITC will be authorised to conduct, operate and run the said Hotel on the terms, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gage or charge the Hotel or any part thereof to the detriment of ITC. 21. The Bank Guarantee will be absolute, irrevocable, unconditional, revolving and continuing during the tenure of this Agreement and thereafter as provided in the Clause 22 of these presents and will guarantee regular and prompt payment of the Licence Fee to EHIL under Clause 5 of these presents immediately upon demand and without. 22. The said Bank Guarantee shall also guarantee to EHIL payment of the Licence Fee in the manner aforesaid notwithstanding termination or expiry of the Agreement by efflux of time if ITC fails or refuses to leave or remove themselves and their workmen and agents from the Hotel and such Bank Guarantee for payment of Licence Fee will continue unti! ITC actually leaves the property and provides EHIL with a declaration that they have done so without claiming any right title or interest in the Hotel or other property and Assets of EHIL. IN WITNESS WHEREOF the Parties hereto have hereunto set their hands the day and year first above written. THE FIRST SCHEDULE ABOVE REFERRED TO: All that piece and parcel of land bearing Survey No. B 1150 and measuring 30960 sq. mtrs., which includes land-i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Suit ) have been filed before the High Court, Mumbai; 4) By Order (s) dated December 21, 1998 the disputes covered by the Suits (excluding Suit No. 3832 of 1995) have been referred to arbitration (the Arbitration ) of Mr. Justice H. Suresh (Retd.) (the Arbitrator ); 5) The Parties have fully and finally compromised, adjusted and settled all Disputes and desire to record the terms thereof by this Settlement Agreement; IN CONSIDERATION of the mutual covenants and other good consideration (the sufficiency and validity of which each Party acknowledges) this Settlement Agreement RECORDS AND CONFIRMS: DEFINITIONS 1. In this Settlement Agreement, unless the context otherwise requires: a) Affiliate means:- (i) in relation to a Party, any Person controlling or controlled by or under common control with the Party; and (ii) specifically, in relation to ELEL:- (I) means each of Excalibur Assets and Capital Management Pvt. Ltd. ('Excalibur') and Sheena Investment Pvt. Ltd. ('Sheena') both with registered offices at 9th floor, Hotel Searock, Behramji Jeejeebhoy Road, Bandstand, Bandra (West), Mumbai-400 050, (II) means Shyam Bhajanmal Luthria, Stanford Investments and Propertie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case may be) of or to this Settlement Agreement; SETTLEMENT 2. All Disputes are fully and finally adjusted, compromised and settled . No Disputes or claims whatsoever are now outstanding between the Parties (including any director(s)/officer (s)/ employee (s) of the other Party); 3. This Settlement Agreement is by way of settlement compromise and adjustment and is not (nor shall it be construed as) an admission of wrongdoing by either ELEL or of ITC . CONSENT TERMS 4. The Parties shall promptly sign the terms set out in Annexure A (the Consent Terms ) and with diligence request and obtain the Award from the Arbitrator. The terms of Annexure A shall form an integral part of this Settlement Agreement. AWARD 5. Each Party shall use its best endeavor to obtain the Award on signing of the Consent Terms. 6. On the Award the Parties shall obtain / submit to a decree and for the purpose each Party shall take all requisite steps with due diligence. IMPLEMENTATION AND BINDING EFFICACY 7. On execution of this Settlement Agreement each Party shall with diligence do all that is reasonably required to fulfil and implement the Settlement Agreement including passing of the Award, decree(s) thereon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . ELEL shall not use any of the Effects or the Record for any purpose nor have nor raise, at any time, any claims to or in relation to the Effects or the Record or any of them. ITC shall have reasonable access to the Hotel for a period of thirty (30) days from the execution of this Settlement Agreement for removal of the Effects and of the Record. Pending removal by ITC, ELEL shall take reasonable care of the Effects and of the Record. In the event that ITC is unable to have access to the Hotel and remove the Effects and Records as aforementioned, the time period during which ITC is entitled to such access shall stand extended appropriately. 17. ELEL has no claim whatsoever in respect of the 'ITC' / 'Welcomgroup' or other name(s) / brand(s)/logo(s) / mark(s) used by ITC and ELEL shall not, in the course of trade or otherwise use any of such name(s) / brand(s)/logo(s)/ mark(s) or attempt to register the same or otherwise claim any rights in any of the brand(s) /logo(s)/ mark(s). 18. ITC acknowledges and confirms that it has no claim to the Flats or either of them. ELEL confirms that R.M. Luthria and Luthria Brothers Trust are the owners ( Owners ) of the Flats and EL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if relating to any period prior to the date of the Consent Terms) shall be to the account of and borne by ELEL. 25. ITC has provided to ELEL the list of pending litigation in relation to the Hotel as per list set out in Annexure C. ELEL will take over and be responsible for the conduct/defence of such litigation. ITC shall provide all reasonable cooperation as may be required for the conduct/defence of such litigation for a period of six months from the date hereof. ELEL INDEMNITY 26. ELEL will indemnify and keep indemnified at all times ITC (including its directors, officers and employees) against all claims, demands and actions and consequences thereof including reasonable legal / professional fees and costs from any Person(s) (including but not limited to any present or former shareholder(s)/ director(s)/ their Relatives of ELEL or any Affiliate(s) of ELEL or any present or former shareholder(s)/ director(s) / Relatives of any Affiliate(s) or any Person claiming through, under or in trust for them (whether by sale / assignment or otherwise). 26.1 ELEL's indemnity shall cover any and all claims, demands, actions and liability howsoever arising out of or relating to: i) the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Agreement; 29.1 Nothing contained in this clause shall preclude either Party: 29.1.1 From enforcing this Settlement Agreement (including but not limited to obtaining the Award) or relying upon this Settlement Agreement as a defence; or, 29.1.2 From making any disclosure to comply with law or order or direction of any court or tribunal (provided such disclosure is restricted to the minimum permissible extent and the disclosing Party has provided to the non-disclosing Party a reasoned opinion of legal counsel vouching for the need for such disclosure); 29.2 The confidentiality obligations contained in this Clause shall not apply to any disclosure after the information has come into the public domain (otherwise than by reason of a breach by the disclosing Party). ASSIGNMENT 30. Neither the rights nor the obligations under this Settlement Agreement shall be transferred or assigned by either Party except with the prior written consent of the other Party. The other Party may accord or withhold such consent (including subject to any condition(s)) as it deems appropriate without assigning any reason. CO-OPERATION 31. Each Party shall diligently co-operate with the other Party to implem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other) relating in any manner to the Hotel and / or relating in any manner to any and all arrangements/understandings / agreements including the Operating Licence and whether forming the subject matter of Suits or the arbitration or otherwise. 38. ITC will promptly withdraw unconditionally and with no order as to costs Suit No. 3886 of 1993 and Suit No. 1877 of 1995 on the files of the High Court, Mumbai and ELEL will promptly withdraw unconditionally and with no orders as to costs Suit No. 3885 of 1993 and Suit No. 3832 of 1995 on the files of the High Court, Mumbai. Each of ITC and ELEL shall be eligible to refund of court fees as permitted by law. 39. This settlement compromise and adjustment as per this Settlement Agreement constitutes valid and binding obligations effective and executable in terms hereof and thereof and no claims of any nature are outstanding by or against any Party. Each Party to the fullest extent permissible in law waives any or all claims against the other excluding only claims (if any) for breach of this Settlement Agreement. Dated this 11th day of May, 2005. Common Seal of ELEL HOTELS AND INVESTMENTS LIMITED been hereunto affixed pursuant to a resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ITC are in proper exercise of powers conferred on / delegated to ITC by Elel and are binding on Elel; e.(i) All statutory consents, licences, approvals and authorisations (collectively the 'Licences' and individually the 'Licence') relating to the operation of the Hotel standing in the name of Elel have been handed over by ITC to Elel on execution of these Consent Terms and Elel has received all such Licenses as per list Annexure A; (ii) In respect of Licence(s) standing in the name of ITC as per list Annexure B, ITC consents to such licence being transferred to / endorsed in favour of Elel or, if such transfer / endorsement is not permissible, ITC shall surrender / cancel such Licence(s) promptly; (iii) Fees and other charges (if any) relating to the transfer / endorsement of Licence(s) shall be to the account of and borne and paid by Elel. Refund of security or other deposits (if any paid by ITC) in respect of Licence(s) as may be surrendered / cancelled by ITC shall be to the account of and appropriated by ITC; f. On or before the execution hereof ITC has (i) (to the extent reasonably achievable) removed all signage materials and other goods and property bear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hotel ( Stores ) as per list Annexure C; l. Prior to the execution hereof, Elel has inspected and verified the condition and state of the Hotel as also the condition, state, quality and sufficiency of the Stores; m. Elel confirms and acknowledges that- (i) Elel has received possession and is in exclusive possession of the Hotel; (ii) that possession of the Hotel and of the Stores has been delivered by ITC to Elel on as is where is basis and condition; (iii) Elel does not have and shall not raise any claim whatsoever against ITC in respect of or relating to the Hotel and/or the Stores and / or the Effects or Record or any portion or part thereof; (iv) If and to the extent Elel is at law entitled to receive / recover any payments under/in respect of insurance Policy No. 21300/11/93/0019 and Policy No. 21300/11/93/0020 for the year 1992-93, ITC has no objection to Elel receiving such payment from Oriental Insurance Company; (v) Elel has received from ITC (either directly or through payments made by ITC to the Income Tax authorities pursuant to orders of the tax authorities) fees in respect of operation of the Hotel upto the date hereof and Elel has no further claim against ITC towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esent or former shareholder(s) or director(s) or any of his/her/their Relative(s) or any Person claiming by, through, under or in trust for (whether by way of sale, disposal, assignment, relinquishment or otherwise) from any of them; Person means a natural or juristic entity and includes any partnership, trust or other association; Relative has the meaning ascribed by the Companies Act, 1956 including any amendment / repeal and re-enactment thereof; r(1). Elel's indemnity shall cover any and all claims, demands and actions of any Person(s) (and any liability consequent thereto) howsoever arising out of or relating to: r(1)(a) the Hotel and/or any and all arrangements / understandings / 1 agreements relating to the Hotel including but not limited to the Operating Licence; r(1)(b) any pending / threatened / apprehended litigation by / against Elel and/or Affiliate(s) to which ITC is / may be a party or which may otherwise impact on ITC and/ or any pending /threatened apprehended litigation proceedings by any Affiliate(s) against ITC; r(1)(c) the execution and / or implementation of the settlement, compromise and adjudgment and/or these Consent Terms including (but not limited to) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and any orders passed therein or undertaking(s) given/ statement(s) recorded therein Elel is competent to and has the ability to execute and implement the settlement, compromise and adjustment and these Consent Terms and neither such execution nor such implementation is / will be in breach of any order(s)/ undertaking(s) given / statement(s) recorded; (ii) Consents (if any required) to enter into and implement the settlement, compromise and adjustment and these Consent Terms have been obtained and such consents are currently valid and subsisting and will so remain through implementation; (iii) The executant of the settlement, compromise and adjustment and these Consent Terms is duly authorised to represent and bind Elel. 4) Fees of the learned Arbitrator shall be borne and paid equally by each of Elel and ITC. Each of Elel and ITC shall bear and pay its own costs and expenses of or relating to the arbitration and of the Suits. Dated 11th day of May, 2005. For Elel Hotels Investments Limited For ITC Ltd. Sd/- ------------------------ Sd/- ------------------------ Director Sd/- ------------------------ Advocate for Elel hotels Investments Ltd. Sd/- ------------------------ Advocate f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paras 29 and 30] ; VIII. 2012 SCC OnLine Bom 2139 : (2013) 256 CTR 252 (Larsen Toubro Ltd. Vs. Commissioner of Income Tax, [paras 25 and 28] ; IX. (1972) 4 SCC 124 (M/s. Karam Chand Thapar Bros. Pvt. Ltd. Vs. The Commissioner of Income Tax (Central), Calcutta) [paras 1 to 4] ; X. (1969) 2 SCC 471 (Ahmed G.H. Ariff Ors. Vs. Commissioner of Wealth Tax, Calcutta); [para 8]; XI. AIR 1959 SC 498 (Rameshwar Proshad Khandelwal Ors. Vs. Commissioners, Land Reforms Jagirs, Madhya Bharat Ors.); Submission on behalf of the respondent:- 12. Sri J. P. Khaitan, learned senior Advocate assisted by Ms. Nilanjana Banerjee Pal submits as under:- i) Agreement in question dated 3rd May, 1986 is a license and thus an asset whereby right to run and operate hotel was conferred upon the respondent/assessee. Therefore, such a right under the license/agreement in question dated 3rd May, 1986 would constitute a capital asset under Section 2 (14) of the Income Tax Act, 1961 and its relinquishment by agreement dated 11.05.2005 followed by consent terms/award by the sole Arbitrator dated 11th May, 2005 would constitute transfer of capital asset within the meaning the Section 2 (47) of the Act, 1961. ii) The afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oi Hotel Pvt. Ltd. Vs. Commissioner of Income Tax (1999) 3 SCC 127, and a decision of Madhya Pradesh High Court in Commissioner of Income Tax Vs. Smt. Laxmidevi Ratani (2008) 296 ITR 363, so as to demonstrate that the right to operate hotel in question under the agreement dated 03.05.1986 is a property within the meaning of Section 2 (14) of the Act 1961. vi) Further referring to the judgment of Hon'ble Supreme Court in the case of Oberoi Hotel Pvt. Ltd. Vs. Commissioner of Income Tax reported in (1999) 3 SCC 127 (paras 7 to 11), it is contended that the Hon'ble Supreme Court has examined two types of situations; firstly, compensation paid in respect of rights arising under the trading contract and, secondly, Where the compensation is paid as a solacium for loss of office. In the first type of cases the receipt would be revenue receipt whereas in the second type of cases receipt would be capital receipt. In the present set of facts, the agreement dated 3rd May, 1986 was not a trading contract but was conferring a right to the respondent/assessee to operate hotel. Therefore, Rs. 32.42 crores received by the respondent/ ITC from the ELEL was not a revenue receipt but a capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel. Explanation 2. For the purposes of this clause (a) the expression Foreign Institutional Investor shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD; (b) the expression securities shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956); (iii) agricultural land in India, not being land situate (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand ; or (b) in any area within the distance, measured aerially, (I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or (II) not being more than six kilomet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation 1. For the purposes of sub-clauses (v) and (vi), immovable property shall have the same meaning as in clause (d) of section 269UA. Explanation 2. For the removal of doubts, it is hereby clarified that transfer includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India; [(47A) virtual digital asset means (a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided . Provided . [ Explanation . - For the purposes of this section,- (i) foreign currency ; (ii) the conversion of Indian currency into foreign currency . (iii) indexed cost of acquisition (iv) indexed cost of any improvement . (v)[ Cost Inflation Index , 14. Section 2 (14) of the Act 1961 defines the term Capital Asset to mean (a) property of any kind held by an assessee, whether or not connect with his business or profession. The word property has not been defined under the Act. In Ahmed G.H. Ariff Ors. Vs. Commissioner of Wealth Tax, Calcutta (1969) 2 SCC 471 (para 8) Hon ble Supreme Court explained the meaning of the word property as under:- 8. Now property is a term of the widest import and subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold or enjoy. The meaning of the word property has come up for examination before this Court in a number of cases. Reference may be made to one of them in which the question arose whether Mahantship or Shebaitship which combines elements of office and property would fall within the ambit of the word property as used in Article 19 (1) (f) of the Constitution. It was obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or promised. Under Section 108 of the said Act, the lessee is entitled to be put in possession of the property. A lease is therefore a transfer of an interest in land. The interest transferred is called the leasehold interest. The lessor parts with his right to enjoy the property during the term of the lease, and it follows from it that the lessee gets that right to the exclusion of the lessor. Whereas Section 52 of the Indian Easements Act defines a licence thus: Where one person grants to another, or to a definite number of other persons, a right to do or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a licence. Under the aforesaid section, if a document gives only a right to use the property in a particular way or under certain terms while it remains in possession and control of the owner thereof, it will be a licence. The legal possession, therefore, continues to be with the owner of the property, but the licensee is permitted to make use of the premises for a particular purpose. But for the permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence. Certainly it does not confer only a bare personal privilege on the respondent to make use of the rooms. It puts him in exclusive possession of them, untrammelled by the control and free from the directions of the appellants. The covenants are those that are usually found or expected to be included in a lease deed. The right of the respondent to transfer his interest under the document, although with the consent of the appellants, is destructive of any theory of licence. The solitary circumstance that the rooms let out in the present case or situated in a building wherein a hotel is run cannot make any difference in the character of the holding. The intention of the parties is clearly manifest, and the clever phraseology used or the ingenuity of the document-writer hardly conceals the real intent. I, therefore, hold that under the document there was transfer of a right to enjoy the two rooms, and, therefore, it created a tenancy in favour of the respondent. (Emphasis Supplied) 18. Learned counsel for the respondent has heavily relied upon the judgement of Hon ble Supreme Court in M/S. Techno Shares Stocks Ltd vs Commissioner Of Income Tax-Iv 2010 V-327 ITR 323 SC (para 19) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1986, is achieved from year to year and if such growth is not achieved in any financial year then ITC will pay to ELEL an additional 2 per cent at the gross turnover but where the growth in any financial year is 15 per cent or more then ITC will be entitled to deduct from the Licence Fee the amount equivalent to 0.75% and the net Licence Fee payable will be 22.25%. If the growth is 20 per cent or more in any financial year then deduction in fees will be 1 per cent. Thus, the license fees payable by the ITC to ELEL for operating the Hotel was linked with the gross turnover. No premium or any non-refundable amount was paid by the ITC to ELEL under the operating license agreement. As per Clause 6.1, the ITC merely deposited adjustable security amount of Rs. 7.75 Crores to be appropriated towards payment of license fees for the last 24 months prior to the expiry or termination of the agreement. As per Article VII the ITC facilitated the ELEL for a bank loan of Rs. 3.50 Crores to be adjusted against monthly license fees referred in Article V until liquidation of the advance. As per Article IX, depreciation of the movable asset installed by the ITC shall be claimed by the ITC and on expi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sive ownership and possession of ELEL of the properties or any of its assets then EHIL shall be entitled to call upon ITC to purchase the Hotel at or the mutually agreed price of Rs. 15 Lakhs (Rupees Fifteen Lakhs) per room irrespective of its use or Rs. 75 Crores (Rupees 'Seventy Five Crores) whichever is higher and upon EHIL exercising such option under written intimation to ITC, ITC shall be bound and liable to purchase the Hotel and pay the consideration monies at the aforesaid rate. 20. Thus from the agreement dated 03.05.1986 it is evident that under the agreement the ITC was authorised to run and operate hotel with all the employees, staff including managerial staff of the ELEL. No right, title or interest of any kind was created by the ELEL in favour of the ITC in any of the assets/properties of ELEL (Hotel) to carry on the aforesaid commercial activity of operating the hotel. The ELEL was to get 23% of the gross turnover as license fees (subject to some variation as provided in clause V). Considering the terms of the licence operating agreement in its entirety, it is a Trading contract. 21. The settlement agreement dated 11.05.2005 between ELEL and ITC shows that to fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005 was entered between the parties to settle number of disputes, claims and counter claims between the parties including those which were pending in courts. The termination of operating license agreement was part of the settlement of dispute. To run or operate Hotel is one of the business activity of the ITC under it was also running the Hotel in question belonging to ELEL. The amount in question i.e. Rs. 32.42 crores was part of Award received by the ITC to finally adjust, compromise and settle all disputes, allegations, claims, counter claims and case pending in counts arising out of or relating to operating licence Agreement to run Hotel in question. The amount so received under the Award (consent terms) by the ITC in the matter of a Trading Contract, to settle all disputes, claims and counter claims, is certainly not the transfer of any capital asset. 24. In Commissioner of Income Tax, Nagpur vs. Rai Bahadur Jairam Vaiji, Ors. AIR 1959 SC 291 (Para 11) Hon ble Supreme Court considered the question whether in the circumstances of the case the sum of Rs 2,500,000 received by the assessee as damages or compensation for the premature termination of the contract is income assessab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se cases illustrate the principle that compensation for injury to trading operations, arising from breach of contract or in consequence of exercise of sovereign rights, is revenue. These cases must, however, be distinguished from another class of cases where compensation is paid as a solatium for loss of office. Such compensation may be regarded as capital or revenue : it would be regarded as capital, if it is for loss of a asset of enduring value to the assessee, but not where payment is received in settlement of loss in a trading transaction. 31 Venkatarama Aiyar, J., observed, in an agency contract the actual business consists of dealings between the principal and his customers, and the work of the agent is only to bring about the business : What he does is not the business itself, but something which is intimately and directly linked up with it. The agency may, therefore, be viewed as the apparatus which leads to the business rather than the business itself. Considered in this light the agency right can be held to be of the nature of a capital asset invested in business. But this cannot be said of a contract entered into in the ordinary course of business. Such a contract is pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read thus: Where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated) the receipt is revenue; where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt. (Emphasis Supplied) 27. In Oberoi Hotel Pvt. Ltd. Vs. Commissioner of Income Tax (1999) 3 SCC 127 (para 6 and 9) Hon ble Supreme Court held as under:- 6. Applying the aforesaid test laid down by this Court in the present case, in our view the Tribunal was right in arriving at a conclusion that it was a capital receipt. The reason is that as provided in Article XVIII of the first agreement, the assessee was having an option or right or lien, if the owner des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading structure even in respect of activities similar to the said distributorship agreement with HBB were impaired. In this regard it is important to recall that in the recital to the distributorship agreement it is stated that the assessee was actively engaged in the business of sale and distribution of several engineering and electrical products throughout the territory of the Republic of India . 28. The distributorship agreement was a part of the assessee's business. At the cost of repetition, in the recital to the distributorship agreement, it is stated that the assessee was actively engaged in the business of sale and distribution of several engineering and electrical products throughout the territory of the Republic of India . The termination thereof and the compensation allegedly paid in respect thereof were also only a part of the normal running of the business of the assessee. (Emphasis Supplied) 29. Vide in Commissioner of Income Tax, UP., Lucknow vs. Gangadhar Baijnath, Generalganj, Kanpur (1972) 4 SCC 28 (para 14) Hon ble Supreme Court noted that one way of distinguishable capital from revenue receipts, is to take the classical economists distinction between fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsent terms. Thus the amount of Rs. 32.42 crores received by the ITC as per consent terms to settle/ compromise all dispute or in any case in the form of compensation for loss of trading operation of running the hotel under the agreement and not for loss of any asset of enduring value. Under Article XVII of the Operating Lisence Agreement the ELEL had the sovereign right to terminate the agreement. Thus, the termination of the Operating Lisence Agreement and payment of Rs. 32.42 crores by the ELEL to the ITC was revenue receipt in hands of the ITC and not capital receipt and consequently formed part of total income of the ITC. 31. In view of the above discussions we hold that the sum of Rs. 32.42 crores received by the respondent assessee shall not fall under long term capital gain. The findings recorded by the ITAT that the aforesaid sum of Rs. 32.42 crores constituted long term capital gain is perverse. The impugned order of the ITAT to the extent it relates to the aforesaid sum of Rs. 32.42 crore cannot be sustained. 32. For all the reasons afore stated the substantial question of law is answered in favour of the Revenue/Appellant and against the respondent assessee. It is held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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