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2004 DIGILAW 107 (ALL)

FRIGORIFICE ALLANA LTD v. STATE

2004-01-23

T.GEORGE JOSEPH

body2004
T. GEORGE JOSEPH, J. This is a revision against the order dated 14-1-2003 passed by Shri Cheda Lal, Deputy Commissioner Stamp, Agra. The Deputy Commissioner held that the document under examination was a lease deed and Stamp Duty amounting to Rs. 83,22,900 was chargeable on it. He had also ordered the recovery of interest on the amount, at the rate of 1. 5% from the date of execution of the document. 2. The disputed doucment was recovered from the office of the Agra Municipal Corporation when the officers of the Registration Department inspected it. The Registration department considers the document chargeable under the Stamp Act. They argue that it is a lease deed, which is chargeable at par with a conveyance. The document is drafted as a licence agreement and the second party argues that it is not a lease deed and does not attract stamp duty at par with a conveyance. It is undisputed that the document was not registered and that a lease deed is compulsory to be registered under the Registration Act and the Transfer of Property Act. The department argues that the document was deceptively drafted as a licence agreement to defeat the provisions of the Stamp Act and is, indeed a lease deed and is chargeable as such, though not registered under the Registration Act. 3. The revisionists argue that the document in question is not a lease deed primarily because it was not registered. A lease deed has to be a registered document if it is to qualify as such under the Transfer of Property Act. Since the document is not a lease deed, they argue that Stamp Duty applicable on a conveyance is not chargeable on it. They also argue that the relationship between the two parties to the unregistered document is that a licensor and a licensee and the compliance of the conditions of the document is ensured under this relationship. 4. The argument that the document is not a lease deed merely on account of its non-registration is not tenable. They also argue that the relationship between the two parties to the unregistered document is that a licensor and a licensee and the compliance of the conditions of the document is ensured under this relationship. 4. The argument that the document is not a lease deed merely on account of its non-registration is not tenable. In AIR 1933 Allahabad 735, Sulaiman, C. J. held as follows: "section 2, sub-section 16 Stamp Act, while presumably borrowing the definition of "lease" as contained in the Transfer of Property Act, also thereto a provision that "lease" shall include also among other things a kabuliat or other undertaking in writing (not being a counterpart of a lease) to cultivate, occupy or pay or deliver rent for immovable property. The use of the words include also`` obviously implies that the definition of lease`` as contained in the Stamp Act is wider and more comprehensive than the definition of it in Section 105, T. P. Act. It would follow that even if a transaction does not amount to a lease under Section 105, of the latter Act, it may nevertheless be a lease for the purposes of the Stamp Act. 5. The revisionists are absolutely justified in arguing that the document is not a lease deed under the Transfer of Property Act since it was not registered. But is can very well be a lease deed under the Stamp Act since the Stamp Act follows a wider definition. According to the Stamp Act, thetransaction will be a lease, if it sets up to "occupy an immovable property. " Though Suleiman C. J. has not elaborated on the differences between the lease as defined in the Transfer of Property Act and the same as defined in the Stamp Act, it is clear for the purpose of the present case that it is wrong to follow the strict definition of the Transfer of Property Act. In the later part of the judgment, the C. J. has adopted the general meaning of the term lease to distinguish it from a licence. Therefore, the document has to be examined on the strength of the conditions of the transaction to find out whether the document is a lease or a licence. 6. In the same judgment, Suleiman C. J. has explored how the difference between a lease and a licence can be examined. Therefore, the document has to be examined on the strength of the conditions of the transaction to find out whether the document is a lease or a licence. 6. In the same judgment, Suleiman C. J. has explored how the difference between a lease and a licence can be examined. He continues as follows: "no doubt the parties call this doucument an agreement by way of licence and throughtout that doucment the same phraseology has been used and the parties are called licensor and licensee. There is also a clear statement that this deed should not be construed to create a tenancy in favour of the Oil Company. It is however clear that such recitals in a document can never be conclusive, and we have to look to the substance of the terms agreed upon and not to the nomenclature given to the deed by the parties. " 7. In order to make a decision about the document before me, it is necessary to look at the substance of the terms and not merely to rely on the phraseology of the document. The substance has to be analyzed in the light of the features of a lease and a license. 8. The C. J. has also discussed the difference between a lease and a license as follows: "the sole question for consideration before us is whether this document created a mere license in favour of the Oil Company so as to be exempt from stamp duty. There is no doubt that we have to consider the provisions of the Stamp Act for the purpose of answering this question. License if not defined in the Stamp Act at all, but it is defined in Section 52, Easements Act, as follows: "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 shall be called a license. It is obvious that in the absence of any other definition of license, the definition of it as contained the Easements Act might well be adopted. It is obvious that in the absence of any other definition of license, the definition of it as contained the Easements Act might well be adopted. prima facie, a licence merely grants a right to do or permit to do something, which would otherwise by unlawfull, upon an immovable property. Obviously it is not a transfer of any interest in immovable property, nor prima facie is it a tranfer of a right to exclusive possession over that preperty. It is equally clear that a right cannot amount to license if it falls under the definition of an easement or amounts to an interest in the immovable property itself. " 9. The C. J. tries to find out the distinction between a lease and a license in the following portion of the judgment. In many cases the distinction between a license and a lease is a very narrow and thin one and there may be considerable difficulty in deciding whether a transaction amounts to a lease or a licence. There are many points, which make this transaction resemble a licence. We have already noticed that there is no right to transfer or subject or in any way part with the privileges conferred by this document and that the transaction was to be determined and cancelled at very short notice and d there was to be a right of free access for the time to the land in favour of the Divisional Superintendent or any other officer of the Railway Administation. On the other hand, there is no doubt that the use and occupation of the land during the period when this transaction was to remain in force were transferred to the Oil Company and they were forthwith to erect on a part of the land a building or other structure of a substantial and permanent character and when the transaction was to be terminated the Railway Administration had the right to re-enter upon, re-take and absolutely retain the possession of the said and. The Court held that the document was a lease deed mainly on the ground that the Oil Company was allowed to put up a substantial building of a permanent character on the Railway land. after the construction of the building the actual possession of the land could not remain with the Railway Administaration, only their officer was allowed access to the land for the purposes of inspection. 10. after the construction of the building the actual possession of the land could not remain with the Railway Administaration, only their officer was allowed access to the land for the purposes of inspection. 10. In the revision before me the facts are as follows. The Agra Municipal Corporation constructed a slaughter house complex for large animals. The parties to the documents claim that the Corporation wanted to give on licence the slaughterhouse complex along with the land, machinery, buildings and all the existing facilities, within the enclosed boundary. The Corporation invited tenders for the operations and management of the complex and the highest tender of the revisionists was accepted by the Corporation. The license agreement, which is under examination, was drawn up between the Corporation and the revisionists who are called the first and the second party respectively, in the document. 11. The terms narrated in the document, which suggest that the document is a license are the following. (1) The document is titled licence agreement for operation and management of the modern slaughter house for large animals at Kuberpur, Agra. (2) The document speaks about the intention of the Municipal Corporation to give the complex on license while inviting tenders for the same. (3) The tenders were invited for the operations and management of the modern slaughter house. Tenders were not invited for leasing out the complex. (4) The amount payable to the Municipal Corporation is called license fee and not rent. (5) There is a specific provision in the document, which says that the possession of the modern slaughter house will always remain with the Municipal Corporation. (6) The second party themselves were allowed to use the slaughterhouse and they were not entitled to allow any other party to use the same. (7) Even the sister concerns of the second party could use the slaughterhouse only with the prior permission of the Municipal Corporation. (8) The officers of the Municipal Corporation were to have a right to visit the slaughter house at any time. (9) The Municipal Corporation was to have the right to revoke the license after giving three months prior notice to the second party. The second party also were entitled to withdraw from the agreement after giving three months prior notice. (8) The officers of the Municipal Corporation were to have a right to visit the slaughter house at any time. (9) The Municipal Corporation was to have the right to revoke the license after giving three months prior notice to the second party. The second party also were entitled to withdraw from the agreement after giving three months prior notice. (10) There is a stipulation in the document that the second party shall Commence providing services of slaughtering upto 150 animals per day for the consumption in Agra city, on the normal working days and also meet out the enhanced local slaughtering needs (strictly for local consumption of Agra city) subject to a maximum of 250 animals on special occasion at such rates as may be decided by the officer of the Municipal Corporation from time to time. (11) If the repair and maintance of the slaughterhouse was not satisfactory, the Corporation could get it done and the charges could be collected from the second party. 12. The ingredients of the document, which induce it to be considered as a lease are the following. (1) The document records that the slaughterhouse has been handed over to the revisionist on 27/4/2002. (2) The second party will employ their own labour. (3) The second party are given the responsibility of insuring the entire slaughterhouse. (4) Paragraph No. 7 sayas that the revisionist shall be entitled to use the salughterhouse during the period of license without any inerference from the Municipal Corporation. 13. On the basis of these facts has to be decided whether the transaction involved in the document is a lease or a licence. In order to arrive at a decision on this question, a judgments of K. Subba Rao JJ. in AIR 1959 S. C. 1262 (V 46 C 174) will be of immense help. He has explained the features of a lease and a license with a view to distinguish the one from the the other in the following words: "if a document gives only a right to use the property in a particular way for 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. 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. There is therefore, clear distincton 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 infalliable and if a person was given exclusive possession of the premises, it would conclusively establish that he was a lessess. But there was a change and the recent trend of judicial opinion is reflected in Errington v. Errington, 1952-1 All ER 149, wherein Lord Denning reviewing the case law on the subject summarizes the result of his discusion thus at page 155: "the result of all these cases is that, although a person who is let into exclusive possesion is prima facie, to be considered to be a tenant, nevertheless he will not be held to be so if the circumstances negative any intention to create a tenancy. " 14. The Court of Appeal against in Cobb v. Lane, 1952-1 All ER 1199, considered the legal position and laid down that the intention of the parites was the real test for ascertaining the character of a document. At p. 1201 Somervell L. J. stated: ". . . . . . The solution that would seen to have been found is, as one would expect, that it must depend on the intention of the parties. " Dening L. J. said much to the same effect at p. 1202: "the question in all these cases is one of intention. At p. 1201 Somervell L. J. stated: ". . . . . . The solution that would seen to have been found is, as one would expect, that it must depend on the intention of the parties. " Dening 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, the taken as well established: (1) To ascertain whether a document creates a license 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 license; (3) if the document creates as interest in the property, it is lease; but, if it only permits another to make use of the property of which the legal possession continuous with the owner, it is a licence; and (4) if under the document a party gets exclusive possesion of the property, prima facie, he is considered to be a tenant; but circustances may be established which negative the intention to create a lease. " 15. In the light of these clear precepts, we can examine the document under revision. We can disregard the phraseology of the document because clever drafting can camouflage the real intention of the parties. 16. The case me relates to a slaughterhouse. Slaughterhouse is different in the nature of its use from an open land, an office building, or a residential structure. An open land or a building can be put to a veriety of uses, but the slaughterhouse can be used only for the purpose of slaughtering animals. Though this does not rule out the choice of the owner to give it over to a second party either as a lease or as a license, it definitely abridges the possibility of leasing because of the limited freedom of use that the owner can part with. 17. The freedom of use in the case of a slaughterhouse will be the number and category of animals that the leassee will be allowed to slaughter. If these are unlimited, the transaction can be treated as a lease if other conditions are also fulfilled. 17. The freedom of use in the case of a slaughterhouse will be the number and category of animals that the leassee will be allowed to slaughter. If these are unlimited, the transaction can be treated as a lease if other conditions are also fulfilled. If the owner of the facility wants to keep the discretion of the number of slaughter with himself, the transaction is less likely to be a lease. 18. The intention of the Municipal Corporation was to give the slaughterhouse for operation and management as stated in the document. This intention obvious from the invitation for tender. It was not to give away the slaughterhouse for a prefixed sum of payment to a party, who would sell their services as they wanted. This intention of the Municipal Corporation reveals itself through the condition that the second party shall commence providing services of slaughtering up to 150 animals per day for consumption in Agra city on the normal working days and shall also meet out the enhanced local slaughtering needs (strictly for local consumption of Agra City) subject to a maximum of 250 animals on special occasion at such rates as may be decided by the Mukhya Nagar Adhikari from time to time. 19. It appears that the Municipal Corporation was interested in providing slaughtering services for Agra City as per the citys requirements as perceived by the corporation. If the predominant intention of the Corporation were to earn income by allowing the use of the slaughterhouse, it would have left the decision of the number of animals to be slaughtered to the second party who would have followed the market forces to maximise their profits. On the contrary the Corporation has fixed the number. The rates to be charged were also to be decided by the Corporation. It makes the matter more or less clear. The Corporation wants the slaughtering job to be got done through the second pary under its own strict control. This does not make out the case of a lease of the slaughterhouse complex. The document only gives a permission to use the slaughterhouse complex for providing slaughtering services for the city of Agra. In my opinion, the condition quoted above makes out a strong case to treat the document as a license. 20. It is stipulated that the service will be provided strictly for the local consumption of Agra City only. The document only gives a permission to use the slaughterhouse complex for providing slaughtering services for the city of Agra. In my opinion, the condition quoted above makes out a strong case to treat the document as a license. 20. It is stipulated that the service will be provided strictly for the local consumption of Agra City only. Restriction on the number of animals is not in tune with the operational freedom entitled to a lessee. On the other hand it goes well with the predominant control exercisable at the hands of a licensor. I am inclined to believe that the Municipal Corporation is only taking a service from the party and the transaction appears to be a fit case to be treated as a license. 21. Though we may not follow the phraseology of the document literally, it is also important that the document mentions in no unclear terms that the possession of the slaughterhouse would remain with the Municipal Corporation. There is no reason to disbelieve this statement because there is no other clause in the document, which in any way bestows any interest in the land of the complex to the second party. There is no clause in the agreement, which imparts any interest in the immovable property to the second party. The second party has also been given no right to transfer their interest to a third party. They have not been given even the right to allow somebody else to use the facility. 22. A manjor test prescribed by the judgment of K. Subba Rao J. Is to see whether the document creates an interest in the property not. When the document strictly prohibits the second party from allowing the use of the complex even by their sister companies, no interest in the property can be said to have been transferred to the second party. It is safe to presume that the scond party is only operating the facility at the instance of the Corporation with out possessing any interest the property. 23. It is true that the slaughterhouse has been handed over to the second party. But the service of slaughtering animals cannot be managed without the premises being in the partys possession. It is like a hospital room being handed over to a patient. The treatment of the patient cannot be accomplished without the patient occupying the room. 23. It is true that the slaughterhouse has been handed over to the second party. But the service of slaughtering animals cannot be managed without the premises being in the partys possession. It is like a hospital room being handed over to a patient. The treatment of the patient cannot be accomplished without the patient occupying the room. The legal possession of the room will be with the hospital authorities. Similarly the legal possession of the slaughterhouse complex was retained by the Municipal Corporation and the service provider was given the facility of its occupation for rendering his service in the best manner possible. The document calls for being treated as a license and not as a lease. 24. The burden of insuring the slaughterhouse has been placed on the service provider. This is also logical because the operation of the premises was to be carried out in the safest manner possible and therefore, the responsibility should have rested with the actual operator only. If it was kept with the Municipal Corporation, the insurance company would have protested because the real operator was likely to have been careless and the chances of accidents would have been higher. 25. As far the question of the inclusion of a clause, which says that the Municipal Corporation would not interfere in the operations of the licensee is concerned, I think it is a reference to the day to day working of the slaughterhouse. The employees would have to be accountable to the operator of the slaughterhouse and the licensee would have found it diffecult to provide the service if the Corporation was to interfere in the day to day working of the licensee. However, the officers of the Municipal Corporation were entitled to visit the complex at any time and in case of any breach of the terms of the license agreement, the agreement was liable to be revoked. 26. In the light of the above discussion, it becomes clear that the intention of the parties was to create a license. Therefore, the revision succeeds. The order of the Deputy Commissioner Stamp, Agra dated 14- 1-2003 is set aside and the document is declared duly stamped. Revision allowed. .