Municipal Corporation of Delhi v. Shashnak Steel Industries (P) Ltd.

Civil Appeal Nos. 6802-6806 of 2003 decided by S.H. Kapadia and B. Sudershan Reddy JJ. on November 17, 2008

The President of India (lessor) entered into an agreement with Mohan Co-operative Industrial Estate Ltd. (lessee) for the lease of an industrial plot. As per the lease, the indutrial plot was to be sub-leased at consideration fixed by the lessor. In furtherance of this agreement, the President of India (lessor) entered into a perpetual sub-lease with Mohan Co-operative Industrial Estate Ltd. (lessee) and M/s. Shashnak Steel Industries Pvt. Ltd. (sub-lessee). As per the Municipal Corporation of Delhi (MCD) the sub-lessee became liable to pay property tax as he became the "owner" of the demised property by virture of the sub-lease. The Court had to decide who was liable to pay property tax under Municipal Corporation Act, 1957for the assessment years 1982 to 1987.
The Delhi High Court rejected MCD's stand. The Supreme Court held:
1. The forms in which tenancies are created in India are not uniform and they do not conform to the precedents known to conveyancing; sometimes the words used are not precise and it is not easy to understand from the said words the intention of the parties in executing the documents. The nature of the tenancy created by any document must be determined by construing the document as a whole. [This is true- lease agreements, especially those entered into by the Government, are notoriously difficult to interpret.]

2. There was a lease deed dated 20.3.80 between the lessor and the lessee in the first instance under which the lessee Mohan Co-operative Industrial Estate Ltd. was given the authority to sub-lease on such premium and yearly rent as may be fixed by the lessor (President of India).

3. The sub- lessee had applied for the lease to the lessee, the lessee agreed to sub-let and the lessor (President of India through Delhi Administration) had agreed to confirm a perpetual sub- lease. Therefore, the lessor and not the lessee is the confirming party to the sub-lease between the lessee- Mohan Co-operative Industrial Estate Ltd. on one hand and M/s. Shashnak Steel Industries Pvt. Ltd. on the other hand.Therefore, there is no merit in the contention advanced on behalf of the Corporation that under the Deed lessor conferred leasehold rights to the sub-lessee to which the lessee was a confirming party. On the contrary, the said Deed indicates the lease was between the lessee and the sub-lessee to which the lessor was the confirming party.

4. The lessor is the confirming party because under the Deed in question rent and premium was revisable periodically and the determination of the revised/enhanced rent/premium was left to the lessor though rent and premium was payable by the sub-lessee to the lessee.

5. Great emphasis is placed by the Corporation on the fact that the sub-lessee was required to pay a sum of Rs.16093.60 as premium in addition to rent which according to the Corporation indicated purchase of leasehold rights. According to the Corporation on purchase of leasehold rights the sub-lessee became the owner thereof. We find no merit in this contention. If one looks at the Deed in question we find that the lessor has retained its right to determine periodically the rent payable and the premium chargeable. Both rent and premium was payable by the sub-lessee to the lessee. The sub- lessee had agreed to put up at its own expense a factory on the industrial plot within two years from dated 20.2.81. Under the Deed the lessor had to estimate the capital value (including the enhancement) as and when the unit came up. It appears from the Deed that lessor was entitled to a share in the enhanced value. The said Deed further stated that the lessor shall have a right to recover 50% of the unearned increase as and when the lessor gives permission to the sub- lessee to transfer, assign or part with the possession of the plot to any other member of the lessee society. All these terms indicate that under the Deed parties contemplated that on the unit coming up on the leasehold land there would be an accretion in the value. In our view, the provision for premium was only an additional source of revenue. Therefore, we do not find any merit in the contention advanced on behalf of the Corporation that on payment of premium the sub-lessee became the owner of the leasehold rights.

6. Further as rightly held by the High Court there are numbers of restrictions put on the sub-lessee which prevented the sub-lessee from full enjoyment of the leasehold rights.

7. In this case, we are concerned with the question of primary liability on the vacant land during the period 1982 to 1987. During that period the factory had not come up. Therefore, there was no question of enhanced value on account of accretion taking place during the said period.

8. Therefore, keeping in mind the restriction(s) placed on the sub-lessee we are of the opinion that this is a case of "letting". It is not the case of conferring ownership rights on the sub- lessee. Under the Deed, M/s. Shashnak Steel Industries Pvt. Ltd. remains a sub-lessee. In fact, there is forfeiture/re-entry provided for in the said lease. That right of forfeiture/re-entry can be effected either by the lessor or by the lessee which further shows that the sub-lessee is not in full enjoyment of the leasehold rights in the property in question.

9. For the aforestated reasons on interpretation of the perpetual sub-lease dated 20.2.81, we are of the view that the said Deed cannot be construed as a conveyance of leasehold rights in favour of M/s. Shashnak Steel Industries Pvt. Ltd. We are of the view that this case is that of letting. Therefore, we do not find any infirmity in the impugned judgment. We also agree with the view taken by the Delhi High Court that a bare perusal of the Deed would show that the condition imposed on the sub-lessee to pay tax is only as a matter of indemnification and it would not indicate ownership of the leasehold rights in favour of the sub-lessee.

10. The language of the said Section 120(1) suggests that the intention of the Legislature in fixing primary liability of property tax upon the owner of the land is to facilitate the collection of property tax. It is not unreasonable for the Legislature to impose the primary liability upon the lessor and to give him the right of recoupment. In this case, we are concerned only with the question as to whether the Corporation was right in imposing primary liability to pay property tax on the sub-lessee under Section 120(1)(c) of the said 1957 Act. Whether the liability was on Mohan Co- operative Industrial Estate Ltd., is not required to be gone into by us because that is not the case of the Corporation and also because the lease between the President of India and Mohan Co-operative Industrial Estate Ltd. dated 20.3.80 was not produced before us. We also do not know the basis on which premium was payable by the lessee to the lessor. On a bare reading of Section 120(1)(c), in the context of the Deed dated 20.2.81, we find that the said Deed did not operate as a conveyance and that the industrial plot was let out to M/s. Shashnak Steel Industries Pvt. Ltd. Since there was letting in favour of the said company, Section 120(1)(c) of the said 1957 Act did not apply.

For the aforestated reasons, we see no infirmity in the impugned judgment of the Delhi High Court. Accordingly, the civil appeal filed by the Corporation is dismissed with no order as to costs.