1966 (8) TMI 13 - HC - Income Tax

Amount received by the assessee under the sub-leases - they are not capital recipt - liable to tax

Summary

Issues Involved:
1. Legality of reopening the assessment under Section 34(1)(a) of the Income-tax Act for the assessment years 1950-51 and 1951-52.
2. Nature of the amount received under sub-leases dated February 21, 1950, and November 20, 1956-whether they are capital receipts or revenue receipts liable to income tax.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 34(1)(a):
The first issue concerns whether the Income-tax Department was justified in reopening the assessment under Section 34(1)(a) of the Income-tax Act for the assessment years 1950-51 and 1951-52. The court analyzed the applicability of Section 34(1)(a) and (b) and concluded that:

- Section 34(1)(a) applies when income has escaped assessment due to the assessee's omission or failure to file a return or disclose fully and truly all material facts necessary for the assessment.
- Section 34(1)(b) applies when income has escaped assessment due to information coming into the possession of the Income-tax Officer, but without any omission or failure on the part of the assessee.

The court found that no returns were filed by the assessee for the relevant years, which justified the reopening under Section 34(1)(a). The letters sent by the assessee to the Income-tax Officer did not disclose the lease amounts, leading to the conclusion that the department was not put on notice about the income in time. Therefore, the action of the Income-tax Officer in issuing the notice was upheld as valid.

2. Nature of the Amount Received Under Sub-leases:
The second issue pertains to whether the amounts received under the sub-leases dated February 21, 1950, and November 20, 1956, are capital receipts or revenue receipts.

- The court examined the agreements and concluded that they were essentially sub-leases and not outright sales of capital assets.
- The agreements allowed the sub-lessee to use the mineral rights for a specified period, with payments made in lump sums, which were essentially advance rent rather than capital payments.
- The court noted that the payments were intended as compensation for the use and occupation of the mineral wealth, making them revenue receipts.
- The court referenced various judicial precedents to delineate the difference between capital receipts (salami) and revenue receipts (rent), concluding that the payments in question were revenue receipts.

The court emphasized that the true nature of payments should be judged from a business or accountancy perspective rather than strictly legalistic terms. The agreements were seen as means for the assessee to derive income from the sub-leases rather than realizing the capital asset.

Conclusion:
The court answered both questions in favor of the Income-tax Department:
1. The reopening of the assessment under Section 34(1)(a) was justified.
2. The amounts received under the sub-leases were revenue receipts and thus liable to income tax.

The assessee was directed to pay the costs of the department, with an advocate's fee of Rs. 150.