1969 (1) TMI 1 - SC - Income Tax

Assessee took on lease premises for a term of 99 years on a monthly rental - receipt of Rs.55,200 by the assessee was capital receipt because receipt was having all the character of capital payment being paid as premium or salami - Assessee s appeal allowed

Summary

Issues:
1. Whether the sum of Rs. 55,200 received by the assessee was a revenue receipt being rent received in advance thus liable to be taxed?

Analysis:
The case involved an appeal from the Calcutta High Court regarding the taxation of a sum of Rs. 55,200 received by the assessee. The assessee had entered into a lease agreement for a cinema house, where the lessees agreed to pay the amount towards the cost of erecting the cinema. The Income-tax Officer treated this amount as income, but the assessee contended it should be treated as a capital receipt or, alternatively, if considered as rent, should be spread over the lease term. The lower authorities held it to be an advance rent, but the Supreme Court analyzed the terms of the lease to determine the nature of the payment.

The Supreme Court found that the transaction was business-like, with the lessees needing the building for a cinema and the lessor lacking funds to complete it as per lessees' requirements. The court noted that the lease did not specify the amount as advance rent and no provision was made for adjustment towards rent. The court rejected the idea that the amount should be spread over the lease term as rent, as there was no evidence to support this view. The court also considered the possibility of the amount being a premium (salami) rather than rent.

Referring to legal precedents, the court highlighted that a lump sum payment at the start of a lease could be considered a premium, especially when not recurring and not representing a low rent. The court noted that in this case, the rent amount was not low compared to the lump sum paid. Additionally, the lease specified the rent commencement date after the completion of the cinema house, indicating a capital nature of the payment. The court emphasized that the payment had the characteristics of a capital payment rather than revenue, aligning with principles established in previous cases.

Ultimately, the Supreme Court held that the amount of Rs. 55,200 should not be treated as advance rent but rather as a capital payment or premium. The court allowed the appeal in favor of the assessee, overturning the High Court's decision and discharging the answer given by the High Court.