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September, 20th 2014

                                    Date of decision: 2nd September, 2014

+                         ITA 146/2002

      COMMISSIONER OF INCOME TAX             ..... Appellant
              Through    Mr. Kamal Sawhney, Sr. Standing
              Counsel with Mr. Sanjay Kumar, Jr. Standing


      FRICK INDIA LTD.                                 .... Respondent
                Through            Mr. Mayank Nagi, Advocate.



      This appeal by the Revenue under Section 260A of the Income

Tax Act, 1961 (,,Act, for short) relates to assessment year 1997-98 and

was admitted for hearing vide order dated 28 th November, 2002, on the

following substantial question of law:-

               "Whether   on   the     facts   and   in    the
          circumstances of the case the Tribunal was
          correct in law in holding that the capital asset
          transferred was a long term capital asset?"

2.    The respondent-assessee, a company, in their return for the
ITA 146/2002                                            Page 1 of 10
assessment year in question had declared long-term capital gains of

Rs.6.78 crores on account of surrender of tenancy rights, which were

acquired during the financial year 1972-73 in Jeevan Vihar Building,

Parliament Street, New Delhi. The said tenancy right was acquired by

way of a written lease executed by the landlord-Life Insurance

Corporation of India (LIC) for a period of 3 years commencing from

15th March, 1973. After the end of the said term of 3 years, the

respondent assessee continued to occupy the premises as a tenant, but

no fresh written document was executed. On 24 th January, 1997, the

respondent-assessee entered into a Memorandum of Understanding

(,,MoU) with Bank of Tokyo, Mitsubishi and received Rs.6.78 crores

upon fulfilling the following conditions, (a) they shall deliver to the

LIC a letter, draft of which was enclosed with the MOU, informing

their decision to vacate the tenanted area; (b) they shall surrender the

tenancy of the tenanted area on or before 18th February, 1997; and, (c)

they shall provide to the bank a duly certified copy of the resolution

adopted by them as stipulated in draft enclosed as Annexure-B to the

MOU.     There were certain other stipulations also. On fulfilling the

said stipulations, the respondent assessee vacated the tenanted premises

and received the aforesaid payment. As noticed above, the payment

was offered to be taxed as long-term capital gain.

3.    The Assessing Officer held that the tenancy rights of the
ITA 146/2002                                         Page 2 of 10
respondent-assessee were a capital asset and there was also a transfer

of the asset on surrender of the tenanted premises but the transfer

should be treated as a short-term capital gain and not as a long-term

capital gain. The logic behind the aforesaid finding of the Assessing

Officer was that the tenancy after the initial period of 3 years by of a

written instrument, was month-to-month.          Thus, tenancy rights

extinguished on the last day of each month and a fresh or new tenancy

was created.    A fresh tenancy had begun on 1 st February, 1997 and

was relinquished on 18th February, 1997. Therefore, the period of

holding of the tenancy rights was only 18 days and thus, less than 36


4.    The Commissioner of Income Tax (Appeals) dismissed the

appeal of the respondent-assessee agreeing with the reasons of the

Assessing Officer that at the beginning of every month, a new tenancy

was created and thus a new capital asset had come into existence on 1 st

February, 1997. This new tenancy was relinquished on 18th February,

1997, which meant that the period of holding was less than 36 months.

The Commissioner of Income Tax (Appeals) further observed that

unless the respondent-assessee had paid rent for each month,

possession of the property would not have continued.

5.    The Tribunal, however, reversed the said finding and decided the

issue in favour of the respondent-assessee observing that lease of an
ITA 146/2002                                           Page 3 of 10
immoveable property deemed to be a month-to-month lease is

terminable by either the lessor or lessee, but this fiction cannot be

extended. It was further observed that month-to-month tenancy does

not come to an end by a mere afflux of time and in such cases demand

of possession or intimation determining tenancy was pre-requisite

before filing a suit for ejectment.    Reference was made to the

judgments of the Bombay High Court and the Supreme Court in which

Sections 106 and 107 of the Act and Section 116 of the Transfer of

Property Act, 1882 were examined and elucidated.

6.    It is apparent from the facts of the present case that the

respondent-assessee came into possession of the premises under a

written agreement on 15th March, 1973. The tenancy period specified

therein was till 14th March, 1976. Thereafter, the respondent-assessee

continued to use and occupy the premises as a tenant. The rent for the

premises was paid and accepted by the landlord. On 18th February,

1997, the tenancy rights were surrendered and consideration of Rs.6.78

crores was received from a third party. The payment was for surrender

of the said tenancy rights.

7.    Under Section 107 of the Transfer of Property Act, lease of an

immoveable property can be created either by a registered instrument

or by an oral agreement accompanied by delivery of possession. In the

present case, we do not have the original agreement dated 15th March,
ITA 146/2002                                        Page 4 of 10
1973 on record and we are not aware whether the original agreement

was by way of registered instrument or not. In the absence of a

registered instrument, it would have resulted in creation of month-to-

month tenancy. The said tenancy could be determined by issue of

notice under Section 106 of the Transfer of Property Act.

8.    Assuming that there was a registered instrument under which the

lease was first created on 15th March, 1973, the assessee upon end of

the term of the lease would be a tenant by holding over under Section

116 of the Transfer of Property Act. The said section provides that

where a tenant after end or determination of the lease, remains in

possession of the property and rent is accepted by the lessor (the

landlord), in the absence of an agreement to the contrary, the lease is

treated as renewed from year to year or from month to month, as the

case may be. In such cases also when rent is paid and accepted,

Section 106 of the Transfer of Property Act would apply and notice of

termination has to be issued. Section 116 of the Transfer of Property

Act also, therefore, makes Section 106 applicable once rent is accepted

after determination or end of the tenure of the lease. The effect thereof

on applicability of Section 106 of the Transfer of Property Act is the

same in either case. Month-to-month tenancy cannot be confused with

the right to occupy as a tenant as a notice under Section 106 of the

Transfer of Property Act is required to be issued before ejectment
ITA 146/2002                                          Page 5 of 10
proceedings are initiated.

9.    "Long-term asset" has been defined in Section 2(29b) of the Act

as an asset which is not a short-term capital asset and the expression

"short-term capital asset" has been defined in Section 2 (42A) of the

Act to mean the capital asset held by an assessee for not more than 36

months immediately preceding the date of its transfer. The expression

"held by the assessee" means the date from when the assessee acquired

the right, got hold of and started enjoying the said asset. In the present

case, the assessee had acquired tenancy rights on 15th March, 1973 and

since then they had held the said tenancy rights till the surrender was

made on 18th February, 1997. The transfer of tenancy had taken place

on 18th February, 1977 and not before.          The period of holding,

therefore, was from 15th March, 1973 till 18th February, 1997.        No

third person, who had come into possession of the property during the

period and it is not a case of the Revenue that respondent-assessee did

not hold the property during the entire period of over 14 years.

10.   We would like to elucidate and explain the expression, "held by

the assessee" in some detail. General words should normally receive

plain and ordinary construction but this principle is subject to the

context in which the words are used as the words reflect the intention

of the Legislature. The words have to be construed and interpreted to

effectuate the object and purpose of the provision, when they are
ITA 146/2002                                           Page 6 of 10
capable of multiple meanings or are ambiguous. Isolated reading of

words can on occasions negate the very purpose. Lord Diplock had

referred to the term, "business" as an ,,etymological chameleon, which

suits its meaning to the context in which it is found. The background,

therefore, has to be given due regard and not to be ignored, to avoid

absurdities. This principle is applicable when we interpret the word,

"held" in Section 2(42A) of the Act, for the said word is capable of

divergent and different connotations and understanding.

11.   The word, ,,held as used in Section 2(42A) of the Act is with

reference to a capital asset and the term, ,,capital asset is not confined

and restricted to ownership of a property or an asset. Capital assets can

consist of rights other than ownership right in an asset, like leasehold

rights, allotment rights, etc. The sequitur, therefore, is that the word

,,held or ,,hold is not synonymous with right over the asset as an

owner and has to be given a broader and wider meaning. In Blacks

Law Dictionary, Sixth Edition, the word ,,hold has been given a

variety of meanings under nine different headings. Four of them, i.e, 1,

4, 8 and 9 read as under:

       "1. To possess in virtue of a lawful title; as in the
       expression, common in grants, "to have and to hold,"
       or in that applied to notes, "the owner and holder."
       4. To maintain or sustain; to be under the necessity or
       duty of sustaining or proving; as when it is said that a
       party "holds the affirmative" or negative of an issue
ITA 146/2002                                           Page 7 of 10
          in a cause.
          8. To possess; to occupy; to be in possession and
          administration of; as to hold office.
          9. To keep; to retain; to maintain possession of or
          authority over."

      As per clause 8, the word ,,hold means to possesss or occupy, to

be in possession and would also include to keep, retain and maintain

possession or authority over an asset.

12.   The word ,,held thus can be interpreted to embrace the idea of

actual possession of the assessee. In Budhan Singh versus Babi Bux,

AIR 1970 SC 1880 (at page 1884) the word ,,held was interpreted to

mean "lawfully held, to possess by legal title". The term ,,legal title

here not only includes ownership, but also title or right of a tenant,

which will mean actual possession of the land and a right to hold the

same and claim possession thereof as a tenant (we are not examining

rights of a rank trespasser in the present decision and we express no

opinion in that regard).

13.   The Tribunal in our opinion has rightly relied upon the decision

of the Punjab and Haryana High Court in CIT versus Ved Prakash &

Sons (HUF), (1994) 207 ITR 148 (P&H) in which it has been held as


            "As is clear from a bare reading of Section 2(42A) of
            the Act, the word "owner" has designedly not been
            used by the Legislature. The word "hold", as per

ITA 146/2002                                             Page 8 of 10
          dictionary meaning, means to possess, be the owner,
          holder or tenant of (property, stock, land.). Thus, a
          person can be said to be holding the property as an
          owner, as a lessee, as a mortgagee or on account of
          part performance of an agreement, etc. Conversely,
          all such other persons who may be termed as lessees,
          mortgagees with possession or persons in possession
          as part performance of the contract would not in strict
          parlance come within the purview of "owner". As per
          the Shorter Oxford Dictionary. Edition 1985, "owner"
          means one who owns or holds something; one who
          has the right to claim title to a thing"
                                                (emphasis supplied)

14.   The said decision was followed by the Punjab and Haryana High

Court subsequently in Madhu Kaul versus CIT & Another, (2014) 363

ITR 54 (P&H). The Delhi High Court in Commissioner of Income

Tax versus K. Ramakrishnan, (2014) 209 DLT 14 has held that for the

purpose of calculating period of holding we have to look and take into

account the date since the assessee got ,,beneficial interest in the

property. The Allahabad High Court in CIT versus Rama Rani Kalia,

(2013) 358 ITR 499 (All) has drawn distinction between holding of an

asset and the nature of title over the property and it has been observed

that period of holding will determine whether the consideration should

be taxed as a short-term capital gains or long-term capital gains. Thus,

conversion of leasehold right into freehold by way of improving the

title over the property would not affect the taxability of the gain from

such property, which is relatable to the period over which the property

is held. Thus the asset, i.e. the tenancy rights were held for nearly 14

ITA 146/2002                                              Page 9 of 10
years and consideration received on surrender has been rightly treated

as a long term capital gain.

15.      In view of the aforesaid discussion, the question of law is

answered in favour of the assessee and against the appellant-Revenue.

Costs will be payable by the appellant as per the Delhi High Court


                                            SANJIV KHANNA, J.

                                        V. KAMESWAR RAO, J.

ITA 146/2002                                       Page 10 of 10
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