Report No. 67
40.1. Article 35-Introductory.-
Article 35 levies duty on a lease, including an under-lease or sub-lease and any agreement to let or sub-let. The duty varies according to the nature of the consideration for the lease. We shall deal with this aspect later, in detail. The duty also varies according to the duration of the lease. The amount of duty is linked up either with the duty on a bond, or with the duty on a conveyance. Under the proviso to the article, where an agreement to lease is stamped with a duty as on a lease, the duty on the subsequent lease is not to exceed eight arms. The exemption to the article exempts certain leases executed in the case of a cultivator and for the purpose of cultivation.
40.2. Sub-lease and under-lease and agreement to let.-
As already stated, the article also levies a duty on a sub-lease, and under-lease, and an agreement to let or sub-let. Ordinarily, the expression "sub-lease" is understood as denoting a lease granted by the lessee who remains liable to the lessor. The expression "under-lease" is usually understood1 as indicating a lease by a lessee for a period less than the residue of the term. As regards agreement to let or sub-let, it should be noted that, with reference to the Registration Act, it is now well-settled that only an agreement which creates a present demise is compulsory registrable as a lease. We shall revert to this point later.2
1. Mozley and Whiteley Law Dictionary (1970), p. 372.
2. Para 40.11, infra.
40.3. Meaning of "fine"-Recommendation for adding Explanation.-
The word "fine" used in clauses (b) and (c) of the article does not mean any pecuniary penalty, but appears to be intended to denote the amount paid by the lessee on entry in the fee paid for renewal of the lease. This appears to be the sense in which it is used in England. Since this word is not intelligible to the layman, we recommend that the word "fine" should be explained by a suitable Explanation.1 We may note that such an amendment has been approved, in substance, by most replies2 to our Questionnaire.
We may state that in England, the Law of Property Act provides that "Fine" includes premium or fore-gift, and any payment, consideration or benefit in the nature of a fine, premium or fore-gift.3 Again, under General Rate Act,4 "fine" means fine, premium, or fore-gift, or other payment or consideration in the nature thereof. It has been held5 that the "fitness" referred to in Schedule A, No. II, r. 6, of the Income-Tax Act, 1918 (8 and 9 Geo. 5, C. 40) are indistinguishable from premium, and are money payments in consideration of a demise.
1. Explanation to be added.
2. Q. 92.
3. Law of Property Act, 1925, section 205(1)(xxiii).
4. General Rate Act, 1967, section 36.
5. Lilting (B.G.) and Co. v. Hughes, (1939) 2 KB 231.
40.4. Scheme analysed.-
The scheme of the article, in one of its aspects, deserves somewhat detailed examination. The article is divided into three clauses-(a), (b), (c)-and the mode of calculation of the duty varies according to the clauses under which the instrument of lease falls. Clause (a) applies where, by the lease, "the rent is fixed and no premium is paid or delivered". Clause (b) applies where the lease is granted "for a fine or premium or for money advanced and when no rent in reserved". Clause (c) applies where the lease is granted, again, "for a fine or premium for money advanced in addition the rent reserved".
Broadly, the scheme is based on the principle that where the consideration for the lease is "rent" i.e., a sum to be calculated on the basis of a period-then clause (a) should apply; where the consideration is not a periodical payment as above but a lump sum, clause (b) should apply; and where the lease partakes of the character of both, clause (c) should apply.
40.6. Rent paid in advance.-
Some difficulty, however, is created by the discrepancy in wording between the various clauses. While the phrase used in clause (a) is "rent is fixed", the wording used in clauses (b) and (c) is "rent reserved". The two expressions not being identical, an obscurity arises. It often happens in practice that while the lease provides for a monthly or annual rent, a substantial part of the rent is paid by the lessee in advance, in order to comply with the demand which the lessor might have made at the time of the negotiations for the lease. Now, the question that falls to be determined is whether such a case comes within (a) of Article 35- "rent" is fixed-or whether it falls under clause (b) or clause (c)-"advance of money". It may also be noted that clause (b) applies only where "no rent is reserved".
40.7. Case law on the subject.-
The reported cases on the subject reveal a conflict of views between the Bombay High Court and the Punjab High Court. Although the Punjab case (to be presently referred to) seeks to distinguish the earlier Bombay judgment, it would, with due respect, appear that the two judgments cannot be really reconciled. In the Bombay case,1 a certain amount was paid to the lessor in respect of a lease before the execution of the lease. The lease was executed on 9th December, 1949. The lessor demised unto the lessee for a period of five years the salt pans and land known as Hormuzed Salt Pans near Vadala Station in Dadar Taluka. In respect of this lease, two amounts were paid: Rs. 33,000 on 2-11-1945, and Rs. 22,000 on 24-6-1948, and the question that arose was whether this lease fell under Article 35(a)(iii), or whether it fell under Article 35(b). In order to determine that question, the Court had to decide whether these two amounts paid constituted "rent reserved", or whether they constituted a "fine or premium or money advanced". If they constituted "rent reserved", they were outside clause (b).
There was no covenant to pay the rent, but there was an appropriation of the amount actually paid towards rent, which was stated as being for certain fixed amounts spread over the period of the lease. It was held that there was no "reservation of rent", but that whatever was paid in advance was "money advanced" within the meaning of clause (b), and the instrument taxable accordingly. If the lessee pays the amount in respect of the rent prior to the liability arising under the lease, the payment is nothing more than an advance paid by the lessee to the lessor. This was the reasoning of the Bombay High Court, which pointed out that a proper case of "rent reserved" could only mean rent in respect of which there is a convenant on the part of the lessee to pay the amount mentioned. If there is no convenant as there could be none because the amount had already been paid-then there is no "reservation of rent".
1. Chief Controlling Revenue Authority (in re:), AIR 1952 Bom (Chagla, C.J. and Gajendragakar, J.).
40.8. In the Punjab cases the lease was for a term of five years from the date of occupation, the monthly rent being Rs. 700.
Clause 1 of the lease deed was as follows:
"Provided always and it is hereby mutually agreed as follows:
(1) A sum of Rs. 25,500 shall be paid to the lessor on the date of occupancy, as advance rental for the first 36 months from the date of occupancy at the rate above mentioned, namely, Rs, 700 per month."
The question to be considered was whether the case fell under clause (a) or clause (c) of Article 35. It was held that the sum of rupees 25,000 and odd, which was agreed to be paid to the lessor on the date of occupancy as advance rental for 36 months, was rent; and merely because the rent was paid in advance under a covenant, its character did not change. The Bombay case was distinguished on two grounds, first, that in that case the payment by the lessee was prior to the liability for rent arising, and, secondly, that the Bombay High Court was concerned with clause (b), which does not contain the words "in addition to rent reserved"-words which occur in clause (c). In the Punjab case, the lessee was required to pay the amount as rent for 36 months, and the liability was, therefore, to pay rent, and not the money advanced in addition to rent reserved.
40.9. Need for change.-
Even assuming that the situation in the Punjab case can be distinguished from the situation in the Bombay case, there is, in our opinion, scope for re-defining the various categories in a neater form. Essentially, the question is this-where an amount is paid in advance, not as premium but as the sum total of die periodical payments of rent, attributable to a part to the period of the lease, should it be treated as a case of rent reserved or as a case of "money advanced"? On this basic question, the two judgments show a conflict of approach.
40.10. Recommendation to substitute the word "fixed" for the word "reserved".-
It would appear that on the language of the article, there is much to be said for the Bombay view, since clauses (b) and (c) use the word "reserved". However, so far as the question what ought to be the law is concerned, in our view, the law will be simpler if the case where the rent is paid in advance is also treated as falling within clause (a), because, essentially, what the lessee pays is "rent". The lessee, instead of paying the rent during occupation, pays it at the initial stage.
Though the lessor gets it in lump, the case is distinct from "premium", because, unlike premium, the rent apportioned period-wise. If this suggestion is accepted, the object could be achieved by replacing the word "reserved" by the word "fixed", in clauses (b) and (c), on the lines of clause (a). This will remove the disharmony between clause (a) on the one hand and clauses (b) and (c) on the other hand and will eliminate the possibility of the view being taken that where the amount is paid in advance, though it is apportionable, it ceases to be rent.
40.11. Article 35-Agreement to let.-
There is another point requiring consideration with reference to this article. While 'lease', as defined in section 2, does not cover an agreement of lease. Article 35 makes an agreement of lease chargeable as a lease, by an express inclusive provision. What, then, is the precise scope of the article in relation to an "agreement" ? Does Article 35 cover every such agreement, or is it to receive a narrow construction? The question came up recently before the Delhi High Court.1 The premises in dispute were held by the plaintiff in the suit as a tenant from the defendant. By an agreement entered into between the parties, it was provided that the defendant (landlord) would set up, in place of the premises, a multi-storeyed building on the side, and in consideration of the plaintiff delivering vacant possession of the leased premises to the defendant, the defendant would give to the plaintiff a fiat on the ninth floor (with certain specified dimensions), in the multi-storeyed building, on terms and conditions set out in the agreement.
In case the work on the proposed multi-storeyed building was not commenced before a certain date, the defendant would hand over to the plaintiff vacant possession of the premises on the same terms and conditions on which it had hitherto been held by the plaintiff. It was further provided that the agreement shall be valid for a period of 10 years from the date on which the flat in the proposed multi-storeyed building was handed over to the plaintiff.
1. Birender Amarjit Singh v. General Marketing & Mfg. Co. Ltd., Calcutta, AIR 1976 Del 15 (16), para. 5 (H.L. Anand, J.).
40.12. Pursuant to this agreement, the plaintiff delivered vacant possession of the premises to the defendant, but the defendant did not pursue the project for constructing the multi-storeyed building. The plaintiff filed the present suit for enforcement of the agreement and return of the premises. The defendant took the plea that the agreement was inadmissible in evidence because, being a lease, it was insufficiently stamped. The agreement was on a paper of Rs. 2. The lower court rejected this contention of the plaintiff, and he filed the present revision before the High Court. The High Court held that the agreement could not be said to be either a lease or an agreement to lease and was not, therefore, liable to be stamped under Article 35. In the opinion of the High Court, in order to be treated as a lease, an agreement must satisfy the test of immediate and present demise in respect of the property covered by it, and an agreement to lease was no exception to this rule. Reference was made on this point to the two cases mentioned in the footriotes.1-2
Further, the right conferred by this document on the respondent was contingent on a number of imponderables, and, at best, would be a right to ask for a lease of the flat after one conies into existence. In our view, the interpretation placed in this case on the scope of the expression "agreement of lease" is, with respect, sound, and it should be codified in order to indicate the true scope of the article. We may note that independently of this judgment of the Delhi High Court, a Bar Council' has suggested to us that the scope of Article 35 should be so confined, The object could be achieved by inserting am Explanation that an agreement shall not be chargeable as a lease unless there is an immediate and present demise. We recommend that the article should be so amended. What we have stated above is the gist of the provision that we would like to be inserted.
1. Hemanta Kuinari Devi v. Midnapur Zamindari Co. Ltd., AIR 1919 PC 79 (80, 81).
2. Triveni Bai v. Lila Bai, AIR 1959 SC 620.