DURGA DAS KHANNA vs. COMMISSIONER OF INCOME-TAX, CALCUTTA
What did the Supreme Court hold?
The Supreme Court held that the departmental authorities and the High Court were in error in treating the sum of Rs. 55,200 as advance payment of rent. The lease indenture did not contain any condition or stipulation from which it could be inferred that the amount was paid as advance rent. The transaction was business-like, with the lessees contributing a lump sum towards construction without any provision for adjustment against rent or repayment. The Court found no cogent evidence to support the view that the amount was consolidated rent for thirty years paid in advance or that the rental value was higher than the agreed Rs. 2,100 per month. The payment had all the characteristics of a capital payment and not revenue. The Court noted that while the distinction between capital and revenue receipt for premium is fact-dependent, prima facie, premium or salami is not income, and the onus is on the tax authorities to prove otherwise. The fact that rent was to commence from June 1, 1946, and the lessees entered possession after completion, coupled with the non-recurring nature of the lump sum payment, indicated a capital payment. The appeal was allowed, and the High Court's answer was discharged.
What were the facts?
The assessee leased premises on July 19, 1945, and made alterations to convert them into a cinema. Lacking funds, the assessee leased the premises again on February 23, 1946, for 30 years. The new lessees agreed to pay Rs. 55,200 towards the construction of the cinema house, which would then be let to them at a monthly rent of Rs. 2,100, payable from June 1, 1946. The Income-tax Officer treated the Rs. 55,200 as taxable income. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this view, considering it advance rent. The High Court, on reference, also held the sum to be taxable revenue. The assessee appealed to the Supreme Court.
What were the issues?
1. Whether, on the facts and circumstances of the case, the sum of Rs. 55,200 was a revenue receipt being rent received in advance, thus liable to be taxed? (Mixed question of law and fact, concerning the nature of the receipt under the Income-tax Act). Assessee's contentions: - The sum of Rs. 55,200 was a capital receipt. - Alternatively, if treated as salami (premium), it should be distributed over the 30-year lease term and not taxed as a single year's income. - The departmental authorities erred in treating the amount as advance rent as there was no stipulation for it to be treated as such. - The transaction was business-like, with the lessees contributing to construction costs without provision for adjustment against rent or repayment. - The rent of Rs. 2,100 per month was not ridiculously low compared to the lump sum payment. - The payment was non-recurring and had the characteristics of a capital payment. - Relied on Henriksen v. Grafton Hotel Ltd., Commissioner of Income-tax, Bihar & Orissa v. Visweshwar Singh, and Member for the Board of Agricultural Income-tax v. Sindhurani Chaudhurani & Ors. Revenue's contentions: - The sum of Rs. 55,200 constituted advance payment of rent. - The lease was for a short term (30 years), and the amount represented consolidated rent for that period paid in advance. - The High Court observed that the only object of the payment was to advance the cost of construction or meet existing liabilities. - The departmental authorities based their decision on the lease being temporary and the salami being an advance payment of rent.
Which sections of the Income-tax Act were involved?
Section 105 of the Transfer of Property Act (mentioned in context of rent vs. premium distinction)
AI-generated summary — verify with the full judgment below
i>i.JRGA DAS kHANNA v. COMMISSIONER OF INCOME-TAX, CALCUTTA January 30, 1969 [J.C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.] lncome•tax--CapitaL or Revenue-Thirty years lease of cine1na- Lessee contributing part of 1noney for construction of cinema-No stipula- tion that it wt:t.· to be trea1ed as advance rent or salami-Nature of re .. ceipt-Whether taxable.
On July 19, 1945 the asscssee took on lease certain premises in Cal-,, cutta on a monthly rentaJ.
He made some alterations in the premises so as to convert it into a cinema house but found himself shore of money.
As permitted by the terms of his lease he leased the premises on February 23, 1946 to certain parties.
According to the terms of the indenlure the lessees agreed to pay him Rs. 55,200 towards construction of the cinema house which would on completion be let to them ,at a monthly renLal of Rs. 2,100 payable with effect from June I, 1946. The Income-tax autho- rities treated the sum of !ls. 55,200 thus received as taxable and the High Court on reference held '!1e same.
In .appeal by the. assessee this Court had to consider whether the receipt was taxable. HELD : (i) The departmental authorities as wel
The order continues below.
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