Principal Commissioner Of Income Tax-3, Kolkata v. M/S. Itc Limited

IN THE HIGH COURT OF JUDICATURE AT CALCUTTA SPECIAL JURISDICTIONORIGINAL SIDE RESERVED ON: 15.05.2024 DELIVERED ON: 27.06.2024 PRESENT: THE HON’BLE MR. JUSTICE SURYA PRAKASH KESARWANI AND THE HON’BLE MR. JUSTICE RAJARSHI BHARADWAJ ITA 125 of 2018 PRINCIPAL COMMISSIONER OF INCOME TAX-3, KOLKATA VERSUS M/S. ITC LIMITED Appearance: Mr. Omnarayan Rai, Adv. Mr. Prithu Dudhoria, Adv. …..for the Appellant Mr. J. P. Khaitan, Sr. Adv. Ms. Nilanjana Banerjee Pal, Adv. …..for the Respondent JUDGMENT Surya Prakash Kesarwani, J.: 1. Heard Sri Om Narayan Rai, learned senior standing counsel assisted by Sri Prithu Dudheria, learned junior standing counsel for the appellant and Sri J.P. Khaitan, learned senior advocate assisted by Ms. Nilanjana Banerjee Pal, learned advocate for the respondent. Facts:- 2. The respondent assesse is engaged in various business activities. For the assessment year 2006-07 it disclosed in its return total income of Rs. 3041,42,53,870/- which was revised by return of Income dated 19.03.2008 to Rs. 3040,47,74,966/-. In assessment proceedings one of the addition made by the assessment officer was of Rs. 32.42 crore received by the assesse from ELEL under an award/consent terms dated 11.05.2005 which the assesse claimed as long term capital gains while the assessing officer treated it as revenue receipt. The CIT (A) and the ITAT held it to be long term capital gain. Hence the revenue has filed the present appeal asserting that the aforesaid receipt of Rs. 32.40 crore is revenue receipt and not long term capital gain. Under an agreement dated 03.05.1986, the owner namely, M/s. ELEL Hotels & Investment Ltd. (hereinafter referred to as ‘ELEL’) granted licence to the respondent herein i.e., ITC to operate the hotel ‘Sea Rock’ from the first day of July, 1986 for a period of 25 years with an option to renew the licence for a further period of 25 years on giving notice to ELEL of such intention of not less than 24 months before the expiry of the licence. The licence fees was to be calculated and paid @ 23% on the gross turn-over of the Sea Rock Hotel to ELEL for each financial year,subject to certain conditions. The respondent had right to terminate the contract by giving not less than 24 calendar months notice to ELEL. The respondent, ITC was not having any right, title or interest in the hotel in question. Clause 18.2 of the agreement provides that ‘notwithstanding the foregoing, if ITC claims tenancy or leasehold interest in ELEL’s property or any part thereof or any right, title or interest inconsistent with or contrary to the sole and exclusive ownership and possession of ELEL of the property or any of its assets including additions, renovations or refurbishings made hereafter, ELEL shall be entitled to call upon ITC to purchase the Hotel at or the mutually agreed price of Rs.15 lakhs per room irrespective of its use or Rs.75 crores whichever is higher and upon ELEL exercising such option under written intimation to ITC, ITC shall 5. be bound and liable to purchase the Hotel and pay the consideration monies at the rate aforesaid in ten annual instalments subject to ITC setting off the deposit of Rs.7.75 crores pro rata from each of the said annual instalments together with interest @15% per annum without prejudice to ELEL’s right to receive the licence fees in addition to interest stated hereinabove as agreed between ITC and ELEL till such time entire purchase price is paid to ELEL. Subsequently, the respondent entered with ELEL a settlement agreement dated 11.05.2005 under which civil litigations going on in certain civil suits and some other disputes were settled on a consideration of Rs.43.10 crores out of which the settlement amount relating to the licence in question as referable to the agreement dated 03.05.1986, was determined at Rs.32.42 crores which was again reduced in writing by an award of the sole Arbitrator (Mr. H. Suresh) dated 11.05.2005. Subsequently, the respondent entered with ELEL a settlement agreement dated 11.05.2005 under which civil litigations going on in certain civil suits and some other disputes were settled on a consideration of Rs.43.10 crores out of which the settlement amount relating to the licence in question as referable to the agreement dated 03.05.1986, was determined at Rs.32.42 crores which was again reduced in writing by an award of the sole Arbitrator (Mr. H. Suresh) dated 11.05.2005. The aforesaid amount of Rs.32.42 crores is the amount in dispute in the present appeal. While the respondent, ITC treated this amount as a capital receipt and accordingly paid tax on capital gain. The Assessing Officer treated it as revenue receipt and according levied tax by assessment order dated 31.12.2009 under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act, 1961’) relating to the assessment year 2006-07. 6. In appeal filed by the respondent ITC before the CIT[Appeal], the appeal was allowed and the receipt of the aforesaid amount of Rs.32.42 crores was held to be a capital receipt. Aggrieved with the order of the CIT[A], the revenue filed an appeal being ITA Nos.253 and 336/KOL/2011 which has been dismissed by the Income Tax Appellate Tribunal, Kolkata Bench “B”. 7. Aggrieved with the aforesaid impugned order of the ITAT, the revenue has filed the present appeal which has been admitted by this court by order dated 12.7.2018, on the following substantial question of law: revenue has filed the present appeal which has been admitted by this court by order dated 12.7.2018, on the following substantial question of law: “Whether receipt of money by the Assessee on account of relinquishment of its right to operate a hotel as a licensee would constitute capital receipt exposing the Assessee to capital gains tax or the same shall be treated as business receipt ?” relinquishment of its right to operate a hotel as a licensee would constitute capital receipt exposing the Assessee to capital gains tax or the same shall be treated as business receipt ?” -Operating Licence Agreement dated 03.05.1986: 8. The licence agreement in question is most relevant for the purposes of the controversy involved in this Appeal which is reproduced below:- purposes of the controversy involved in this Appeal which is reproduced below:- “THIS AGREEMENT made at Bombay this third day of MAY One Thousand Nine Hundred and Eighty Six between ELEL HOTELS & Thousand Nine Hundred and Eighty Six between ELEL HOTELS & INVESTMENTS LIMITED, a Company having its registered office at Hotel SeaRock, registered under the Indian Companies Act, (hereinafter referred to as "EHIL") of the One Part and 1.T.C. Limited, a Company having its registered office at Virginia House, 37, Chowringhee, Calcutta 700071, and registered under the Indian Companies Act (hereinafter referred to as "ITC") and having its regional Headquarters at Bombay of the Other Part. WHEREAS:- (a) EHIL, has informed ITC that they are seized and possessed of and otherwise fully entitled to the "Searock Hotel" located at Land's End, Bandstand, Bandra, Bombay 400 050, and more particularly described in the Schedule hereto : (b) ITC on the aforesaid representation has entered into this Operating Licence Agreement on the terms and conditions hereafter mentioned. (c) ITC is already rendering services to SeaRock Hotel (hereafter referred to as "the said Hotel") under an Agreement dated 1st October 1983, which by this presents stands superseded with effect from 1st July, 1986. NOW IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: ARTICLE I: DEFINITION For the purpose of this Agreement the terms and expressions defined hereunder in this Article shall have the meanings herein specified unless the context otherwise required. (b) ITC on the aforesaid representation has entered into this Operating Licence Agreement on the terms and conditions hereafter mentioned. (c) ITC is already rendering services to SeaRock Hotel (hereafter referred to as "the said Hotel") under an Agreement dated 1st October 1983, which by this presents stands superseded with effect from 1st July, 1986. NOW IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS: ARTICLE I: DEFINITION For the purpose of this Agreement the terms and expressions defined hereunder in this Article shall have the meanings herein specified unless the context otherwise required. 1.1. "Hotel" shall mean the premises consisting of all areas both Land and Sea, leased to Messrs. Luthria & Lalchandani by the Government of the State of Maharashtra under an instrument of lease dated 5.5.1976 and sub-leased to EHIL by Messrs. Luthria & Lalchandani by instrument dated 3rd August 1976 and the entire structure erected on the lands and all building equipments installed therein presently named as Hotel SeaRock, Playmate Club and Rock International Club (which is closed now) for the purpose of the Hotel, including, but not limited to, all plumbing, heating and lighting equipment, elevators, air-conditioning equipment, exterior and interior designs, telephone equipment, furniture and equipment, operating supplies, and all related facilities, constructed, installed or kept in or appurtenant to the Hotel, as also all additions, alterations, extensions modifications thereto, as may be effected, but excluding Suite 2144, Studio Sea Rock and Registered office of the Company. 1.2 "Furniture and Equipment" shall mean all furniture, furnishings and moveable equipment, except operating supplies, at any time installed or kept in the Hotel for use in connection with the operation of the Hotel. 1.3 "Operating Supplies" shall mean all silver, linen, chine, cutlery, glass, cooking utensils, guest room supplies and consumable supplies, used or intended for use in connection with the operation of the Hotel. 1.4 "Agreement" or "This Agreement" shall mean this instrument as originally executed and delivered, if amended or supplemented as so amended or supplemented. 1.5 The "Term of the Agreement" shall mean the term of this Agreement as hereinafter provided in Article IV but subject to earlier termination or determination thereof in terms of Article XVII hereof. 1.6 The term "Gross Turnover" of the said Hotel means total amount of revenue as herein below defined. "Revenue" shall mean revenue on account of rooms, restaurants, banquet parties, poolside, snack bar, bar-b-cue, public rooms, function rooms, laundry, shopping area rental, entertainment show, counter space, show windows, showcases, barber shop and beauty shop, as well as any other income which directly accrues from operating the said Hotel but after excluding therefrom: (a) commissions or discounts, paid or payable to Travel Agents, Tour Operators, Group Leaders, Credit Card Companies/Agencies, making bookings in the said Hotel; (b) Complimentaries on account of Rooms, Food & Beverages, etc. as decided by Regional Director of Welcomgroup; (c) Receipts of Capital nature: (d) Sales Tax, Luxury Tax and other taxes, levies and assessments pertaining to and levied upon the operating of the Hotel including without limitation the sales of the Hotel which are leviable at present or may be levied by the Government from time to time; (e) Service Charge collected on behalf of the employees and staff. It is agreed that Bad Debts will be to the cost of ITC. 1.7 "Financial Year" shall mean the year from 1st July to 30th June or the year to coincide with the Financial Year of ITC. 1.8 The term "Auditors" shall mean the statutory Auditors appointed by EHIL, including Messrs. Lovelock & Lewes and or A.J. Kotwal & Co., or such other Auditors as EHIL may appoint in consultation with ITC from time to time. (c) Receipts of Capital nature: (d) Sales Tax, Luxury Tax and other taxes, levies and assessments pertaining to and levied upon the operating of the Hotel including without limitation the sales of the Hotel which are leviable at present or may be levied by the Government from time to time; (e) Service Charge collected on behalf of the employees and staff. It is agreed that Bad Debts will be to the cost of ITC. 1.7 "Financial Year" shall mean the year from 1st July to 30th June or the year to coincide with the Financial Year of ITC. 1.8 The term "Auditors" shall mean the statutory Auditors appointed by EHIL, including Messrs. Lovelock & Lewes and or A.J. Kotwal & Co., or such other Auditors as EHIL may appoint in consultation with ITC from time to time. 1.9 The term "non-operational period" shall, mean the period during which the Hotel becomes non-operational due to acts of force majeure such as but not limited to fire, earthquake, floods, acts of God, Industrial unrest and disputes, war, calamities, requisition by the Government, etc. 1.10 The term "Licence Fee" shall mean the amounts agreed to be paid to EHIL under this Agreement as per Article V. ARTICLE II: 2.1 Subject to the terms and conditions herein contained EHIL hereby grants Licence to ITC to operate the said Hotel in terms of this agreement by maintaining ITC's own books of Accounts from the 1st day of July 1986 for the purpose of running the said Hotel together with all related facilities during the subsistence of this agreement or any renewal thereof. 2.2 It is hereby expressly agreed and understood by the parties that this agreement shall and is meant to confer full and unfettered right to ITC to operate the said Hotel subject to no breach of any of the terms on the part of ITC under this agreement. EHIL hereby irrevocably during the subsistence of this agreement or any renewal thereof, authorise: ITC to do and execute all such acts, deeds, matters, things and documents to conduct and operate the said Hotel, the intention being that ITC shall have an unfettered right to run the said Hotel, so long as ITC does not commit any breach or default of any terms agreed under these presents. 2.3 EHIL shall execute from time to time or as may be required by ITC one or more specific powers of Attorney or such other documents or instruments as ITC may require in order to conduct, operate and run the said Hotel. ITC hereby indemnifies and keeps EHIL indemnified against any loss or damage EHIL may sustain or any costs, charges and expenses EHIL may suffer as a result of any irregular or illegal or malafide exercise of the powers in the Power of Attorney to be executed by EHIL in favour of ITC. 2.4 These Powers of Attorneys will not include powers to borrow, sell or mortgage Hotel and EHIL's property. ARTICLE III: EMPLOYMENT OF WORKMEN, STAFF, ETC. 3. All workmen, employees and members of the staff including managerial staff as may be decided by ITC shall be on the payroll of EHIL and their salaries, wages and other emoluments and perquisites shall be granted and disbursed including managerial staff as may be decided by ITC shall be on the payroll of EHIL and their salaries, wages and other emoluments and perquisites shall be granted and disbursed by ITC, but expressly for and on behalf of EHIL at ITC cost and EHIL hereby expressly and irrevocably authorises ITC to recruit such workmen, employees and members of the managerial staff and terminate their service as ITC may in their absolute discretion think fit. At the time of termination of this agreement any Manager of EHIL appointed by ITC and not required by EHIL shall be taken over by ITC and transferred from CHIL at ITC's cost. The salaries and retrenchment compensation, perquisites, and other claims etc. payable to workmen, employees and members of the staff will be a part of operating expenses to be borne and paid by ITC, and ITC indemnifies EHIL against any claim or loss suffered by EHIL on above account for the periods after the commencement of this agreement. by ITC, but expressly for and on behalf of EHIL at ITC cost and EHIL hereby expressly and irrevocably authorises ITC to recruit such workmen, employees and members of the managerial staff and terminate their service as ITC may in their absolute discretion think fit. At the time of termination of this agreement any Manager of EHIL appointed by ITC and not required by EHIL shall be taken over by ITC and transferred from CHIL at ITC's cost. The salaries and retrenchment compensation, perquisites, and other claims etc. payable to workmen, employees and members of the staff will be a part of operating expenses to be borne and paid by ITC, and ITC indemnifies EHIL against any claim or loss suffered by EHIL on above account for the periods after the commencement of this agreement. ARTICLE IV: DURATION OF THE AGREEMENT 4.1 The Licence hereby granted shall be in force for a period of 25 years commencing from the 1st day of July 1986 subject to ITC not committing any breach of terms and conditions of this agreement. 4.2 ITC shall have the option to renew this Licence for the said Hotel for a further period of 25 years on giving notice in writing of such intention to EHIL of not less than 24 months before the expiration of the licence hereby granted and EHIL shall renew such Licence on the same terms and conditions as are herein contained, provided that at the time of such renewal there is no continuing breach of the terms of this Agreement on the part of ITC which remains to be remedied. ARTICLE V: LICENCE FEE 5.1 ITC shall pay to EHIL a Licence Fee calculated at the rate of 23% (twenty three per cent) on the gross turnover of SeaRock Hotel to EHIL per each financial year, such gross turnover to be certified by the Auditors, and the same shall be final and binding on the parties. rate of 23% (twenty three per cent) on the gross turnover of SeaRock Hotel to EHIL per each financial year, such gross turnover to be certified by the Auditors, and the same shall be final and binding on the parties. 5.2 ITC shall pay the Licence Fee in arrears. The Licence Fee will become due and payable to EHIL when the Licence Fee accumulates to Rupees One Crore calculated as per Article 5.1 and such payment shall be made by ITC within ten days from the date of such accumulation. The Auditors Certificate in this behalf will be final and binding on the parties. 5.3 The payment of such fee shall be secured, by an irrevocable revolving Bank Guarantee in favour of EHIL for an amount of Rs. 1.50 crores (Rupees One Crores Fifty Lakhs only) during the tenure of the agreement from time to time. 5.4 ITC will endeavour that minimum annual growth of 5% (five percent) of the gross turnover over the base year, i.e. the year ending 30th June 1986, is achieved from year to year and should in any financial year such growth be not achieved, over the base year, then and in such cases ITC will pay EHIL Licence Fee at the stipulated rate of 23% (twenty three percent) of the gross turnover and an additional 2% (two percent) on gross turnover for that financial year in which growth falls short by 5% (five percent) over the base year. Provided, that should the growth in any financial year be 5% (fifteen percent) or more over the growth which should have been achieved under the foregoing provision, then ITC shall be entitled to deduct from the Licence Fee the amount equivalent to 0.75% (i.e. the net Licence Fee payable will be 22.25%) of the gross turnover payable to EHIL and if the growth is 20% (twenty percent) or more as stated herein, then the deduction in fee will be 1% (i.e. the net Licence Fee payable will be 22%). ARTICLE VI: SECURITY DEPOSIT 6.1 ITC shall place as Security Deposit for the specific performance of this agreement immediately on signing of the Agreement the sum of Rs. 7.75 crores (Rupees Seven Crores and Seventy Five Lakhs) interest-freesaid Deposit will be adjusted and appropriated towards payment of Licence Fee for the last 24 months or thereabout prior to the expiry or ARTICLE VI: SECURITY DEPOSIT 6.1 ITC shall place as Security Deposit for the specific performance of this agreement immediately on signing of the Agreement the sum of Rs. 7.75 crores (Rupees Seven Crores and Seventy Five Lakhs) interest-freesaid Deposit will be adjusted and appropriated towards payment of Licence Fee for the last 24 months or thereabout prior to the expiry or termination of this Agreement. Provided that ITC is hereby expressly authorised by EHIL to pay in liquidation of EHIL's indebtedness to Financial Institutions (e.g. IFCI, IDBI, ICICI) out of the said Deposit of Rs. 7.75 Crores (Rupees Seven Crores Seventy Five Lakhs) a sum of Rs. 60 Lakhs (Rupees Sixty Lakhs), together with any interest accrued thereon. The Security Deposit shall not be adjusted and appropriated towards payment of Licence Fee for the last 24 months if this Agreement is renewed for a further period of 25 years in which case the Security Deposit will continue to remain as Security Deposit with EHIL during the renewed period of 25 years with a similar provision for adjustment of Deposit against Licence Fee in terms of Article 6.1. 6.2 Before placing the aforesaid Security Deposit of Rs. 7.75 Crores (Rupees Seven Crores Seventy Five Lakhs) mentioned in Article VI above, ITC shall deduct an amount of Rs.1.75 Crores (Rupees One Crore Seventy Five Lakhs) placed as Security Deposit under the said superseded Agreement dated 1st October 1983. ARTICLE VII: ASSISTANCE BY ITC FOR BANKING FACILITIES 7.1 ITC shall either advance to EHIL a loan of Rs. 3.50 Crores (Rupees Three Crores and Fifty Lakhs) at the interest rate at which ITC borrows from its Bankers including all costs and charges incidental thereto, or ITC may arrange for EHIL banking facilities in the like amount of Rs. 3.50 crores on such terms and conditions as the Bank may require including creation of Security on the Assets of EHIL. EHIL shall bear all costs of and expenses relating to such banking facilities. 7.2 The aforesaid advance of Rs. 3.50 Crores (Rupees Three Crores and Fifty Lakhs) if advanced by ITC, together with interest together with all costs and expenses relating thereto shall be immediately adjusted against monthly Licence Fee referred to in Article V above. 7.3 If, however, instead of extending the said advance, ITC arranges banking facilities as provided in Clause 7.1 above, then such facilities shall be for a duration of 18 months from the date hereof and the said advance shall be adjusted immediately against the monthly Licence Fee until liquidation of the advance. ARTICLE VIII: PERMISSIONS, LICENCES, ETC. 8.1 EHIL agrees to leave with ITC all Agreements, Permissions, and Licences for purpose of operating the said Hotel and will assist ITC in obtaining such other Permissions and Licences as may be required from time to time. 8.2 EHIL agrees that it will be EHIL's responsibility to keep in force and renew all Licences and permissions and ITC agrees to pay the Fees for these renewals, and perform terms and conditions of all Licences and Permissions applicable to the said Hotel and keep them in force and alive on EHIL's behalf. 8.3 EHIL agrees to assign their Agreement in to dated 19.10.1984 with Sheraton International Inc. (Sheraton) to ITC subject to the approval of Sheraton, and ITC shall be authorised to alter, amend, renew or cancel the agreement in terms thereof. ITC indemnifies EHIL against any loss or claim arising from any such action on the part of ITC. 8.4 All of the terms and provisions of this Agreement shall be binding upon and innure to the benefit of the parties hereto and their respective successors and assigns. ARTICLE IX: RENOVATIONS AND REFURBISHINGS ETC. 8.3 EHIL agrees to assign their Agreement in to dated 19.10.1984 with Sheraton International Inc. (Sheraton) to ITC subject to the approval of Sheraton, and ITC shall be authorised to alter, amend, renew or cancel the agreement in terms thereof. ITC indemnifies EHIL against any loss or claim arising from any such action on the part of ITC. 8.4 All of the terms and provisions of this Agreement shall be binding upon and innure to the benefit of the parties hereto and their respective successors and assigns. ARTICLE IX: RENOVATIONS AND REFURBISHINGS ETC. 9. All renovations, alterations, refurbishings, equipment replacements and capital expenditure shall be undertaken by ITC at its own cost. The said movable Assets will belong to ITC and depreciation on the same will be claimed by ITC.However, it is mutually agreed that in the event of termination of this Agreement in the manner referred to in Article XVII below or on expiry of this Agreement by efflux of time the Assets will belong to EHIL and ITC shall have no right to them. An inventory of Fixed Assets belonging to EHIL as on the 1st day of July 1986 will be prepared and in the event of replacement of all or replacements and capital expenditure shall be undertaken by ITC at its own cost. The said movable Assets will belong to ITC and depreciation on the same will be claimed by ITC.However, it is mutually agreed that in the event of termination of this Agreement in the manner referred to in Article XVII below or on expiry of this Agreement by efflux of time the Assets will belong to EHIL and ITC shall have no right to them. An inventory of Fixed Assets belonging to EHIL as on the 1st day of July 1986 will be prepared and in the event of replacement of all or any of these Assets by ITC the Assets so replaced shall belong to EHIL on the termination of this Agreement or upon expiry by efflux of time. In the event ITC replaces any item of machinery or equipment then ITC shall be entitled to dispose off any replaced machinery and EHIL authorises ITC to recover such sale proceeds. ARTICLE X : INSURANCE 10.1 EHIL covenants and agrees that it will procure and maintain at all times during the subsistence of this Agreement or any renewal thereof, adequate insurance against fire and all other risks and calamities as mutually agreed. The policies for such insurance shall include ITC as EHIL's nominee. Insurance premium shall be paid and borne by ITC subject to Article XI hereunder. EHIL shall deliver to ITC notarially certified copies of policies and produce for inspection receipts for the insurance premium. ITC will take out a Loss of Profit Insurance as per the terms of the Insurance Company with the objective of reimbursing the monthly Licence Fee payable to EHIL in terms of Article V. Premium will be paid by ITC. 10.2 EHIL and ITC shall take all necessary precautions to prevent the policy or policies of insurance from lapsing or being cancelled or invalidated. 10.3 Neither party shall settle or refer to arbitration any claim under any of the foregoing policies without the prior written consent of the other party. ARTICLE XI: TITLE TO THE HOTEL AND OTHER COVENANTS RELATING THERETO 11. EHIL hereby authorises ITC to pay all rents, rates and taxes and insurance premium as well as take out appropriate insurance policies on EHIL's behalf at ITC's cost throughout the subsistence of this agreement. Provided, however, that a block amount of Rs.10 Lakhs (Rupees Ten Lakhs) per annum shall be borne by EHIL during the pendency of the agreement to meet expenses towards Rents, Rates, Taxes and Insurance. EHIL shall pay the said sum of Rs.10 Lakhs (Rupees Ten Lakhs) per annum to ITC at the end of each financial year. Provided, however, that Income Tax, Wealth Tax on EHIL'S Licence Fees, and Profits from all other sources shall be. ARTICLE XII: ASSIGNMENT ARTICLE XI: TITLE TO THE HOTEL AND OTHER COVENANTS RELATING THERETO 11. EHIL hereby authorises ITC to pay all rents, rates and taxes and insurance premium as well as take out appropriate insurance policies on EHIL's behalf at ITC's cost throughout the subsistence of this agreement. Provided, however, that a block amount of Rs.10 Lakhs (Rupees Ten Lakhs) per annum shall be borne by EHIL during the pendency of the agreement to meet expenses towards Rents, Rates, Taxes and Insurance. EHIL shall pay the said sum of Rs.10 Lakhs (Rupees Ten Lakhs) per annum to ITC at the end of each financial year. Provided, however, that Income Tax, Wealth Tax on EHIL'S Licence Fees, and Profits from all other sources shall be. ARTICLE XII: ASSIGNMENT 12. ITC shall have right to assign or transfer all rights and benefits of this Agreement to any of the ITC Group of Companies only, and none else but without in any way absolving ITC from its monetary obligations and warranties Bank Guarantees under these presents, and obtains necessary formal confirmation from the said Assignees that they will abide by all the terms and conditions of these presents. ARTICLE XIII: ASSETS AND LIABILITIES 13. It is agreed between EHIL and ITC that the current Assets and Liabilities of the said Hotel will be as per a statement to be drawn up and agreed to by both EHIL and ITC reflecting the state of affairs as on 30th June 1983. The Net Working Capital figures as on 1st July, 1986 will be recorded and at the end of the licence period or termination the Net Working Capital will be determined, evaluated and recorded. The difference in Net Working Capital will be mutually settled by the parties. ITC on termination of this Agreement under any circumstances shall return to EHIL all the above Assets in good condition subject to normal wear and tear/ shown in the statement /as or their replacement at the end of the period. ARTICLE XIV: DISCLOSURE 14. EHIL shall disclose the existence of this Agreement to any Lender, Financial Institution and/or Banker etc. as may be required. ARTICLE XV: LIABILITIES 15. Nothing contained herein shall be construed to make the parties hereto partners or joint venturers or to render either, party hereto liable for the debts and obligations of the other party hereto except as herein expressly provided. ARTICLE XVI: ARBITRATION 16. All questions, differences and disputes arising between the parties hereto relating to any matter under or touching this Agreement will be referred to arbitration in accordance with and subject, to the Arbitration Act, 1940 or any statutory re-enactment or modification thereof. The venue of Arbitration shall be Bombay and the courts in Bombay alone shall have jurisdiction over such arbitration. parties hereto relating to any matter under or touching this Agreement will be referred to arbitration in accordance with and subject, to the Arbitration Act, 1940 or any statutory re-enactment or modification thereof. The venue of Arbitration shall be Bombay and the courts in Bombay alone shall have jurisdiction over such arbitration. ARTICLE XVII : MISCELLANEOUS 17.1 In non-operational period due to acts of force majeure such as but not limited to fire, earthquake, floods, acts of God, Industrial unrest and disputes, war, calamities, requisition by the Government, etc., as a result of which the said Hotel is closed or otherwise becomes non-operational, Licence Fee will cease to be payable to EHIL by ITC. But the same shall be payable to EHIL from the Loss of Profit Insurance claim. The period during which the said Hotel remains closed or otherwise becomes non-operational as aforesaid, the said 5% (five percent) growth in Gross Turnover as mentioned in Clause 5.4 shall be excluded. ARTICLE XVII : MISCELLANEOUS 17.1 In non-operational period due to acts of force majeure such as but not limited to fire, earthquake, floods, acts of God, Industrial unrest and disputes, war, calamities, requisition by the Government, etc., as a result of which the said Hotel is closed or otherwise becomes non-operational, Licence Fee will cease to be payable to EHIL by ITC. But the same shall be payable to EHIL from the Loss of Profit Insurance claim. The period during which the said Hotel remains closed or otherwise becomes non-operational as aforesaid, the said 5% (five percent) growth in Gross Turnover as mentioned in Clause 5.4 shall be excluded. 17.2 EHIL will be entitled to terminate this Agreement if the growth in turnover is less than the average of 5% (five percent) over the aggregate period of 10 years. It is, however, agreed that the 5% (five percent) growth computation will be excluded from the said computation during the non-operational period or periods. The Security Deposit of Rs. 7.75 Crores (Rupees Seven Crores Seventy Five Lakhs) will be returned by EHIL to ITC immediately as recited in Article 17.3. 17.3 EHIL will be entitled to terminate this Agreement if there is any continuing default in payment of the Licence Fee or Bank Guarantee becomes invalid or ineffective for any reason or ITC commits a breach of any terms and conditions of this Agreement or an order is made or resolution passed for compulsory or voluntary of ITC. winding up EHIL before exercising the said right will give a notice of not less than three calendar months to ITC to rectify the said default. In case the said default is not so rectified, EHIL will terminate the Agreement without further notice. The Security Deposit of Rs. 7.75 Crores (Rupees Seven Crores Seventy Five Lakhs) will be returned by EHIL to ITC immediately after deducting therefrom all unpaid Licence Fee and other dues agreed by the parties under this Agreement, including any unpaid bills for which EHIL is held legally liable subject to Article 13 above. 17.4 Notwithstanding anything herein contained, ITC will be entitled to terminate the contract by giving to EHIL not less the 24 calendar months notice and the Security Deposit lying with EHIL will be adjusted towards the payment of the Licence Fee to EHIL, during this period, and any balance lying with EHIL shall be refunded to ITC. 17.5 ITC shall have the first option to take the Dubbing Theatre on a leasing agreement. 17.6 ITC will continue to pay within the due date Expenses for the lease arrangement entered into with Sundaram Finance Limited only. 17.7 EHIL shall regularly pay interest and other dues in respect of loans taken by EHIL for the purpose of the said Hotel. Should there be any breach of any of the terms and conditions then and in such case EHIL shall indemnify and keep indemnified ITC from and against all actions, claims, demands, costs, charges and expenses. 17.8 ITC shall operate and run the Hotel in accordance with all applicable laws, ordinances, regulations, rules, etc. 17.9 ITC shall pay and discharge all operating expenses,charges, fees and taxes that may be levied or imposed by any authorities in respect of the said Hotel except Income Tax, Wealth Tax, etc. payable by EHIL under the provisions of the Income Tax Act/Wealth Tax Act. etc. 17.10 ITC shall diligently and faithfully operate and run the Hotel with due regard to the safety and security and preservation of the Hotel and all property and assets of EHIL. 17.11 ITC shall indemnify and keep indemnified EHIL from and against non-payment of any amounts payable and debts and liabilities in respect of the Hotel and likewise EHIL shall indemnity and keep indemnified ITC from and against all liabilities, debts, or obligations against EHIL in respect of the Hotel. 17.12 The Gross Turnover of the Hotel will be ITC's Income which shall be applied for payment of Licence Fee, payable to EHIL and all operating expenses. Proper records thereof shall be maintained by ITC, and shall be open for inspection to EHIL. 17.10 ITC shall diligently and faithfully operate and run the Hotel with due regard to the safety and security and preservation of the Hotel and all property and assets of EHIL. 17.11 ITC shall indemnify and keep indemnified EHIL from and against non-payment of any amounts payable and debts and liabilities in respect of the Hotel and likewise EHIL shall indemnity and keep indemnified ITC from and against all liabilities, debts, or obligations against EHIL in respect of the Hotel. 17.12 The Gross Turnover of the Hotel will be ITC's Income which shall be applied for payment of Licence Fee, payable to EHIL and all operating expenses. Proper records thereof shall be maintained by ITC, and shall be open for inspection to EHIL. 17.13 ITC shall provide on a monthly basis statements/ returns of the Gross Turnover and the requisite papers in support thereof and, permit EHIL to inspect the books of accounts, records, etc. 17.14 ITC shall not sell, lease, mortgage, charge or encumber any of the property or assets of EHIL and keep them free from all attachments, claims, demands, etc., and likewise EHIL shall not sell, mortgage, charge or encumber any of the Hotel property to the detriment of ITC. 17.15 EHIL will make available the entire Terrace Floor within three months of signing of this Agreement to enable ITC to extend the Hotel facilities and/or guest rooms. The registered office and M.D.'s secretary shall be shifted to new block. 17.16 ITC shall no do any act, deed, matter or thing whereby the insurance coverage under any of the Policies of Insurance is prejudiced or adversely affected or becomes ineffective or invalid. ARTICLE XVIII: NO TENANCY RIGHTS CREATED 18.1 It is clearly agreed and understood between the parties that possession of the property is not delivered to ITC under this Agreement and no interest or no tenancy or lease or other interest in EHIL's properties or assets is created or intended to be created in favour of ITC, the intention of the parties being that ITC will be authorised to conduct, operate and run the said Hotel on the terms, conditions and stipulations herein contained. It being clearly and distinctly understood that the property and assets as defined in the schedule are and will continue to be the exclusive property and asset of EHIL and the legal ownership thereof shall be of EHIL, who are and shall be the exclusive owners and in legal possession of the entire Hotel with Operating Licence to ITC to operate Hotel SeaRock. 18.2 Notwithstanding the foregoing, if ITC claims tenancy or leasehold interest in EHIL's property or any part thereof or any right, title or interest inconsistent with or contrary to the sole and exclusive ownership and possession of EHIL of the property or any of its assets including additions, renovations or refurbishings made hereafter, EHIL shall be entitled to call upon ITC to purchase the Hotel at or the mutuallyagreed price of Rs. 15 Lakhs(Rupees Fifteen Lakhs) per room irrespective of its use or Rs. 75 Crores (Rupees 'Seventy Five Crores) whichever is higher and upon EHIL exercising such option under written intimation to ITC, ITC shall be bound and liable to purchase the Hotel and pay the consideration monies at the rate aforesaid in 10 (ten) annual instalments subject to ITC setting off the deposit of Rs. 7.75 Crores (Rupees Seven Crores Seventy Five Lakhs) pro-rata from each of the said annual instalments together with interest at the rate of 15% per annum without prejudice to EHIL's right to receive the Licence Fee in addition to interest stated hereinabove as agreed between ITC and EHIL till such time entire purchase price is paid to EHIL as recited hereinabove. ARTICLE XIX: ADDITIONAL F.S.I. 19. EHIL agrees that any F.S.I. of the said Hotel not consumed as of today or which may become available here- after at any time ARTICLE XIX: ADDITIONAL F.S.I. 19. EHIL agrees that any F.S.I. of the said Hotel not consumed as of today or which may become available here- after at any time shall be used only on expanding the activities of the Hotel. EHIL has authorised ITC to carry on any construction including lifts as per sanction of the BMC attached. Total construction including additional construction shall be the property of EHIL. EHIL authorises ITC to instal the elevators in accordance with the plans approved by BMC. The cost of civil construction for erecting the lifts and lift lobbies shall be to the account of EHIL and EHIL shall reimburse ITC within 10 days from the completion of the work as certified by the Auditors. 20. EHIL shall not be entitled to sell and/or deal with or dispose off or mortgage or charge the Hotel or any part thereof to the detriment of ITC. 21. The Bank Guarantee will be absolute, irrevocable, unconditional, revolving and continuing during the tenure of this Agreement and thereafter as provided in the Clause 22 of these presents and will guarantee regular and prompt payment of the Licence Fee to EHIL under Clause 5 of these presents immediately upon demand and without. 22. The said Bank Guarantee shall also guarantee to EHIL payment of the Licence Fee in the manner aforesaid notwithstanding termination or expiry of the Agreement by efflux of time if ITC fails or refuses to leave or remove themselves and their workmen and agents from the Hotel and such Bank Guarantee for payment of Licence Fee will continue unti! ITC actually leaves the property and provides EHIL with a declaration that they have done so without claiming any right title or interest in the Hotel or other property and Assets of EHIL. IN WITNESS WHEREOF the Parties hereto have hereunto set their hands the day and year first above written. THE FIRST SCHEDULE ABOVE REFERRED TO: All that piece and parcel of land bearing Survey No. B 1150 and measuring 30960 sq. mtrs., which includes land-in-sea and the boundaries of the same are:- 9. On the North - Arabian Sea On the South - Arabian Sea On the West - Arabian Sea On 'the East - Byramji Jijibhoy Road The Extract from the property Register Card is attached hereto. THE SECOND SCHEDULE ABOVE REFERRED TO: As per the Statement to be drawn up and agreed to by the parties.” The Settlement Agreement dated 11.05.2005 between ELEL and ITC is reproduced below:- “SETTLEMENT AGREEMENT SETTLEMENT AGREEMENT made this 11th day of May Two Thousand and five between: ELEL HOTELS AND INVESTMENTS LIMITED,a Company incorporated under the provisions of the Companies Act, 1956 and having its Registered Office at 9th Floor, Hotel Sea Rock, Behramji Jeejeebhoy Road, Bandstand, Bandra (W), Mumbai- 400 050, hereinafter called "ELEL" (which expression shall unless it be repugnant to the context or meaning thereof be deemed to include its successors and assigns); AND ITC LIMITED, an existing Company under the provisions of the Companies Act, 1956 Howe and having its Registered Office at Virginia House, 37, J.L. Nehru Road, Kolkata - 700 071, hereinafter referred to as "ITC" (which expression shall unless it be repugnant to the context or meaning thereof be deemed to include its successors and assigns); ELEL and ITC are also referred to herein individually as "Party" and collectively as "Parties". WHEREAS: 1) Pursuant to certain licence / operating agreement(s) between Parties [the last of which is an Operating Licence Agreement ("Operating Licence") of May 3, 1986] in respect of Hotel Searock, including Playmate Club and Rock International Club (both non-operational) located at Land's End, Bandstand, Bandra, Bombay 400 050 (the "Hotel") ITC operated the Hotel (Rock - International Club was non-operational from inception," the Playmate Club has been non-operational for some years); the context or meaning thereof be deemed to include its successors and assigns); ELEL and ITC are also referred to herein individually as "Party" and collectively as "Parties". WHEREAS: 1) Pursuant to certain licence / operating agreement(s) between Parties [the last of which is an Operating Licence Agreement ("Operating Licence") of May 3, 1986] in respect of Hotel Searock, including Playmate Club and Rock International Club (both non-operational) located at Land's End, Bandstand, Bandra, Bombay 400 050 (the "Hotel") ITC operated the Hotel (Rock - International Club was non-operational from inception," the Playmate Club has been non-operational for some years); 2) ELEL, with the consent of the owners, has permitted ITC to use and occupy Flat No. 101 and Flat No. 102 situated at Bandra Tideways Co-operative Housing Society Ltd., St. John Baptist Road, Bandra (West), Mumbai-400 050 (collectively the "Flats" and individually the "Flat"); 3) Various disputes have arisen between the Parties in relation to / concerning the Hotel and/or the Operating Licence in respect of which Suit No. 3885 of 1993, Suit No.3886 of 1993, Suit No.1877 of 1995 and Suit No. 3832 of 1995 (collectively the "Suits" and individually the "Suit") have been filed before the High Court, Mumbai; 4) By Order (s) dated December 21, 1998 the disputes covered by the Suits (excluding Suit No. 3832 of 1995) have been referred to arbitration (the "Arbitration") of Mr. Justice H. Suresh (Retd.) (the "Arbitrator"); 5) The Parties have fully and finally compromised, adjusted and settled all Disputes and desire to record the terms thereof by this Settlement Agreement; IN CONSIDERATION of the mutual covenants and other good consideration (the sufficiency and validity of which each Party acknowledges) this Settlement Agreement RECORDS AND CONFIRMS: DEFINITIONS 1. In this Settlement Agreement, unless the context otherwise requires: a) "Affiliate" means:- (i) in relation to a Party, any Person controlling or controlled by or under common control with the Party; and (ii) specifically, in relation to ELEL:- (I) means each of Excalibur Assets and Capital Management Pvt. Ltd. ('Excalibur') and Sheena Investment Pvt. Ltd. ('Sheena') both with registered offices at 9th floor, Hotel Searock, Behramji Jeejeebhoy Road, Bandstand, Bandra (West), Mumbai-400 050, (II) means Shyam Bhajanmal Luthria, Stanford Investments and Properties Private Limited and Deepak Shyam Luthria and (III) inc