M/S. GOVIND IMPEX (P) LTD. AND ORS.versusAPPROPRIATE AUTHORITY, INCOME TAX DEPARTMENT

               [2010] 14 (ADDL.) S.C.R. 523


         M/S. GOVIND IMPEX (P) LTD. AND ORS.                       A
                               v.
APPROPRIATE AUTHORITY, INCOME TAX DEPARTMENT
         (Criminal Appeal No. 41 of 2004)
                    DECEMBER 7, 2010
                                                                   B
   [HARJIT SINGH BEDI AND CHANDRAMAULI KR.
                  PRASAD, JJ.]

     Income Tax Act, 1961: Chapter XXC; s.269UA(f)(i),
Explanation - Premises let out on lease for nine years with        C
an option to the lessee to renew it for a further period of nine
years on fulfillment of certain terms and conditions -
Applicability of Explanation to s. 269UA(f)(i) - Held: Is
applicable since lease provided for extension of term, and the
aggregate of /ease period and period of extension counted          D
together made it more than twelve years.

     Deeds and documents: Lease deed - Interpretation of -
Held: The terms of a lease deed are not to be interpreted
following strict rules of construction - One term of the lease
cannot be taken into consideration in isolation - Entire           E
document in totality has to be seen to decipher the terms and
conditions of /ease.

      Interpretation of statutes: Penal statute which makes an
act a penal offence or impose penalty - Held: Is to be strictly    F
construed and if two views are possible, one favourable to the
citizen is to be ordinarily preferred.

     The appellants leased out the suit premises for a
period of nine years and the lease was renewable for a             G
further period of nine years. The income tax department
issued a show cause notice alleging that the lease was
for a period of more than 12 years and, therefore, the
provision of Chapter XXC of the Income Tax Act, 1961
                              523                                  H
                                                   I
    524    SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.


A was attracted. The appellants replied that the lease was
  only for a period of nine years and that the lease deed
  provided an option to the lessee to renew the lease for a
  further period of nine years and, therefore, the provision
  of Chapter XXC of the Act was not attracted. The
B appropriate authority rejected the reply of the appellants
  and held them guilty of not complying with the provisions
  of Section 269UC of the Act. Accordingly, a complaint was
  laid under Section 267 AB read with Section 2788 of the
  Act before the Magistrate. The Magistrate took
c cognizance of the offence. The appellant unsuccessfully
  challenged the same in the High Court. Aggrieved, the
  appellants filed the instant appeal.

          Dismissing the appeal, the Court

D      HELD: 1. A plain reading of the Explanation to
  Section 269UA(f)(i) of the Income Tax Act, 1961 shows
  that if a lease provides for the extension of the term
  thereof by a further term, it shall be deemed to be a lease
  for a term of not less than twelve years, if the aggregate
E of the period for which the lease is granted and period
  of extension counted together makes it more than twelve
  years. There is no dispute in regard to the interpretation
  of Explanation to Section 269UA(f) of the Act and it will
  cover only such cases where provision for extension in
F lease deed exists. The terms of lease deed are not to be
  interpreted following strict rules of construction. One term
  of the lease cannot be taken into consideration in
  isolation. Entire document in totality has to be seen to
  decipher the terms and conditions of the lease. In the
G instant case, Clause 1 of the lease deed in no uncertain
  terms provided for extension of period of lease for a
  further period of nine years and clause 12 therl!of
  provided for renewal on fulfillment of certain terms and
  conditions. Therefore, when the document is constructed
  as a whole, it is apparent that it provides for the extension
H
   GOVIND IMPEX (P) LTD. v. APPROPRIATE AUTH.,             525
              INCOME TAX DEPTT.

of the term. If that is taken into account, the lease is for a    A
period of not less than twelve years. Once it is held so,
the Explanation to Section 269UA(f)(i) is clearly attracted.
The High Court rightly observed that the conjoint reading
of clauses 1 and 12 of the lease deed showed that the
lessor intended the lease to last for 18 years and the            B
lessor could not have refused to renew/extend the lease
after first term if the lessee complied with the conditions.
[Paras 6, 7] [529-8-D]

     Provash Chandra Dalui and another v. Biswanath
Banerjee and another (1989) Supple.(1) sec 487; State of C
U.P. and others v. Lalji Tandon (Dead) through Lrs. (2004) 1-
SCC 1; Hardesh Ores (P) Ltd. v. Hede and Company (2007)
5 sec 614 - referred to.
     2. It is well settled that the penal statute which makes     D
an act a penal offence or impose penalty is to be strictly
construed and if two views are possible, one favourable
to the citizen is to be ordinarily preferred but this principle
has no application in the facts of the present case. [Para
7] [530-F]                                                        E
                      Case law reference:
     (1989) Supple.(1) SCC 487 referred to          Para 4
     (2004) 1 sec 1                referred to      Para 4
                                                                  F
     (2001) s sec 614              referred to      Para 4
     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 41
of 2004.                                         ·

    From the Judgment & Order dated 10.10.2002 of the High        G
Court -0f Delhi in Criminal Misc. (Main) No. 3793 of 2001.

      Harish N. Salve, P.K. Aggarwal, Sanjay Kapur, Rajiv Kapur
for the Appellants.
                                                                  H
    526    SUPREME COURT REPORTS (2010] 14 (ADDL.) S.C.R.


A        Ramesh P. Bhatt, Rahul Kaushik, B.V. Balaram Das for
    the Respondent.

          The Judgment of the Court was delivered by

       CHANDRAMAULI KR. PRASAD, J. 1. Appellants are the
B owners of property bearing No.B-68, Greater Kailash, Part-I,
  New Delhi and they let out the same at a monthly rental of
  Rs.2,50,000/-with effect from 1st June, 1991 for a period of nine
  years renewable for a further period of nine years. The
  appropriate authority of the Income-tax Department, respondent
C herein issued show cause notice to the appellant dated 4th
  December, 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 a lease for a period of more than 12 years and
  hence the provision of Chapter XXC of the Income-tax Act
D (hereinafter referred to as the "Act") would be attracted and the
  lessor and the lessee were obliged to submit Form 37-1 within
  15 days of the draft agreement. Appellants submitted their
  show cause on 12th January, 1996, inter alia, contending that
  the lessee had an option to renew the lease by giving three
E months' notice prior to the expiry of the lease and further a fresh
  lease deed was required to be executed and registered, hence
  the provision of Chapter XXC of the Act shall not be attracted.
  The show cause filed by the appellants was considered and
  finding no merit, the appropriate authority rejected the same by
F order dated 24th April, 2001 holding the appellants guilty of not
  complying with the provisions of Section 269UC of the Act.
  Accordingly, a complaint was. laid on 30th April, 2001 under
  Section 267AB read wiih Section 278B of the Act before the
  Additional Chief Metropolitan Magistrate alleging contravention
G of Section 269UC of the Act. Learned Magistrate by its order
  dated 30th April, 2001 took cogniz~nce of the offence and
  issued process against the appellants.

        2. Appellants filed writ petition before the High Court for
    quashing the aforesaid order dated 24th April, 2001 of the
H
   GOVIND IMPEX (P) LTD. v. APPROPRIATE AUTH.,  527
INCOME TAX DEPTI. [CHANDRAMAULI KR. PRASAD, J.]

appropriate authority rejecting their show cause and deciding        A
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 under Section 482 of the Code of Criminal
Procedure Code. Ultimately, the learned Single Judge by order        B
dated 10th October, 2002 dismissed the same and while doing
so observed as follows:

          "In the present case also, it is clearly stipµlated in
    para 1 of the lease deed that the lease was extendable
    purely at the discretion and option of the Lessee on the         C
    second part for a further period of nine years. On a conjoint
    reading of paras 1 and 12 of the lease deed, it becomes
    clear that lessor intended the lease to last for 18 years.
    The lessor could not have refused to renew/extend the
    lease after first term if the lessee complied with the           D
    conditions for renewal/extensions. So in view of
    explanation to Section 269UA(f)(i) of the Act, the total
    terms of the lease will be 18 years no matter whether it is
    for a single term of 18 years or two terms of nine years
    each or three terms of six years each or six terms of three      E
    years each. Whether the subsequent terms are described
    as extensions or renewals is immaterial for the purpose
    of Section 269UA(f)(i). If the aggregate of the original term
    and stiupulated extension/renewal comes to more than 12
    years, such a lease will fall under the purview of explanation   F
    to Section 269UA(f)(i) of the Act and it will be considered
    to be a lease for not less than 12 years thereby making
    the provisions of Chapter XXC of the Act application
    thereto."
                                                                     G
     3. Aggrieved by the same the appellants have preferred
this appeal with the leave of the Court.

    4. Mr. Harish N. Salve, learned Senior Counsel, appearing
on behalf of the appellants submits that renewal of lease and
extension of lease are not one and the same thing and in view        H
    528    SUPREME COURT REPORTS (2010] 14 (ADDL.) S.C.R.


A of the explanation to Section 269UA(f) of the Act a lease which
  provides for renewal of the lease cannot be fictionally taken into
  account for calculating the period of lease. He submits that the
  term of lease was for a period of nine years with contemplation
  of renewal for nine years and it did not provide for extension of
B the term of the lease; hence the total period is for less than 12
  years. To bring home the distinction between renewal and
  extension of lease, Mr. Salve has relied on a large number of
  decisions of this Court viz. Provash Ch~ndra Dalui and
  another v. Biswanath Banerjee and another, (1989) Supple.(1)
C SCC 487, State of UP. and others v. Lalji Tandon (Dead)
  through Lrs., (2004) 1 SCC 1 and Hardesh Ores (P) Ltd. v.
  Hede and Company, (2007) 5 SCC 614.

       5. Mr. Ramesh P. Bhatt, learned Senior Counsel,
  appearing on behalf of respondent, however, contends that
D from a bare perusal of the lease deed it is evident that the term
  of lease was extendable for a period of nine years more and,
  therefore, in view of the explanation to Section 269UA(f) of the
  Act, the total period of lease comes to more than 12 years and
  hence the provisions of Chapter XXC of the Act was clearly
E attracted. The rival submissions necessitate examination of
  Section 269UA(f)(i) of the Act, particularly its explanation, same
  reads as follows:

          "269UA(f) "transfer", -
F         (i) in relation to any immovable property referred to in sub-
          clause (i) of clause (d), means transfer of such property
          by way of sale or exchange or lease for a terms of not less
          than twelve years, and includes allowing the possession
          of such property to be taken or retained in part
G         performance of a contract of. the nature referred to in
          section 53A of the Transfer of Property Act, 1882 (4 of
          1882)

          Explanation - For the purposes of this sub-clause, a lease
H         which provides for the extension of the term thereof by a
   GOVIND IMPEX (P) LTD. v. APPROPRIATE AUTH.,  529
INCOME TAX DEPTT. [CHANDRAMAULI KR. PRASAD, J.]
                                                           "
    further term or terms shall be deemed to be a lease for a        A
    term of not less than twelve years, if the aggregate of the
    term for which such lease is to be granted and the further
    term or terms for which it can be so extended is not less
    than twelve years;
                                                                     B
     (ii) xxx   xxx xxx xxx"

      6. On a plain reading of the explanation aforesaid it is
evident that a lease which provides for the extension of the term
thereof by a further term it shall be deemed to be a lease for a
term of not less than twelve years, if the aggregate of the period   C
for which the lease is granted and period of extension counted
together makes it more than twelve years. In the present case,
we are proceeding on our assumption that explanation to
Section 269 UA(f)(i) would be attracted only when lease
provides for extension of term and in view thereof, we do not        D
consider it expedient to examine the judgment relied on by Mr.
Salve. In the case in hand, the lease was for a period of nine
years and the question, therefore, is as to whether the same
was extendable for a further period of nine years so as to make
it for not less than twelve years. To answer this one is required    E
to refer to the lease deed and Clauses 1 and 12 thereof which
are relevant for the purpose, same read as follows:

    "1. That the Lessors of the First Part have agreed to lease
    out to the Lessee of the Second Part the demised
                                                                     F
    premises as aforesaid which are being used for
    commercial purposes at present namely on the lower
    ground floor/basement, ground floor/upper ground floor,
    first floor, second floor and the terrace of the building
    known as B-68, Greater Kailash-1, New Delhi - 110048,
    and clearly delineated in green outlines in the site plan        G
    annexed herewith for a period of nine years, extendab/e
    purely at the discretion and option of the Lessee of the
    Second Part for a further period of nine years,
    commencing from the date when the possession of the
    peremises is handed over i.e. 1.06.1991 and ending on            H
    530     SUPREME COURT REPORTS (2010] 14 (ADDL.) S.C.R.


A         the last date when the period of first nine years expires i.e.
          on 31.05.2000 at a monthly lease amount of Rs.2,50,000/
          - (Rupees Two lacs and fifty thousand only) subject to the
          periodic revision as mentioned in later para. The said
          premises comprise of a total area of about 12904 sq. ft.
B         with floor wise rentals as per the details below:-

          xxx xxx xxx xxx
          xxx xxx xxx xxx
c         12. That the Lessee may at its option and discretion renew
          the leaseJor a further period of nine years after the expiry
          of the term of the present lease on 31st May, 2000. If the
          Lessee shall be desirous of such renewal it shall give a
          notice of such renewal to the Lessors at least three months
D         prior to the expiry of the term in the present lease deed.
          The subsequent renewals of the Lease Deed shall also be
          got duly signed and registered. The renewals of the Lease
          shall be on the same terms and conditions."

        7. Mr. Salve submits that statute providing for penal
E prosecution has to be construed strictly. He refers to Clause
  12 aforesaid and contends that it shall govern the field. Mr.
  Bhatt submits that it is Clause 1 of the lease deed which shall
  govern the issue. We do not have the slightest hesitation in
  accepting the broad submission of Mr. Salve that Penal statute
F which make an act a penal offence or impose penalty is to be
  strictly construed and if two views are possible, one favourable
  to the citizen is to be ordinarily preferred but this principle has
  no application in the facts of the present case. There is no
  serious dispute in regard to the interpretation of explanation to
G Section 269UA(f) of the Act and in fact, we are proceeding on
  an assumption that it will cover only such cases where exists
  provision for extension in lease deed. In our opinion, what we
  are required to consider is the terms and conditions of lease.
  The terms of lease are not to be interpreted following strict rules
H of construction. One term of the lease cannot be taken into
   GOVIND IMPEX (P) LTD. v. APPROPRIATE AUTH.,  531
INCOME TAX DEPTT. [CHANDRAMAULI KR. PRASAD, J.]

consideration in isolation. Entire document in totality has to be    A
seen to decipher the terms and conditions of lease. Here in the
present case, Clause 1 in no uncertain term provides for
extension of period of lease for a further period of nine years
and clause 12 thereof provides for renewal on fulfillment of
certain terms and conditions. Therefore, when the document is        B
constructed as a whole, it is apparent that it provides for the
extension of the term. If that is taken into account the lease is
for a period of not less than twelve years. Once it is held so
the explanation to Section 269UA(f)(i) is clearly attracted. We
are of the opinion that the High Court is right in observing that    c
"on a conjoint reading of paras 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
first term if the lessee complied with the conditions.

     8. As the matter is pending since long, we direct the           D
Magistrate in sesin of the case to conclude the trial within six
months from the date of appearance of the appellants. We
further direct the appellants to appear before the Court in sesin
of the case within six weeks from today.
                                                                     E
      9. In the result, we do not find any merit in the appeal and
it is dismissed accordingly with the direction aforesaid.

D.G.                                         Appeal dismissed.