1978 (7) TMI 92 - HC - Income Tax

Summary

Issues involved: Assessment of tax on lump sum received as premium or salami in a lease agreement.

Summary:
The assessee received a lump sum of Rs. 50,000 for executing a lease agreement for premises in Calcutta. The Income Tax Officer (ITO) treated this sum as advance rent and added it to the assessee's income. The assessee appealed to the Appellate Assistant Commissioner (AAC) arguing that the payment was a capital receipt and not advance rent. The AAC accepted the assessee's contentions and allowed the appeal. The revenue further appealed to the Tribunal, which concluded that the sum of Rs. 50,000 was a capital receipt and not taxable. The Tribunal's decision was based on the nature of the payment recorded in the deed and other provisions justifying the low rent. The High Court, considering a similar Supreme Court decision, held that the lump sum received was a capital receipt and not income. The lease agreement involved a long-term lease with rent escalation, provision for building demolition and reconstruction, and the lump sum described as salami or premium, not rent. The Court ruled in favor of the assessee, stating that the payment did not have the characteristics of rent.

In conclusion, the High Court ruled in favor of the assessee, determining that the lump sum received as salami was a capital receipt and not taxable income. The Court found similarities with a previous Supreme Court decision and held that the payment did not exhibit characteristics of rent. The judgment was delivered by Judge Dipak Kumar Sen, with agreement from Judge C. K. Banerjee.