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Issues Involved
1. Nature of the Rs. 20,000 receipt: Capital or Revenue? 2. Taxability of the Rs. 20,000 receipt under the Indian Income-tax Act, 1922. Detailed Analysis Issue 1: Nature of the Rs. 20,000 Receipt: Capital or Revenue? The primary issue is whether the Rs. 20,000 paid as consideration for granting the lease is a capital receipt, which is not taxable, or a revenue receipt, which is taxable. The facts reveal that the assessee purchased a plot of land in 1940 and leased it out in 1945 for a period of 51 years with a monthly rent of Rs. 800 and a premium of Rs. 20,000. The lessee was required to build a structure on the land, which would become the property of the lessor upon lease termination. The Income-tax Officer initially classified the Rs. 20,000 as revenue, arguing that the monthly rent of Rs. 800 was low, making the premium an advance rent. However, the Appellate Assistant Commissioner disagreed, stating that the rent was substantial and the premium should be considered a capital receipt. The Tribunal reversed this decision, viewing the premium as an advance rent due to the favorable lease terms and short duration. Issue 2: Taxability of the Rs. 20,000 Receipt under the Indian Income-tax Act, 1922 The court examined various definitions and precedents to determine the nature of "salami" or premium. Definitions from Baden Powells Land Systems, Macnaughtons Principles of Mahomedan Law, and other sources describe salami as a lump sum payment for parting with rights under a lease, indicating a capital nature. Several cases were reviewed: - Commissioner of Income-tax v. Shaw Wallace & Co. defined "income" as a regular monetary return. - Kamakshya Narain Singh v. Commissioner of Income-tax held that premiums for mining leases were capital receipts. - Maharaja Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax emphasized that premiums for rights to remove minerals were capital payments. The court noted that the Rs. 20,000 was paid before the creation of the tenancy and was non-recurring, fitting the definition of a capital receipt. The absence of evidence showing the rent was low or the lease period short further supported this view. Conclusion The court concluded that the Rs. 20,000 was a capital receipt, not an advance rent, and thus not taxable under the Indian Income-tax Act, 1922. The question referred was answered in the affirmative and in favor of the assessee, with costs awarded to the assessee. Question answered in the affirmative.
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