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TMI Blog1971 (8) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court : " Whether, on the facts and circumstances of this case, the Tribunal was right in holding that-the sum of Rs. 2,20,000 was the income of the assessee assessable to tax under the provisions of the, Income-tax Act ? " The original assessee was Maharaja Pratap Udainath Sah Deo, the holder of an impartible estate. On January 22, 1944, the assessee granted a lease of certain mining rights to Aluminium Production Company Ltd. in respect of 171.03 acres of land for a period of 30 years. The main terms were as follows : (i) Salami (inclusive of Moharkari and Dewani Megi amounting to Rs. 5,000) Rs. 2,25,000 (ii) Rent 8 as. per acre (iii) Royalty 6 as. per ton. (iv) Minimum royalty Rs. 22 per acre. Previously, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the sum of Rs. 2,20,000 had been taken in exchange of royalty that would have accrued during the period of lease. The Tribunal by an order dated July 26, 1956, allowed the appeal of the revenue and restored the order of the Income-tax Officer. The High Court held that out of the sum of Rs. 2,20,000 the amount which could be regarded to be salami and treated as a capital receipt could reasonably be estimated at a sum of Rs. 20,000 which was assessable to tax but the remaining amount of Rs. 2,00,000 was revenue receipt and was taxable as such. The question referred was reframed as follows ; " Whether, on the facts and the circumstances of this case, the Tribunal was right in holding that the sum of Rs. 2,20,000 or any portion thereof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not the form but the circumstances of the transaction that matters. The nomenclature used may not be decisive or conclusive but it helps the courts, having regard to the other circumstances, to ascertain the intention of the parties. (See Commissioner of Income-tax v. Panbari Tea Co. Ltd.) Now the Appellate Tribunal appears to have based it, decision only on the difference between the amount of salami and the rate of royalty between the prospecting lease which was granted in 1941 and the subsequent lease of 1944. This is what the Tribunal stated in paragraph 7 of its order : " In 1941, the assessee had granted a prospecting lease in favour of the very lessee taking a much smaller premium fixing the royalty at 8 as. per ton. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable basis for determining whether the terms of the 1944. lease were fixed in such manner that part of the proceeds of royalty were included in the figure of the salami. The object of a prospecting lease is entirely different and, since the period was only one year, it is quite reasonable to assume that the royalty was fixed at a higher rate because it was not known how much quantity of mineral would be extracted during that period. The lease of 1944 was for a much longer period, i.e., 30 years. When a lessor creates a lease for that by way of salami or period it is legitimate for him to charge more amount premium as he is transferring possession of the demised land for a considerably long period. A lessor may also think that the rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order. It is submitted that the Income-tax Officer had gone into the details of other leases which had been granted by the assessee of similar nature and after a comparison of the terms of those leases the Income-tax Officer had reached the conclusion that the amount of salami represented the capitalised royalty. We cannot read the order of the Tribunal in that way. The Tribunal agreed only with the operative part of the order of the Income-tax Officer but not with his reasoning. At any rate the Appellate Assistant Commissioner had submitted a remand report pursuant to a previous order of the Tribunal and it does not appear that the facts given in that report were at all considered by the Tribunal although the High Court based its decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated at Rs. 6,50,000 according to the rates fixed by the 1941 lease and at Rs. 4,87,500 according to the rate agreed upon in the 1944 lease. The High Court was of the view that these figures showed that the major part of the salami of Rs. 2,25,000 had been taken in exchange for the royalty that would have accrued during the period of the lease. We have already pointed out that a comparison of the terms of the prospecting lease which was only for one year with the subsequent lease of 1944 which was for 30 years could not furnish a proper basis for determining the point in dispute. Moreover, the High Court lost sight of the fact that the report of the Mines Superintendent was made long after the date of the 1944 lease and it could not be ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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