REPORTABLE

 IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

  CRIMINAL APPEAL NO.41 OF 2006

M/S. GOVIND IMPEX (P) LTD. & ORS.        .... APPELLANTS

VERSUS

APPROPRIATE AUTHORITY, INCOME TAX DEPARTMENT           ..... RESPONDENT

J U D G M E N T  

CHANDRAMAULI KR. PRASAD, J.

1.  Appellants are the 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 Ist 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 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 (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 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 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 with Section 278B of the Act before the Additional Chief  

Metropolitan  Magistrate  alleging  contravention  of  Section  

269UC of the Act.  Learned Magistrate by its order dated 30th  

April, 2001 took cognizance of the offence and issued process  

against the appellants.

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2. Appellants filed writ  petition before  the  High Court  for  

quashing  the  aforesaid  order  dated  24th April,  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 under Section 482 of the Code of Criminal  

Procedure Code.  Ultimately, the learned Single Judge by order  

dated 10th October, 2002 dismissed the same and while doing  

so observed as follows:

“In  the  present  case  also,  it  is  clearly  stipulated in para 1 of the lease deed that the lease  was extendable purely at the discretion and option  of the Lessee on the 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  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 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  

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12 years, such a lease will fall under the purview of  explanation 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.”

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  

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 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  Chandra  

Dalui and another v.  Biswanath Banerjee and another,  

(1989) Supple.(1) SCC 487,         State of U.P. and others  

v. Lalji Tandon (Dead) through Lrs., (2004) 1 SCC 1 and  

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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 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 attracted.  

The  rival  submissions  necessitate  examination  of  Section  

269UA(f)(i) of the Act, particularly its explanation, same reads  

as follows:

“269UA(f) “transfer”, -  (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  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 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 twelve years,  if the aggregate of the term for which such lease is  

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to  be  granted  and  the  further  term or  terms  for  which it can be so extended is not less than twelve  years;

(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 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 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  to  refer  to  the  lease  deed and  

Clauses 1 and 12 thereof which are relevant for the purpose,  

same read as follows:

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“1. That the Lessors of the First Part have agreed  to lease out to the Lessee of  the Second Part  the  demised 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-I,  New Delhi – 110048, and clearly delineated in green  outlines  in  the  site  plan  annexed  herewith  for  a  period  of  nine  years,  extendable  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 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. with floor wise rentals as  per the details below:-

xxx xxx xxx xxx

xxx xxx xxx xxx

12. That  the  Lessee  may  at  its  option  and  discretion  renew the  lease  for  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  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.”

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7. Mr.  Salve  submits  that  statute  providing  for  penal  

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  

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 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 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  

lease. Here in the present case, Clause 1 in no uncertain term  

provides for extension of period of lease for a further period of  

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nine  years  and  clause  12  thereof  provides  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 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 “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  

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.  

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9. In the result, we do not find any merit in the appeal and  

it is dismissed accordingly with the direction aforesaid.

…………………...........................J      [HARJIT SINGH BEDI]

 ................................................J

 [CHANDRAMAULI KR. PRASAD] NEW DELHI DECEMBER 7, 2010.

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