1. This is a reference under S. 54 of the Karnataka Stamp Act, 1957, (Act No. 34 of 1957). made by the Chief Controlling Revenue Authority to this Court stating the case referred and seeking for the opinion thereon of this Court.
2. The Managing Director of M/s. Bangalore Trading & Financing Corporation (Private) Limited, Bangalore, presented a lease deed dated 12-2-1981 executed by him on the same day in favour of M/s. Vanivilas Cooperative Sugar Factory Limited, Hiriyur, Chitradurga District, before the Sub-Registrar, Hiriyur, for registration. The Sub-Registrar impounded the document and in exercise of powers vested with him under S. 33 of the Karnataka Stamp Act, 1957, (hereinafter referred to as 'the Act'), issued notice to the present ant directing him to pay stamp duty of Rs. 11,200/- and, on hearing, levied stamp duty and penalty of Rs. 5/- under the provisions of S. 39 of the Act, by his order dated 6-3-1981.
Aggrieved by the said order of the Sub Registrar and Deputy Commissioner of Stamps, Hiriyur, the party preferred an appeal to the Chief Controlling Revenue Authority on 10-7-1981. The Chief Controlling Revenue Authority took the case on file and issued notice to the present ant on 24-7-1981 fixing the date of hearing on 27-7-1981. On the said date, the Advocate for the petitioner appeared and argued the case submitting that he was liable to pay stamp duty of Rs. 56,000/- only under Art. 30(a)(iii) read with Art. 20 of the Schedule to the Act and that the Sub-Registrar wrongly interpreted the document for the purpose of stamp duty.
As the Authority felt that the issue involved a substantial question of law, he has made the present reference to this Court under S. 54(l) of the Act.
3. In the opinion of the Chief Controlling Revenue Authority, the recitals in the lease deed show that the lease is for a period of ten years reserving annual rent of Rs. 8,00,000/- (and providing for the payment of Rs. 8,00,000/towards rent in advance. The question is whether the advance payment of Rs. 8,00,000/is to be construed as advance for the purpose of stamp duty in addition to the rent reserved, attracting stamp duty under Art. 30(c) of the Schedule to the Act as a lease for money advanced. The Chief Controlling Revenue Authority has opined that in view of the words 'or for money advanced' in Art. 30(c) of the Schedule to the Act, the payment of rent in advance has to be construed as money advanced and the lease deed is chargeable accordingly. As, however, he was not free from doubt, he has referred the following questions for the opinion of this Court : -
(1) Whether the rent paid in advance is to be construed as money advanced in addition to rent reserved?
(2) Whether the advance paid in a lease deed adjustable fully or partially or at the end of the lease period towards rent is to be
'Where the lease is granted for a fine or premium or for money advanced in addition to rent reserved
7. Thus, Art. 30(c) of the Schedule to the Act contemplates the case of a lease which is granted for a fine or premium or for more advanced in addition to rent reserved.
8. Foa's General Law of Landlord & Tenant, Eighth Edition, speaking of the term 'fine', with reference to granting of lease, states at page 270 thus :
'The term 'fine', in this enactment, (S. 144 of the Law of Property Act of 1925; England), includes a premium or foregift, and any payment, consideration, or benefit in the nature of a fine, premium, or fore gift.'
The word 'fine' refers to money paid at the entrance of the tenant on the land for tie lease or its renewal and, thus, it is almost the same as the premium.
9. The term 'premium' is defined in S. 105 of the Transfer of Property Act. It states :
'A lease of immoveable property is a transfer considered as premium/money advanced in addition to the rent reserved and charged the stamp duty under Art. 30(c) of the Schedule to the Act?
(3) If the document does not fall under any of the categories aforesaid, then what is the correct nature of the deed and what stamp duty is payable thereon?
4. The short question, therefore, that arises for our consideration in this reference is : 'Whether the amount of Rs. 8,00,000/- paid in advance under the terms of the lease deed is advance payment of rent reserved or it is premium or money advanced for the granting of the lease?'
5. Before we look at the lease deed, it would be convenient to notice briefly the law pertaining to the concept of fine or premium or money advanced, as contemplated under Art. 30(c) of the Schedule to the Act.
6. Article 30(c) of the Schedule to the Act reads :
The same duty as a conveyance (No. 20) for a market value equal to the amount or value of such fine or premium or advance as set forth in lease, in addition to the duty which would have been payable on such lease, if no fine or premium or advance had been paid or delivered' of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transfer or by the transferee, who accepts the transfer on such terms.
The transfer or is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.'
Thus,'premium'is defined as the price paid or promised in consideration of the demise. The distinction between 'premium' and 'rent' has been considered in a number of cases arising under the Income-tax Acts and discussed both by the Supreme Court of India and High Courts.
10. The distinction between 'premium' and 'rent' is brought out by the Judicial Committee in Kamakshya Narain Singh v. Commr. of Income-tax , thus :
'It (salami) is a single payment made for the acquisition of the right of the lessee to enjoy the benefits granted to him by the lease. The general right may properly be regarded as a capital asset . ...........................
11. The Supreme Court of India, in the case, Member of the Board of Agricultural Income Tax, Assam v. Smt. Sindhurani Chaudurani, : AIR1957SC729 , has defined 'Salami' as follows:
'The indicia of 'salami' are:
(i) It is a single non-recurring agreement and
(ii) payment prior to the creation of the tenancy, It is a consideration paid by the tenant for being let into possession and can be neither rent nor revenue but is a capital receipt in the hands of the landlord.'
Again, the Supreme Court of India, in the case, Chintamani Saran Nath Sah Deo v. Commr. of Income-tax, Bihar & Orissa AIR 1961 SC 732 at p. 735, has considered all the relevant decisions on the subject and observed :
'The advance of salami was a general one in that it was consideration paid by a tenant for being let into possession for the purpose of creating a new tenancy.'
12. In view of these authentic decisions rendered by the Supreme Court of India, it is not necessary to multiply the decisions further.
13. The provision contained in S. 105 of the Transfer of Property Act read in the light of the decisions of the Supreme Court, cited above, brings out the distinction between a price paid for a transfer of right to enjoy the property and the rent to be paid periodically to the lessor. When the interest of the lessor is parted with for a price, the price paid is the premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. There may be circumstances where the parties may camouflage the real nature of the transfer by using clever phraseology. In some cases the so called premium is in fact advance rent and in others rent is deferred price. It is not the form but the substance of a transaction that matters. The nomenclature used may not be decisive or conclusive. But it helps the Court having regard to the other circumstances to ascertain the intention of the parties. (Vide : Commr. of Income-Tax, Assam v. Panbari Tea Co. Ltd., : 57ITR422(SC) ).
14. Adverting lastly to the term 'money advanced in addition to rent reserved', it is to be understood ejusdem generis the other two expressions explained above, viz., 'fine' and 'premium'. The words'or for money advanced' were newly added in the Central Act. The object of the addition of the words 'or for money advanced' is apparently to rope in transactions which are a combination of a lease and mortgage and which are embodied in the form of a lease providing for payment of an advance. The lease may provide either for the return of the advance or adjustment of it in the rents payable towards the end of the period of lease. In either case, the real intention can only be that conveyance duty shall be paid on the amount of such advance. The advances obtained on leases are generally analogous to advances obtained on usufructuary mortgages and the documents which partake of the character both of a mortgage and a lease are quite common. Thus, where under a lease deed executed in consideration of the advance made by the lessee to discharge subsisting encumbrances, the lessee was empowered to with hold from the stipulated monthly rent a sum of money and appropriate the same in liquidation of the sum advanced by him, the document is chargeable with stamp duty under S. 30(c) of the Schedule to the Act. (Vide : Member of Revenue Board, Madras v. M/s. Simpson and Mc Conechey Ltd., Madras; : AIR1961Mad210 (FB)). (See also Chief Controlling Revenue Authority, In re : : AIR1952Bom285 (SB)).
15. Bearing the above salutary principles of law in mind, let us proceed to scrutinise the terms of the lease deed in question.
16. The lease deed is dated 12-2-1981. It is entered into between M/s. Vani Vilasa Cooperative Sugar Factory Limited, Hiriyur, Chitradurga District, a Co-operative Sugar Factory registered under the Co-operative Societies Act, represented by its Managing Director Shri P. D. Balekundri, the lessor, and M/s. Bangalore Trading and Financing Corporation Private Limited, a Private Limited Company, registered under the Indian Companies Act, 1956 with its Registered Office at No. 5, 'Amrit', Upper Pipe Line Cross Road, Seshadripuram, Bangalore - 560 020, the lessee. It states inter alia :
'The Lessor has obtained a licence for the manufacture of alcohol and has erected buildings and installed machinery for this purpose. The Board of Directors of the Lessor Society and the Executive Committee have resolved to lease out the schedule property to the lessee on the terms and conditions set forth herewith :
(1) In consideration of an annual rent of Rs. 8,00,000/- (Rupees Eight Lakhs only), the lessor does hereby grant by way of lease the properties (Immoveable and moveable) fully described in the schedule here in under to the lessee the distillery for a period of 10 years. The rent shall be payable in advance.
(2) Rs. 2,00,000/- (Rupees Two Lakhs) shall be paid in advance by the lessee to the lessor on signing this agreement and the balance of Rs. 6,00,000/- (Rupees Six Lakhs only) on completion of works by the lessor and on the day it is delivered ready for production by the lessor.'
The only other Clauses that are relevant are Clauses 3 and 23. Clause 3 reads:
'This lease period of 10 years will commence from the day the lessee commences the working of the distillery ready for production on erection of the boiter. The lease may be extended by a further period of 10 years on the terms by executing a fresh lease deed and get it registered as per the law mutually agreed. The possession of the distillery has this day been handed over to the lessee by the lessor.'
Clause 23 reads:
'The normal working clauses, if any, may be altered by mutual consent by means of additional agreements. Schedules to this agreement may also be added by means of agreements by mutual consent ...............'
17. By virtue of the provision made in Clause 23 on the same day, i.e., on 12-2-1981, the parties by mutual consent altered original Cl. (2). The Agreement, inter alia reads :
'Articles of Agreement made and entered into this Twelth day of February, One Thousand Nine Hundred and Eighty One by and between M/s. Vani Vilasa Co-operative Sugar Factory Limited, Hiriyur, represented by its Managing Director P. D. Belekundri, hereinafter called the 'Lessor' and Messrs Bangalore Trading & Financing Corporation Private Limited, Bangalore-20, represented by its Managing Director Sri V. Srinivasan, hereinafter called the 'Lessee' is as follows:
Whereas the Lessor and the Lessee have this day signed a lease deed for leasing out the distillery belonging to the Lessor detailing terms and conditions of lease and whereas it has been found expedient and necessary to make some changes as per Government Letter No. RDC 149 COF 80 dt.11 -2-1981 addressed to the Director of Sugar and copied to this office and the Lessor and Lessee hereby agree to make the following changes in pursuance of Clause No. 23 of the original deed.
Clause 1 :- An advance of Rs. 8,00,000/- will be paid as under: -
Rs. 2,00,000/- (Rupees Two Lakhs only) on signing the Agreement and the balance of Rs. 6,00,000/- (Rupees Six Lakhs only) on the factory handing over the distillery to the Lessee after completing its portion of the work. Thereafter, annual lease rent of Rs. 8,00,000/will be paid in advance at the beginning of each year. .... ...... ....... ........ .........
18. Thus, the ambiguity that crept in into the lease deed with regard to the payment of Rs. 8,00,000/- as advance for granting the lease is made clear in Clause (1) of the Agreement entered into between the parties after the execution of the lease pursuant to Clause (23) of the original lease deed.
19. Clause (1) of the Agreement clearly states that an advance of R& 8,00,000/- should be paid Rs. 2,00,000/- on the signing of the Agreement and the balance of Rs. 6,00,000/on the factory handing over the distillery to the lessee after completing its portion of the work. It is further stipulated that thereafter annual lease rent of Rs. 8,00,000/- will be paid in advance at the beginning of each year.
20. Thus, a distinction is clearly made between the payment of annual rent and consideration for the lease, namely. advance payment of Rs. 8,00,000/-.
21. In the original lease deed, in Clause (1) it was clearly stated that in consideration of annual rent of Rs. 8,00,000/-, the lessor does hereby grant by way of lease the properties (immoveable and moveable) fully described in the schedule here in under to the lessee the distillery for a period of 10 years and that the rent shall be payable in advance. Then followed Clause (2) which said that Rs. 2,00,000/- shall be paid in advance by the lessee to the lessor on the signing of this agreement and the balance of Rs. 6,00,000/- on completion of works by the lessor and on the day it is delivered to the lessee ready for production.
22. Thus, reading these two Clauses, it was ambiguous whether Rs. 8,00,000/contemplated in Clause (2) was for rent reserved or as consideration for the lease. That ambiguity is clarified under Clause (1) of the Agreement entered into subsequent to the lease by virtue of Clause (23) of the original lease deed. That makes it clear, as stated above, that Rs. 8,00,000/- shall be paid in advance and thereafter, annual rent of Rs. 8,00,000/- shall be paid in advance at the beginning of each year. Thus, the two payments are made distinct and clear.
23. It is in this context that Clause (3) of the- original lease deed gains importance. Clause (3) states that the period of lease would be for ten years and it will commence on the day the lessee commences the work of the distillery ready for production, on erection of the boiler.
24. Clause (2) inter alia states that on completion of the work, the lessor shall deliver the distillery ready for production to the lessee. On taking delivery, it is clear by Clause (3), as stated above, that the lessee shall erect a boiler and shall commence the work of the distillery and it is on the day on which the lessee commences the working of the distillery on erection of the boiler that the lease period commences for ten years. Clause (3) further states that the possession of the distillery was handed over on that very day to the lessee by the lessor, i.e., on 12-2-1981. It is also clear that on that day the distillery was not ready for commencing the work because the lessee had to erect the boiler. It would be ready for working only after the erection of the boiler.
25. Thus, the date on which balance of Rs. 6,00,000/- was to be paid was the date on which the lessor handed over the distillery to the lessee. Rs.2,00,000/- were advanced on the date of signing the agreement.
26. Thus, it becomes clear that Rs.8,00,000/- advance was to be paid even before the working of the distillery commenced and the lease period started.
27. Article 30(c) of the Schedule to the Act states :
'Where the lease is granted for a fine or premium or for, money advanced in addition to rent reserved . ...........'
28. Rent could be reserved and the liability to pay rent could be incurred only after the commencement of the lease and the commencement of the lease, as explained above, would only be after the lessor handed over the distillery to the lessee and lessee erected the boiler and made the factory ready for commencing the work. That being so, it becomes amply clear that the entire sum of Rs. 8,00,000/- was paid in advance before the period of lease commenced and the liability for rent was incurred by the lessee. Such a sum paid in advance could only be as consideration for the grant of the lease and it clearly amounts to premium as defined under S. 105 of the Transfer of Property Act. In a sense, it is also akin to money advanced in addition to the rent reserved. There is no stipulation, however, for the return of the advance or for its adjustment towards the end of the lease. Therefore, it is in the nature of premium and we have no hesitation to hold that the advance of Rs. 8,00,000/- paid on the facts of the present case, under Clause (1) of the agreement clearly amounts to payment of premium and, as such, the case is covered under Art. 30(c) of the Schedule to the Act.
29. We answer the reference accordingly.
30. A copy of this order shall be sent to the Chief Controlling Revenue Authority and Commissioner of Stamps in Karnataka, Bangalore - 560 001, under the seal of the Court and the signature of the Registrar, (Vide : S. 56(2) of the Act).
31. Answer accordingly.