1960 (3) TMI 56 - HC - Income Tax

Summary

Issues Involved:
1. Nature of the sum of Rs. 11,250 received by the assessee: Revenue or Capital receipt?

Detailed Analysis:

Issue 1: Nature of the sum of Rs. 11,250 received by the assessee: Revenue or Capital receipt?

Facts and Background:
The assessee, a public limited company, owned two tea estates and a factory, which were leased to a lessee for ten years. The lease included an annual rent of Rs. 54,000 and a premium of Rs. 2,25,000, payable in installments. The Income-tax Officer classified the installment of Rs. 11,250 received during the year as revenue, thus taxable. The assessee contended it was a capital receipt.

Legal Question:
"Whether on the facts and in the circumstances of the case and upon the construction of the terms of the lease dated March 3, 1950, the sum of Rs. 11,250 received by the assessee during the year of account is revenue or capital receipt?"

Arguments and Precedents:

1. Assessee's Argument:
- The amount of Rs. 2,25,000 was described as a premium in the lease document.
- The lease was a transfer of a capital asset (tea estates and factory) for a limited period.
- The premium was consideration for this transfer, thus a capital receipt.

2. Department's Argument:
- The classification of the amount as "premium" does not determine its nature.
- The true character of the receipt must be assessed based on the surrounding circumstances and not merely the language used in the document.
- Cited cases like Minister of National Revenue v. Catherine Spooner and Rajah Manyam Meenakshamma v. Commissioner of Income-tax to argue that recurring payments can be considered revenue.

3. Court's Analysis:
- The court referred to multiple precedents to establish that the nature of the payment must be determined from the document and surrounding circumstances.
- Minister of National Revenue v. Catherine Spooner: Payments described as royalties were considered part of the sale consideration, thus capital receipts.
- Rajah Manyam Meenakshamma v. Commissioner of Income-tax: Lump sum payments described as royalties were considered revenue receipts due to the nature of the payment for continuous use and enjoyment of the property.
- Maharaja Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax: Short-term licences and lump sum payments were considered revenue receipts as no interest in the land was parted with.
- Commissioners of Inland Revenue v. Fisher's Executors: Transactions must be taken at face value unless proven otherwise.
- Henriksen v. Grafton Hotel Ltd.: Payments spread over a term can still be capital if they are for acquiring a right with a permanent quality.
- Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax: Payments for acquiring a right with enduring benefit are capital in nature.

Conclusion:
The court concluded that the sum of Rs. 2,25,000 was a premium paid for the transfer of rights under the lease, thus a capital receipt. The installment of Rs. 11,250 received during the year of account was part of this premium and not a revenue receipt. The court held that the true nature of the payment was for the acquisition of a right, which is a capital transaction.

Final Judgment:
The sum of Rs. 11,250 received by the assessee during the year of account is a capital receipt. The reference was answered accordingly, and the assessee was entitled to costs assessed at Rs. 200.