Purchase of immovable property by Central Government — Lease for 9 years renewable at option of lessee for a further period of 9 years would be covered by Explanation to S. 269UA(f)(i) attracting the provisions of Chapter XX-C.

[Govind Impex P. Ltd. & Ors. v. Appropriate Authority,
Income-tax Department, (2011) 330 ITR 10 (SC)]

The appellants, the owners of property bearing No. B-68,
Greater Kailash, Part-I, New Delhi had let out the same at monthly rental of
Rs.2,50,000 with effect from June 1, 1991 for a period of nine years renewable
for a further period of nine years. The Appropriate Authority of the Income-tax
Department, issued show-cause notice to the appellant dated December 4, 1995,
inter alia, alleging that since the lease is for a period of nine years
extendable for a further period of nine years, it was lease for a period of more
than 12 years and hence the provisions of Chapter XX-C of the Income-tax Act
would be attracted and the lessor and the lessee were obliged to submit Form
37-I within 15 days of the draft agreement. The appellants submitted their
show-cause on January 12, 1996, inter alia, contending that the lessee had an
option to renew the lease by giving three months’ notice prior to the expiry of
the lease and further a fresh lease deed was required to be executed and
registered, hence the provisions of Chapter XX-C of the Act would not be
attracted. The show cause filed by the appellants was considered and finding no
merit, the Appropriate Authority rejected the same by order dated April 24, 2001
holding the appellants guilty of not complying with the provisions of S. 269UC
of the Act. Accordingly, a complaint was made on April 30, 2001 u/s.276AB read
with S. 278B of the Act before the Additional Chief Metropolitan Magistrate,
alleging contravention of S. 269UC of the Act. The learned Magistrate by its
order dated April 30, 2001 took cognizance of the offence and issued process
against the appellants.

The appellants filed writ petition before the High Court for
quashing the aforesaid order dated April 24, 2001 of the Appropriate Authority
rejecting their show cause and deciding to file criminal complaint. However,
since the prosecution had already been launched against the appellants, the
Division Bench of the High Court directed for treating the writ petition as an
application u/s.482 of the Code of Criminal Procedure. Ultimately, the learned
Single Judge by order dated October 10, 2002 dismissed the same.

Aggrieved by the same the appellant have preferred an appeal
with the leave of the Supreme Court.

The Supreme Court observed that there was no serious dispute
in regard to the interpretation of the Explanation to S. 269UA(f) of the Act and
in fact, it proceeded on an assumption that it would cover only such cases where
there existed a provision for extension in the lease deed. According to the
Supreme Court, therefore, what it was required to consider was the terms and
conditions of lease. The Supreme Court observed that the terms of lease are not
to be interpreted following strict rules of construction. One term of the lease
cannot be taken into consideration in isolation. The entire document in totality
has to be seen to decipher the terms and conditions of lease. In the present
case, clause 1 in no uncertain term provided for extension of the period of
lease for a further period of nine years and clause 12 thereof provided for
renewal on fulfilment of certain terms and conditions. Therefore, when the
document was construed as a whole, it was apparent that it provided for the
extension of the term. If that was taken into account the lease was for a period
of not less than twelve years. Once it was held so the Explanation to S.
269UA(f)(i) was clearly attracted. The Supreme Court was of the opinion that the
High Court was right in observing that “on a conjoint reading of paragraphs 1
and 12 of the lease deed, the lessor intended the lease to last for 18 years”
and further the lessor could not have refused to renew/extend the lease after
the first term if the lessee complied with the conditions.

As the matter was pending since long, the Supreme Court
directed the Magistrate in seisin of the case to conclude the trial within six
months from the date of appearance of the appellants. It further directed the
appellants to appear before the Court in seisin of the case within six weeks
from date of the order.