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Income Tax Act, 1961: Chapter XXC; s.269UA(f)(i), Explanation – Premises let out on lease for nine years with 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 lease period and period of extension counted 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 document in totality has to be seen to decipher the terms and conditions of lease. Interpretation of statutes: Penal statute which makes an act a penal offence or impose penalty – Held: Is to be strictly 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 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 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 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 267AB read with Section 278B of the Act before the Magistrate. The Magistrate took 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 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 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 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 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 thereof 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 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. 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 lessor could not have refused to renew/extend the lease after first term if the lessee complied with the conditions. [Paras 6, 7] [529-b-d] 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; Hardesh Ores (P) Ltd. v. Hede and Company (2007) 5 SCC 614 – referred to. 2. It is well settled that the penal statute which makes 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] Case law reference: (1989) Supple.(1) SCC 487 referred to Para 4 (2004) 1 SCC 1 referred to Para 4 (2007) 5 SCC 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 Court of Delhi in Criminal Misc. (Main) No. 3793 of 2001. Harish N. Salve, P.K. Aggarwal, Sanjay Kapur, Rajiv Kapur for the Appellants. Ramesh P. Bhatt, Rahul Kaushik, B.V. Balaram Das for the Respondent.

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 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

 JUDGMENT

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
 2

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 30 th

April, 2001 took cognizance of the offence and issued process

against the appellants.
 3

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
 4

 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
 5

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
 6

 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:
 7

"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."
 8

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
 9

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.
 10

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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