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TMI Blog1965 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Rent 0-8-0 per acre. (iii) Royalty 0-6-0 per ton. (iv) Minimum royalty Rs. 22 per acre. Previous to this, on the 20th March, 1941, the assessee had granted a prospecting lease of 311 acres of land to the said company for a period of one year at a premium or salami of Rs. 100 per acre and royalty of 0-8-0 annas per ton. The question relates to the assessment year 1944-45. The Income-tax Officer took the view that as the assessee had chosen to take a very large sum by way of premium and a lower rate in respect of royalty, the premium or salami represented advance payment of royalty which was a revenue receipt and assessable to income-tax as such. On appeal, the Appellate Assistant Commissioner held that the sum of Rs. 2,20,000 which represented the salami was a capital receipt and was, therefore, not taxable. Against that order, the department preferred an appeal to the Appellate Tribunal which by its order dated the 7th August, 1952, remanded the case to the Appellate Assistant Commissioner for a finding whether there were circumstances to indicate that the salami was really in the nature of an income receipt. In pursuance of this order, the Appellate Assistant Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rain Singh's case the Privy Council drew a distinction between premium and rent in the following terms : " It (salami) is a single payment made for the acquisition of the right of the lessees to enjoy the benefits granted to them by the lease. That general right may properly be regarded as a capital asset, and the money paid to purchase it may properly be held to be a payment on capital account. But the royalties are on a different footing. " In Sindhurani's case the Supreme Court defined " salami " as follows : " The indicia of salami are : (1) its single non-recurring character, and (2) payment prior to the creation of the tenancy. It is the consideration paid by the tenant for being let into possession and can be neither rent nor revenue but is a capital receipt in the hands of the landlord. " In an earlier Bench decision of this court in Commissioner of Income-tax v. Visweshwar Singh it was, however, pointed out by Manohar Lall J. that it is impossible to lay down a hard and fast rule that salami can in no case be taxable, and that the question whether the salami represented a capital receipt or an advance payment of rent would depend upon the facts and the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions are, therefore, not in doubt and may be summarised as follows : premium or salami cannot be regarded as income as a matter of law. But there may be cases where the facts and the circumstances may indicate that the salami, though ostensibly a capital receipt, is in truth an advance payment of rent or royalty in whole or in part. In order to determine as to whether the salami has or has not an element of revenue receipt in the shape of advance payment of royalty or rent, the true nature of the grant has to be looked into and an enquiry has to be made as to whether there are any materials on the record, either direct or circumstantial, to displace the description given in the lease deed to the amount in dispute as salami or premium. If there are such materials available on the record, then it is open to the taxing authorities to go into the true nature of the receipt and to hold that it has the character of a revenue receipt, being an advance payment of royalty or rent. Of course, the onus lies upon the taxing authorities to show that there do exist facts and circumstances which justify the conclusion that salami, which, prima facie, is a capital receipt, is in reality a revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, whereas under the lease of the 22nd January, 1944, the raising royalty per ton had been reduced to 6 annas per ton while the salami or premium had been raised to Rs. 1,284 per acre. It was mainly in the light of these materials that the Income-tax Officer came to the conclusion that the sum of Rs. 2,20,000 which had been mentioned as salami in the lease in question was nothing but receipt in advance of the expected royalty income from this source, and on that footing he has taxed the entire amount of Rs. 2,20,000. Mr. K. B. N. Singh has urged that the Income-tax Officer or the Tribunal was not justified in comparing the terms of the 1944 lease with those of the prospecting lease of 1941 which was for a period of one year only, because though they were in favour of the same lessee, the two transactions were not continuous, inasmuch as the lease of 1944 was taken by the Aluminium Production Company Ltd. nearly two years after the expiry of one year stipulated for the purpose in the prospecting lease of March, 1941. There is no force in this contention. The two transactions might not have been continuous but they were undoubtedly related. A considerable portion of the land covere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the earlier lease of 1941. It was also contended by Mr. Singh that the amount of royalty agreed upon was a matter of bargain between the lessor and the lessee and, therefore, merely because a reduction was made in the royalty in the 1944 lease, it would not necessarily follow that a part of the future royalty had been capitalised and included in the premium. This contention also is entirely without force. It will be noticed from the chart which I have given in paragraph 12 of this judgment that in the very next year (1945), the assessee had granted a mining lease to the Aluminium Corporation Ltd., whereby the raising royalty had been fixed at 0-12-0 annas per ton. It has not been shown that there were any exceptional circumstances on account of which the assessee had agreed to accept the raising royalty of 0-6-0 annas per ton under the 1944 lease. Therefore, the taxing authorities and the Tribunal had ample material for coming to the conclusion that a part of the royalty had been capitalised and included within the salami which, on that account, had been considerably raised to Rs. 1,284 per acre as against the average amount of Rs. 100 to Rs. 130 per acre. In other words, a consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 2,25,000 has been taken in exchange of the royalty that would accrue in future years. " From the aforesaid discussions it is abundantly clear that the taxing authorities and the Tribunal had before them ample facts and circumstances to come to the conclusion that the sum of Rs. 2,20,000 was not entirely a payment on capital account, but that a considerable portion of it was the capitalised value of future royalty which undoubtedly was a revenue receipt and assessable to tax as such. I am, however, unable to endorse the conclusion of the taxing authorities and the Tribunal that the whole of the amount of Rs. 2,20,000 was in the nature of revenue receipt. Some part of it undoubtedly was by way of price paid for the transfer of the right to enjoy the property, though the major part was on account of advance payment of royalty. On the basis of the four other lessees mentioned in paragraph 12 of this judgment, it would be reasonable to conclude that the amount of capital receipt included within the sum of Rs. 2,20,000 was in the neighbourhood of Rs. 20,000. The actual amount of salami for 171 acres at the rate of Rs. 100 per acre works out at Rs. 17,100. But Mr. Tarkeshwar Pras ..... X X X X Extracts X X X X X X X X Extracts X X X X
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