[2008] 19 SOT 542 (MUM.)(SB)

IN THE ITAT MUMBAI BENCH (WT) (SPECIAL BENCH)

Voltas Ltd.

v.

Assistant Commissioner of Wealth-tax, Circle 7(3), Mumbai

K.C. SINGHAL AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER

AND D.K. SRIVASTAVA, ACCOUNTANT MEMBER

WT APPEAL NOS. 100 AND 101 (MUM.) OF 2005

[ASSESSMENT YEARS 1997-98 AND 1998-99]

NOVEMBER 16, 2007

Section 4, read with section 2(m), of the Wealth-tax Act, 1957, and section 269UA(f) of the Income-tax Act, 1961 - Deemed wealth - Assessment years 1997-98 and 1998-99 - Whether a lessee cannot be deemed to be owner of property leased to him under section 4(8)(b) if lease is on month to month or year to year basis or if terms of lease is less than 12 years - Held, yes - Whether, in such cases, it is legal owner who is liable to wealth-tax levy on value of specified assets licensed/leased by him for a term of less than twelve years, as laid down in section 269UA(f) and his legal ownership would remain unaffected so long as term of lease is less than twelve years - Held, yes - Whether, however, if term of lease is 12 years or more, then lessee would be deemed to be owner of such property under section 4(8)(b) and liable to wealth-tax - Held, yes

Section 4 of the Wealth-tax Act, 1957, read with section 269UA(f) of the Income-tax Act, 1961 - Deemed wealth - Assessment years 1997-98 and 1998-99 - Whether section 4(8)(b) applies to lease and not to leave and license agreements - Held, yes - Whether, in case of license, all ingredients of ownership including right to possession vest in owner-licensor and not in licensee and, therefore, in a leave and license arrangement, legal owner shall continue to be owner of licensed premises and assessable to wealth-tax as such - Held, yes

Words and phrases - “excluding any rights by way of lease from month to month or for a period not exceeding one year” as appearing in section 4(8)(b) of the Wealth-tax Act, 1957

Interpretation of statutes - Strict rule of interpretation

Facts

The assessee-company was owner of certain properties. It entered into an agreement of ‘leave and license’ with its subsidiary companies for a period of 11 months under which it licensed/leased out its properties. The said agreement was to be renewed three times for a further period of 11 months. The assessee excluded in its wealth-tax return, the said properties from its net wealth on the ground that they stood licensed/leased out for a period exceeding one year. The Assessing Officer, however, treated the assessee to be the owner of the said properties notwithstanding that it had licensed/leased them out. On appeal, the Commissioner (Appeals) had decided the issue against the assessee. On second appeal, the assessee contended that the impugned properties had been licensed/leased out, after the licenses/leases were renewed, for a period exceeding one year and therefore they were not includible in its wealth but in the wealth of the licencees/lessees in view of the provisions of section 4(8)(b). However, the department by relying upon various decisions of the Tribunal contented that while leases exceeding 12 years would fall under section 4(8)(b) and make the lessees deemed owners of such properties, but month to month or year to year leases or leases not exceeding a term of twelve years are clearly excluded from the purview of section 4(8)(b). Faced with the divergent views, the matter was referred to the Special Bench to resolve the controversy.

Held

Applicability of section 4(8)(b) of wealth tax act

Section 4(8)(b) of the Wealth-tax Act is a deeming provision by which a lessee is deemed to be the owner in a case where he acquires any right in respect of a building or part thereof by virtue of any such transaction as is referred to in clause (f) of section 269UA of the Income-tax Act. The language of section 4(8)(b) is quite plain, clear and unambiguous without leaving any manner of doubt that a lessee shall be deemed to be the owner of any building or part thereof only when he acquires any right therein by virtue of a transaction falling under clause (f) of section 269UA and not otherwise. In other words, a lessee cannot be deemed to be the owner of a transaction not falling under clause (f) of section 269UA. According to section 269UA(f)(i), ‘transfer’, in relation to any immovable property referred to in section 269UA(f)(i), means transfer of such property by way of, inter alia, lease for a term of not less than 12 years, and a lease, which provides for the extension of the term thereof by a further term or terms, shall be deemed to be a lease for a term of not less than 12 years, if the aggregate of the term for which such lease is to be granted and further term or terms for which it can be so extended is not less than twelve years. It is, therefore, clear that it is the lessee who will be deemed to be the owner of any building or part thereof and the value of such building or part thereof shall be included in computing his net wealth only if he acquires the requisite rights in or with respect to any building or part thereof under a lease for a term of not less than twelve years. Section 4(8)(b) enacts a deeming provision and, therefore, it requires to be strictly construed. A lessee cannot be deemed to be the owner under section 4(8)(b) if the term of lease is less than 12 years. In such a case, the legal owner shall continue to be liable to wealth-tax by virtue of the provisions of section 2(m). This position is quite evident on bare a perusal of section 4(8)(b) of the Wealth-tax Act, read with section 269UA(f) of the Income-tax Act. [Para 17]

Section 4(8)(b) is a deeming provision by which the Legislature has treated the lessee as deemed owner in a case where the lessee acquires any rights in or with respect to any building or part thereof by virtue of any transaction referred to in section 269UA(f). However, the Legislature in its wisdom has expressly excluded any right acquired under a lease from month to month or for a period not exceeding one year also from the purview of fiction created by section 4(8)(b). Once such a right acquired under a lease from month to month or for a period not exceeding one year is excluded for whatever reasons from the scope of fiction created by section 4(8)(b), the Courts should not try to find out the reasons as to why such right has been excluded by the Legislature. The fact that they have been excluded from the scope of the fiction created by section 4(8)(b) is plainly clear and, therefore, there is no necessity to ascertain as to why they have been excluded from the fiction created by section 4(8)(b). The position emerging from a bare perusal of section 4(8)(b) is that it is the acquisition of rights in or with respect to any building or part thereof by virtue of any such transaction as is referred to in clause (f) of section 269UA, which has the effect of shifting the ownership from legal owner to real owner, namely, the lessee. It is also plainly clear from the language of section 4(8)(b) that the rights acquired under a lease from month to month or for a period not exceeding one year and also those acquired by virtue of any transaction not falling under section 269UA(f) are clearly outside the scope of the fiction created by section 4(8)(b). Since the aforesaid position emerges clearly and plainly on a bare perusal of section 4(8)(b), it is not necessary to elucidate the possible intention of the Legislature in inserting the words in the parenthesis “(excluding any rights by way of a lease from month to month or for a period not exceeding one year)” appearing in section 4(8)(b). It is a cardinal principle of interpretation that plain and natural meaning should be given to the language employed by the Legislature where there is no ambiguity in such language, and the Courts should not unnecessarily take recourse to find out the intention of the Legislature. [Para 18]

A bare look at the provisions of section 4(8)(b) clearly reveals that the words used in the parenthesis are plain, simple and unambiguous, which clearly exclude any rights acquired under month to month lease as well as lease for a period not exceeding one year from the scope of the said section, i.e., section 4(8)(b) itself. Therefore, the question of invoking the rules of interpretation to unfold the intention of the Legislature in inserting the words in the parenthesis in section 4(8)(b) does not arise. The contention of the assessee that the words used in the parenthesis would become otiose was misconceived for the reasons given above. On the contrary, if the contention of the assessee that a right acquired under a lease for a term exceeding one year would make the lessee as deemed owner was accepted, then the main provisions of section 4(8)(b) would become otiose since a person acquiring right under a lease exceeding one year would become deemed owner which is not the intention of the Legislature, as the Legislature has used specific words to exclude the rights acquired under a lease for a period up to 12 years from the purview of the fiction created thereunder. [Para 20]

There is yet another aspect of the matter. Section 4(8)(b), carves out an exception to the general rule that it is the legal owner of the specified assets who is subjected to the wealth-tax assessment. Section 4(8)(b) shifts the ownership from legal owner to what it considers to be the real owner by deeming the lessee as owner.

The lessee cannot be deemed to be the owner, unless he acquires the lease made by a registered instrument for a term of not less than 12 years. The legal owner cannot be divested of his ownership under the general rule till the lessee is invested with the ownership created by the exception, i.e., section 4(8)(b). The substitution of legal ownership by deemed ownership cannot mean absence of ownership both in the hands of the legal owner under the general rule as well as deemed owner under the exception created by section 4(8)(b). Section 4(8)(b) shifts the ownership from legal owner to the deemed owner. If this shifting fails, the general rule will immediately come into play. The asset must be owned either by the legal owner under the general rule or by a person who is deemed by law to be the owner thereof. If the lessee is not a deemed owner within the meaning of section 4(8)(b), the legal owner will continue to be the owner of the property under the general rule and, consequently, liable to wealth-tax thereon. [Para 21]

distinction between lease and leave and license agreements

Fiction created by section 4(8)(b) applies only to those transactions which are covered by section 269UA(f). Section 269UA(f) refers to the transfer of a property by way of sale or exchange or lease for a term of not less than 12 years. It is thus clear that the legal fiction created by section 4(8)(b) would apply only if the transaction is by way of, inter alia, lease. As regards license, it is well-established that a license is a purely personal privilege or right enabling the licensee to do something on the land of the licensor, which would otherwise be unlawful. It is an excuse by reason of consent of the licensor for an act, which would otherwise be unlawful. It is merely leave to do a thing, which enables a licensee to do lawfully what he could not otherwise do, except unlawfully. A dispensation or license neither passes any interest nor alters nor transfers property in anything but only makes an action lawful, which without the license would have been unlawful. A license to use the property is traditionally distinguished from a lease in respect that a licensee does not have possession or any interest in the property. Leave and license is, thus, materially different from lease and, therefore, clearly outside the scope of the fiction created by section 4(8)(b). In case of license, all the ingredients of ownership including the right to possession vest in the owner licensor and not in the licensee. Since a leave and license is not ‘lease’ and also does not transfer any interest in the property to the licensee, it will obviously be outside the scope of sections 4(8)(b) and 269UA(f). A pure and simple licensee cannot, therefore, be treated as a deemed owner within the meaning of section 4(8)(b) [Para 24]

conclusion

In view of the above, it was to be held that the value of an immovable asset owned by an assessee is includible in the net wealth of the owner/assessee in terms of section 4(8)(b) read with section 269UA(f) if such asset is licensed/leased by assessee for a term exceeding 12 months but less than 12 years. In other words, it is the legal owner (i.e., the assessee in the instant case) who is liable to the wealth-tax levy on the value of specified assets licensed/leased by him for a term of less than 12 years, as laid down in section 269UA(f). However, the legal owner shall not be liable to wealth-tax levy on the value of specified assets leased by him for a term of not less than 12 years by virtue of any such transaction as is referred to in section 269UA(f). It is, in fact, the person acquiring any rights (i.e., lessee) in or with respect to any building under a lease for a term of not less than 12 years by virtue of any such transaction as is referred to in section 269UA(f), who shall be deemed to be the owner thereof in terms of the provisions of section 4(8)(b).

It was further held that the words in parenthesis in section 4(8)(b) ‘(excluding any rights by way of lease from month to month or for a period not exceeding one year)’ are clear enough to indicate that any rights acquired by the lessee by way of lease from month to month or for a period not exceeding one year shall not affect the legal ownership of the owner and that the legal owner in such a case shall be liable to the wealth-tax levy notwithstanding the fact that he has transferred the rights to the lessee by way of lease from month to month or for a period not exceeding one year. Legal ownership will remain unaffected so long as the term of lease is less than 12 years in terms of the provisions of section 269UA(f).

It was also held that the lease agreement for a period for less than one year with an extension clause which is normally an agreement of Leave and Licenses, will not be covered by section 4(8)(b) and section 269UA(f). In other words, the fiction created by section 4(8)(b) applies to leases and not to leave and licence agreements. Leave and license agreements are clearly outside the scope of section 4(8)(b). In a leave and license arrangement, the legal owner shall continue to be the owner of the licensed premises and assessable to wealth-tax as such. [Para 25]