1957 (4) TMI 3 - SC - Income Tax

Whether the single non-recurring premia or salamis paid to the landlord assessee once only as consideration for the settlement of agricultural land at the time of granting a lease can be held to be income within the meaning of the Act ? Whether single non-recurring premia or salamis paid to the landlord assessee as consideration for the settlement of agricultural land once only at the time of granting lease when such premia or salamis are not dependent on the rate of rent charged, can be held to be income within the meaning of the Act ? Held that - The manner in which the leases were dealt with and the fact that in no case was a non-occupancy tenant evicted and his tenure was allowed to mature into all occupancy holding shows that the leases were in practice not so precarious as was suggested by the Board, but had an element of stability and permanency attached to them. Therefore, when a tenant paid salami he did so in order to get in return an estate in the land owned by the zamindar. Salami is thus not rent and both parties have proceeded on that basis and it could not be called revenue within the meaning of the word used in the definition of agricultural income under section 2(1)(a) of the Act because it was a payment to the landlord by the tenant as a consideration for the transfer of a right in zamindari lands owned by the landlord. It has therefore all the characteristics of a capital payment and is not revenue. Questions answered in the negative.

Summary

Issues Involved:
1. Character and purport of the payment termed "salami."
2. Whether "salami" falls within the meaning of "agricultural income" under the Assam Agricultural Income-tax Act (Ass. IX of 1939).

Issue-Wise Detailed Analysis:

1. Character and Purport of "Salami":
The primary issue in these appeals was to determine the nature of the payment termed "salami." The court examined whether salami is a single non-recurring payment made by a tenant to a landlord at the inception of a tenancy. The court found that salami is a lump sum, non-recurring payment made by the tenant to the landlord before making a settlement of the holding. It is a compulsory payment by the tenant to the landlord at the inception of the tenancy, and not a present or a windfall. The court observed that salami is charged whenever a fresh settlement is made, whether it is of virgin land or auction-purchase holdings. This payment is made antecedent to the constitution of the relationship of landlord and tenant.

2. Whether "Salami" Falls Within the Meaning of "Agricultural Income":
The court analyzed whether salami constitutes "agricultural income" as defined under section 2(a)(i) of the Assam Agricultural Income-tax Act. The relevant portion of this section defines agricultural income as "any rent or revenue derived from land which is used for agricultural purposes." The court concluded that salami is not rent, as it is a single non-recurring payment made by the tenant to the landlord for being allowed to take possession of the land for cultivation under the lease. The court referred to various precedents, including Kamakshya Narain Singh v. Commissioner of Income-tax, where salami was treated as a capital receipt and not as income. The court also cited Raja Shiv Prasad Singh v. The Crown, where salami was described as a non-recurring payment in the nature of a premium for granting a lease.

The court noted that salami is not a recurring or periodical payment, nor is it a fee or fine levied at fixed intervals from the tenant for the same holding. It is a payment made by the tenant to the landlord as a consideration for the transfer of a right in zamindari lands owned by the landlord. Therefore, salami has all the characteristics of a capital payment and is not revenue. Consequently, it does not fall within the definition of "agricultural income" under section 2(a)(i) of the Act.

Conclusion:
The court dismissed Appeal No. 162 of 1955 brought by the State of Assam and allowed Appeals Nos. 38 to 44 of 1956 brought by the assessees. The judgment of the High Court was set aside, and the referred questions were answered in the negative. The court held that salami is not "agricultural income" and therefore not liable to agricultural income-tax under the Assam Agricultural Income-tax Act. The assessees were awarded costs in one set for the appeals in this Court and the Courts below, except in Appeal No. 42 of 1956, where the parties were to bear their own costs.