In a recent decision the Supreme Court has culled out the principles distinguishing a 'lease' agreement from an arrangement of 'licence' to set aside the decision of the Kerala High Court which had held that the usage of the shops and offices in the Municipality Bus Stand Building constructed and owned by the Corporation of Kozhikode in the State of Kerala were given on a lease basis and thus stamp-duty payable on lease was payable by the alleged lessees. The challenge was made by the shop-owners' association which argued that they were only licencees to whom the shops had been given and thus no question arose to pay the stamp duty which was applicable on lease.
The Supreme Court referred to the statutory provisions to note that even there the arrangement had been described as one of licence as what was required to be paid by the shop-owner was fees and not rent. Further the shop-owner only had a limited right to use the property in as much as it was allowed under the allotment while the other rights were retained by the corporation. In the aforesaid factual background, the Supreme Court declared the legal position as under;
On a perusal of the provision of Section 215 and the aforesaid conditions of licence the intention of the parties is clear. It has always been held that in order to determine whether a document is a lease or licence what is most important to be considered is the intention of the parties. ... In the instant case, the amount which the shop holders are paying has not been described as rent either in Section 215 of Kerala Municipal Act or in the conditions of licence. The said amount has been described as fees which is one of the vital features in this case which persuade us to construe the agreement between the parties as one for licence and not of lease.
Reference in this connection may be made to the decision of the Court of Appeal in Errington Vs. E rrington and Woods - reported in 1952 1 KB 290. Lord Denning in deciding the issue whether an agreement is a lease or licence referred to the decision given by Chief Justice Vaughan in the seventeenth century in Thomas Vs. Sorrell – (1673) Vaughan 351. In the said judgment, Chief Justice Vaughan outlined certain features of lease which are as follows:
“A dispensation or licence properly passeth no interest nor alters or transfers property in any thing, but only makes an action lawful, which without it had been unlawful.” The difference between a tenancy and a licence is, therefore, that, in a tenancy, an interest passes in the land, whereas, in a licence, it does not. In distinguishing between them, a crucial test has sometimes been supposed to be whether the occupier has exclusive possession or not. If he was let into exclusive possession, he was said to be a tenant, albeit only a tenant at will (see Doe v. Chamberlaine and Lynes v. Snaith), whereas if he had not exclusive possession he was only a licensee.” [(Peakin v. Peakin) 1895 – 2 I.R. 359]
21. Relying on the said principle, Lord Denning explained that the difference between a tenancy and a licence is that, in a tenancy, an interest passes in the land, whereas, in a licence, it does not.
22. The position has been further elucidated by saying that it has to be ascertained whether the occupier has exclusive possession or not. The learned Judge also explained that the test of exclusiveness sometimes gives rise to misgivings and that the test of exclusive possession is by no means decisive.
23. In the instant case we have found from the conditions of licence that exclusive possession is not given to the members of the appellant-Association and possession is always retained with the Corporation. Even though, exclusive possession is not a decisive test but the absence of exclusive possession is certainly one of the indications to show that the agreement is one of the licence and not of lease.
24. Relying on Errington (supra), the Court of Appeal again dealt with this question in Cobb and Another Vs. Lane – [1952] All E.R. 1199. Here also Lord Denning held that the distinction between lease and licence has become very important as several Rent Restrictions Acts have come into operation. The learned Judge held whether the agreement is a lease or a licence must depend on the intention of the parties. Therefore, in all such cases the following questions should be posed by the Court: “...Did the circumstances and the conduct of the parties show that all that was intended was that the occupier should have a personal privilege with no interest in the land?...” (Page 1202 of the report)
25. If we follow the said principle in the instant case, we find that what was given to the shop holders was merely a licence and not a lease.
26. Relying on those two decisions of the Court of Appeal, this Court in Associated Hotels of India Ltd. Vs. R.N. Kapoor – 1960 (1) S.C.R. 368, discussed this issue in very lucid terms. Justice K. Subba Rao, who was in minority, discussed this question with a clarity which is often associated with His Lordship’s opinion. The learned Judge referred to Section 105 of the Transfer of Property Act and then compared it with Section 52 of the Indian Easements Act. After referring to those two Sections and also after referring to the decision in Errington (supra) the learned Judge pointed out the distinction between the lease and the licence by expressly approving the tests laid down by Lord Denning and which may better be quoted:
“The following propositions may, therefore, be taken as well established: (1) To ascertain whether a document creates a licence or lease, the substance of the document must be preferred to the form; (2) the real test is the intention of the parties – whether they intended to create a lease or a licence; (3) if the document creates an interest in the property, it is a lease; but, if it only permits another to make use of the property, of which the legal possession continues with the owner, it is a licence; and (4) if under the document a party gets exclusive possession of the property, prima facie, he is considered to be a tenant; but circumstances may be established which negative the intention to create a lease..." (Page 384-385 of the report)
27. If we apply the aforesaid principles in the facts of case in hand, we are bound to hold that the agreement between the parties merely falls under the category of licence as the licensee is never given the exclusive possession. The Corporation retained the exclusive possession of the shops and this is clear from the conditions of the licence discussed above.
28. Subsequently, in the case of Mrs. M.N. Clubwala and Anr. Vs. Fida Hussain Saheb and Ors. – AIR 1965 SC 610, the same propositions have been reiterated by Justice Mudholkar in para 12 of the report after relying on the decisions in Errington (supra) and also Cobb (supra) and also the decision of this Court in Associated Hotels of India Ltd. (supra). The principle laid down by the learned Judge is as follows:
“……We must, therefore, look at the surrounding circumstances. One of those circumstances is whether actual possession of the stalls can be said to have continued with the landlords or whether it had passed on to the stall-holders. Even if it had passed to a person, his right to exclusive possession would not be conclusive evidence of the existence of a tenancy though that would be a consideration of first importance. That is what was held in Errington v. Errington and Woods, 1952-1 K.B. 290 and Cobb v. Lane, 1952-1 All E.R. 1199” (Page 614 of the report)
29. Also a three-Judge Bench of this Court in Board of Revenue etc. etc. Vs. A.M. Ansari etc. - AIR 1976 SC 1813, relied on the decision in Errington (supra) and Cobb (supra) and expressively approved the opinion of Lord Denning in Cobb (supra) in paragraph 10. The same passage was approved by Justice Subba Rao (as His Lordship then was) in Associated Hotels of India Ltd. (supra).
30. Reference in this connection can be made also to a later judgment of the Court of Appeal in Marchant Vs. Charters – (1977) 3 All E.R. 918, where again Lord Denning reiterated these principles in a slightly different form by holding that the true test is the nature and quality of the occupation and not always whether the person has exclusive possession or not. The true test in the language of the learned Judge is as follows:
“……It does not depend on whether he or she has exclusive possession or not. It does not depend on whether the room is furnished or not. It does not depend on whether the occupation is permanent or temporary. It does not depend on the label which the parties put on it. All these are factors which may influence the decision but none of them is conclusive. All the circumstances have to be worked out. Eventually the answer depends on the nature and quality of the occupancy. Was it intended that the occupier should have a stake in the room or did he have only permission for himself personally to occupy the room, whether under a contract or not, in which case he is a licensee?”
31. If we apply these tests in the facts of this case, it will be clear that the agreement between the parties is one for licence and not of a lease.
32. In a rather recent judgment of this Court in the case of C.M. Beena and another Vs. P.N. Ramachandra Rao – 2004 (3) SCC 595, the learned Judges relied on the ratio in Associated Hotels of India Ltd. (supra) in deciding the difference between lease and licence. In paragraph 8 of the said judgment, learned Judges held that difference between lease and the licence is to be determined by finding the real intention of the parties from a total reading of the document, if any, between the parties and also considering the surrounding circumstances. The learned Judges made it clear that use of terms “lease” or “licence”, “lessor” or “licencor”, “rent” or “licence fee” by themselves are not decisive. The conduct and intention of the parties before and after the creation of relationship is relevant to find out the intention. The learned Judges quoted from the treaties of Evans and Smith on “The Laws of Landlord and Tenant” and of Hill & Redman on “Law of Landlord and Tenant” in support of their proposition.
33. Following the aforesaid tests and in view of the discussions made hereinabove, it is clear that the intention of the parties in the case is to create a licence and not a lease and the right of exclusive possession was retained by the Corporation. In that view of the matter, relationship which is created between the Corporation and the shop holders is that of a licensor and licensee and not that of a lessor or a lessee. The stamp duty on licence agreement should be governed by Entry 5(c) of the Kerala Stamp Act, which is a residuary Clause in the Schedule and not by Entry 33.
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