Taxpublishers.in - InterestingDecision/Flash_037.htm - Tax Publishers Your Tax Solution Hub

Share via Whatsapp 225 Views


Tax Publishers Yogini Mohit Sahita v. ITO [ITA No. 5419/Mum/2018, dt. 27-7-2020] : 2020 Taxub(DT) 2962 (Mum-Trib.) Taxability of amount received arising out of a sub-licensee's right being relinquished *Facts:* One Mrs. Saraswati was the licensee of a flat in which 3 of his Sons and their family were occupants. Assessee was the widow of one of her deceased sons and was not even an occupant of the flat subsequent to her husband's demise. The said flat was sold by the licensed owner to a real estate developer. Arising out of the occupancy right of the flat the Assessee was paid Rs. 25 lakhs as a one time settlement to vacate the said flat by the developer thru a registered consent deed. Assessing officer held that the sum of 25 lakhs was capital gains which arose from the relinquishment of rights in the property. On appeal Commissioner (Appeals) held it as taxable under income from other sources as neither did the assessee have any right in the said flat nor was there any relinquishment of rights thus was a residual income taxable under other sources. It was the plea of the assessee that the amount was a simple capital receipt and exempt from capital gains. On appeal - Held by ITAT in favour of the assessee that the amount was a simple capital receipt outside capital gains tax liability. Since rights of easements like license were not considered as intangible asset rights like tenancy rights there was no capital gains tax which could be fastened. *Editorial Note:* Cost of adverse possession is absent in the IT act thus no tax can be fastened was also canvassed by the assessee reading BC Srinivasa Setty's case. Had there been some interest in the property then it may have to be seen from the perspective of a family settlement but here in this case the payment was by the 3rd party developer so could not be called family settlement either. There was no interest in the property to create an asset/right in an asset which is what was held by ITAT. The decision makes a noted reading as to what a license is vis a vis a lease explaining why a license is only a legal easement under Easements Act, 1882. "There is a marked distinction between a lease and a licence. Section 105 of the Transfer of Property Act defines a lease of immoveable property as a transfer of a right to enjoy such property made for a certain time in consideration for a price paid 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 immoveable 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 permission, his occupation would be unlawful. It does not create in his favour any estate or interest n the property. There is, therefore, clear distinction between the two concepts. The dividing line is clear though sometimes it becomes very thin or even blurred. At one time it was thought that the test of exclusive possession was infallible and if a person was given exclusive possession of a premises, it would conclusively establish that he was a lessee. But there was a change and the recent trend of judicial opinion is reflected in Errington v. Errington (1952) 1 All E.R. 149, wherein Lord Denning reviewing the case law on the subject summarizes the result of his discussion thus at p. 155 :-- 'The result of all these cases is that, although a person who is let into exclusive possession is prima facie, to be considered to be tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy.' The Court of Appeal again in Cobb v. Lane (1952) 1 All E.R. 1199 considered the legal position and laid down that the intention of the parties was the real test for ascertaining the character of a document. At p. 1201, Somervell, L.J., stated : '................ the solution that would seem to have been found is, as one would expect, that it must depend on the intention of the parties.' Denning, L. J., said much to the same effect at p. 1202: 'The question in all these cases is one of intention: Did the circumstances and the conduct of the parties show that all that was intended was that the occupier should have a personal privilege with no interest in the land?' The following propositions may, therefore, be taken as well-established: (1) To ascertain whether a document creates a licence or lease, the substance of the document must be preferred to the form; (2) The real test is the intention of the parties-whether they intended to create a lease or a licence; (3) If the document creates an interest in the property, it is a lease; but, if it only permits another to make use of the property, of which the legal possession continues with the owner, it is a licence; and (4) If under the document a party gets exclusive possession of the property, prima facie, he is considered to be a tenant; but circumstances may be established which negative the intention to create a lease. In the case of Sardar Pruthisingh v. Kanchanlal Purushottamdas Desai AIR 2001 Bom. 255, the Hon'ble Bombay High Court has observed that :-- "19. The distinction between leave and licence had been well summarised in Halsbury's Laws of England, Fourth Edition, Volume 27 page 13. In determining whether an agreement creates between the parties the relationship of landlord and tenant or merely that of licensor and licensee the decisive consideration is the intention of the parties." In P.N. Amersey-HUF v. ITO (2012) 20 taxmann.com 704 (Mum.), the Tribunal has summarized the legal position as under :-- (A) 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. (B) 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 permission, his occupation would be unlawful. It does not create in his favour any estate or interest in the property. If, however, exclusive possession to which a person is entitled under an agreement with a landlord is coupled with an interest in the property, the agreement would be construed not as a mere licence but as a lease."

Tax Publishers

Yogini Mohit Sahita v. ITO [ITA No. 5419/Mum/2018, dt. 27-7-2020] : 2020 Taxub(DT) 2962 (Mum-Trib.)

Taxability of amount received arising out of a sub-licensee's right being relinquished

Facts:

One Mrs. Saraswati was the licensee of a flat in which 3 of his Sons and their family were occupants. Assessee was the widow of one of her deceased sons and was not even an occupant of the flat subsequent to her husband's demise. The said flat was sold by the licensed owner to a real estate developer. Arising out of the occupancy right of the flat the Assessee was paid Rs. 25 lakhs as a one time settlement to vacate the said flat by the developer thru a registered consent deed. Assessing officer held that the sum of 25 lakhs was capital gains which arose from the relinquishment of rights in the property. On appeal Commissioner (Appeals) held it as taxable under income from other sources as neither did the assessee have any right in the said flat nor was there any relinquishment of rights thus was a residual income taxable under other sources. It was the plea of the assessee that the amount was a simple capital receipt and exempt from capital gains. On appeal -

Held by ITAT in favour of the assessee that the amount was a simple capital receipt outside capital gains tax liability.

Since rights of easements like license were not considered as intangible asset rights like tenancy rights there was no capital gains tax which could be fastened.

Editorial Note: Cost of adverse possession is absent in the IT act thus no tax can be fastened was also canvassed by the assessee reading BC Srinivasa Setty's case.

Had there been some interest in the property then it may have to be seen from the perspective of a family settlement but here in this case the payment was by the 3rd party developer so could not be called family settlement either. There was no interest in the property to create an asset/right in an asset which is what was held by ITAT.

The decision makes a noted reading as to what a license is vis a vis a lease explaining why a license is only a legal easement under Easements Act, 1882.

"There is a marked distinction between a lease and a licence. Section 105 of the Transfer of Property Act defines a lease of immoveable property as a transfer of a right to enjoy such property made for a certain time in consideration for a price paid 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 immoveable 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 permission, his occupation would be unlawful. It does not create in his favour any estate or interest n the property. There is, therefore, clear distinction between the two concepts. The dividing line is clear though sometimes it becomes very thin or even blurred. At one time it was thought that the test of exclusive possession was infallible and if a person was given exclusive possession of a premises, it would conclusively establish that he was a lessee. But there was a change and the recent trend of judicial opinion is reflected in Errington v. Errington (1952) 1 All E.R. 149, wherein Lord Denning reviewing the case law on the subject summarizes the result of his discussion thus at p. 155 :--

'The result of all these cases is that, although a person who is let into exclusive possession is prima facie, to be considered to be tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy.'

The Court of Appeal again in Cobb v. Lane (1952) 1 All E.R. 1199 considered the legal position and laid down that the intention of the parties was the real test for ascertaining the character of a document. At p. 1201, Somervell, L.J., stated :

'................ the solution that would seem to have been found is, as one would expect, that it must depend on the intention of the parties.'

Denning, L. J., said much to the same effect at p. 1202:

'The question in all these cases is one of intention: Did the circumstances and the conduct of the parties show that all that was intended was that the occupier should have a personal privilege with no interest in the land?'

The following propositions may, therefore, be taken as well-established:

(1) To ascertain whether a document creates a licence or lease, the substance of the document must be preferred to the form;

(2) The real test is the intention of the parties-whether they intended to create a lease or a licence;

(3) If the document creates an interest in the property, it is a lease; but, if it only permits another to make use of the property, of which the legal possession continues with the owner, it is a licence; and

(4) If under the document a party gets exclusive possession of the property, prima facie, he is considered to be a tenant; but circumstances may be established which negative the intention to create a lease.

In the case of Sardar Pruthisingh v. Kanchanlal Purushottamdas Desai AIR 2001 Bom. 255, the Hon'ble Bombay High Court has observed that :--

"19. The distinction between leave and licence had been well summarised in Halsbury's Laws of England, Fourth Edition, Volume 27 page 13. In determining whether an agreement creates between the parties the relationship of landlord and tenant or merely that of licensor and licensee the decisive consideration is the intention of the parties."

In P.N. Amersey-HUF v. ITO (2012) 20 taxmann.com 704 (Mum.), the Tribunal has summarized the legal position as under :--

(A) 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.

(B) 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 permission, his occupation would be unlawful. It does not create in his favour any estate or interest in the property. If, however, exclusive possession to which a person is entitled under an agreement with a landlord is coupled with an interest in the property, the agreement would be construed not as a mere licence but as a lease."