Appeal No 873 of 1966
Appeal by special leave from the judgment and order dated March 26 1965 of the Calcutta High Court in IT Ref
No 107 of 1960
Sukumr Mitra and D N Mukherjee for the appellant
Niren De Attorney General section C Manchanda and R N Sachthey for the respondent
It was stipulated internal that the lessee could assign the lease with the consent of the lessor
He could after the structures on the premises so as to convert them into a cinema if necessary
After expending Rs 35000 on some alterations to the premises the assessee felt the necessity of having some more money in order to convert the building into a cinema
He entered into a lease on February 23 1946 with three persons namely Nani
Gopal Dutt Makhan Lal Dutt and Shiv Kumar Khanna
By this lease the building which was called Khanna Cinema house  at 157 Upper Circular Road Calcutta was demised to the lessees for a period of 30 years
The lessees agreed to pay under the indenture of lease Rs 55 200 to the lessor towards the cost of erecting the said cinema
The rent which was agreed to be paid was Rs 2100 per month
It was payable with effect from June 1 1946
It is necessary to set out the relevant portion of the lease And whereas the lessor obtained sanction from the Corporation of Calcutta and other necessary authorities and commenced the erection of a Cinema House the estimated total cost of which is about Rs 100000Rupees one lac
And whereas the lessees agreed to pay to the lessor a sum of Rs 55200 Rupees Fifty five thousand and two hundred towards the cost of the erection of the said cinema house according to their suggestion and other charges and expenses 464 incurred therefore by the lessor
And whereas the construction of the said Cinema House is almost complete and is expected to be completed by the end of March One Thousand Nine Hundred and Forty six and whereas the lessee have called upon the lessor to grant to them a lease of the said Cinema House which the lessor has agreed to do upon payment by the lessees of the said agreed sum of Rs 55200 Rupees fifty five thousand and two hundred towards the costs of building the said Cinema House and whereas the lessees have paid to the lessor the said sum of Rs 55200 Rupees Fifty five thousand and two hundred for which separate receipt has been granted by the lessor After the Cinema House had been completed the lessees entered into possession and started exhibiting shows there
For the assessment year 1947 48 the corresponding account ing year being the financial year ending March 31 1947 the Income tax Officer sought to treat the sum of Rs 55200 received by the assessee as his income
The contention of the assessee was that the aforesaid amount should be treated as capital receipt
Alternatively if it was to be treated as salami premium and was to be taxed as a revenue receipt it should be distributed evenly over the entire term of the lease ie 30 years
The Income tax Officer did not accept either of the contentions of the assessee
It was held by him that the lease was pot permanent but was temporary and that the salami had been fixed as an advance payment of rent and not as payment for transfer of the lease hold interest
According to him the system of accountancy for this source of income being on cash basis the whole of the receipt of salami was liable to be taxed as one year s income in the year of the receipt
The assessee appealed to the Appellate Assistant Commissioner who agreed with the Income tax Officer
In his view the lessees were under no legal obligation to contribute towards the cost of construction of the cinema house and the sum of Rs 55200 constituted payment of advance rent
The assessee appealed to the Tribunal which held that the receipt of the aforesaid amount was in the nature of advance payment of rent since the assessee was short of funds at the time the lease was entered into and that the lease was for a short term and that the amount in question represented consolidated rent for thirty years paid in advance
The High Court answered the question which was refer red in the affirmative and against the assessee
According to the High Court the only object of the payment of the sum of Rs 55200 could be to advance the cost of construction or to meet the existing liabi lities of the assessee for completing the cinema house
It was observed 465 Further it should be noted that the period of lease is only for 30 years and the assessee s investment on the Cinema is about Rs 60000  Rs 35000 being the costs of construction and Rs 25000 being costs of machinery with a liability to pay Rs 750 rent to the owner of the plot
As a result of this lease he has got a rent of Rs 2100 for a term of 30 years
Thus there is no question of payment of any salami as no further inducement for grant of the lease was necessary
It is obvious that if the cost of construction of the Cinema House would have been met in its entirely by the assessee and thereafter if the assessee would have granted the lease to the lessee the rent would certainly have been much higher
Thus the said sum of Rs 55200 in the absence of a different recital can only be deemed to have been paid as an advance rent in respect of the said Cinema House
 On behalf of the appellant assessee it has been urged that he sum of Rs 55200 was paid to the lessor in lump for completing the cinema house without which the lessee could not have used the building for the purpose of exhibiting cinematograph films
According to the recitals in the deed which must be given due effect the lessees agreed to give this amount towards the cost if erection of the cinema house according to their suggestion and or defraying other charges and expenses
The payment of rent was expressly stipulated at the rate of Rs 2100 per month and there was no indication whatsoever that any different or higher rate of rent was agreed to
It is further submitted that there was no material or evidence on which it could be found that the cinema would have fetched any higher rent the admitted cost of construction being about Rs 100000 
Alternatively the sum of Rs 55200 could be regarded only as payment of salami premium and could not be treated as revenue receipt the payment being of a non recurring nature
It seems to us that the departmental authorities as well as the High Court were in error in treating the amount of Rs 55200as advance payment of rent
The lease by which the cinema house was demised did not contain any condition or stipulation from which it could be inferred that the aforesaid amount had been paid by way of advance rent
The transaction embodied in the indenture of lease was clearly business like
The lessees wanted the building for running it as a cinema house and the lessor agreed to give it to them but apparently represented that he did not have enough money to complete it in accordance with the suggestions and requirement of the lessees
The lessees agreed to pay him the aforesaid amount by way of a lump sum without 466 making any provision for its adjustment towards the rent or repayment by the lessor
The essential question however is whether on the terms of the lease and in the absence of any other material or evidence could it be hold that the sum of Rs 55200was paid by way of advance rental  The view which has been expressed by the Tribunal as also the High Court that the lease was for a comparatively short period of thirty years and that the aforesaid amount had to be spread over that period by way of rent in addition to a rental of Rs 2100 per month cannot be sustained as no foundation was laid for it by any cogent evidence The departmental authorities can well be said to have based their decision on mere conjectures as there was nothing whatsoever to substantiate the suggestion that the real rental value of the cinema house was in the region of Rs 2250 per month and not Rs 2100 which was the agreed rent
It can equally well be said that the payment of the amount in question to the appellant was in the nature of a premium salami
In the words of Lord Greene M R in Henriksen V Grafton Hotel Ltd A payment of this character appears to me to fall into the same class as the payment of a premium of a lease which is admittedly not deductible
In the case of such a premium it is nothing to the point to say that the parties if they had chosen might have suppressed the premium and made a corresponding increase in the rent
No doubt they might have
done so but they did not do so in fact
 Fazl Ali Jas he then was in Commissioner of Income tax Bihar  Orissa vs Viswesh war
Singh2 referred to the distinction between a single payment made at the time of the settlement of the demised property and recurring payments made during the period of its enjoyment by the lessee 
This distinction according to the learned Judge is clearly recognised in section 105 of the Transfer of Property Act which defines both premium and rent
This is what was observed at page 545 It is obvious that if the premium represents the whole or part of the price of the land it cannot be income
As pointed out by Sir George Lowndes in the Commissioner of Income tax Bengal vs Messrs Shaw Wallace  Company income in the Indian Income tax Act connotes a periodical monetary return coming in with some sort of regularity or expected regularity from definite sources
The premium of salami which is paid once for
all and is not recurring payment hardly satisfies this test
I concede that in some cases  where the rent is ridiculously low and the premium abnormally high it may be possible to argue that the premium includes advance rent  1 24 T 453
2 467 It has not beep even remotely suggested in the present case that the rent of Rs 2100 per month was ridiculously low as compared with the amount of Rs 55200 paid in lump sum
It is true that the question whether premium is a capital or a revenue receipt cannot be decided as a pure question of law
Its decision necessarily depends upon the facts and circumstances of each case
It would not however be wrong to say that prima facie premium or salami is not income and it would be for the income tax authorities to show that facts exist which would make it a revenue receipt
There is another factor which is of substantial importance in the present case
According to the terms of the lease the payment of rent was to commence not from the date of the lease which was February 23 1946 but with effect from June 1 1946
It is also not disputed that the lessees entered into possession after the cinema house had been completed which was subsequent to the date of the lease
these facts coupled with the payment of a lump sum which was of a non recurring nature showed that the amount in question had all the characteristics of a capital payment and was not revenue
This would be
in accord with the principles laid down by this Court in Member for the Board of Agricultural Income tax vs Sindhurani Chaudhu
rani  Others1 which was a case of settlement of agricultural land but in which the principles governing the payment of premium or salami have been fully discussed
For the reasons given above we hold that the question which was referred to the High Court ought to have been answered in the negative and in favour of the assessee
The appeal is accordingly allowed
with costs in this Court and the High Court and the answer returned by the High Court is hereby discharged
GC Appeal allowed


Summary:
On July 19 1945 the assessee took an lease certain premises in Calcutta on a monthly rental
He made some alterations in the premises so as to convert it into a cinema house but found himself short 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 indenture the lessees agreed to pay him Rs 552GO towards construction of the cinema house which would on completion be let to them at a monthly rental of Rs 2100 payable with effect from June 1 1946
The Income tax authorities treated the sum of Rs 55200 thus received as taxable and the High Court on reference held the same
in appeal by the assessee this Court had to consider whether the receipt was taxable
HELD  i The departmental authorities as well as the High Court were in error in treating the amount of Rs 55200 as advance payment of rent
The lease by which the cinema house was demised did not contain any condition or stipulation from which it could be inferred that the aforesaid amount had been paid by way of advance rent
The transaction embodied in the indenture of lease was clearly business like
The lessees wanted the building for running it as a cinema house and the lessor agreed to give it to them but apparently represented that he did not have enough money to complete it in accordance with the suggestions and requirement of the lessees
The lessees agreed to pay him the aforesaid amount by way of a lump sum without making any provision for its adjustment towards the rent or repayment by the lessor
On the terms of the lease and in the absence of any other material or evidence it could not be held that the sum of Rs 55200 was paid by way of advance rental465 G 466 B ii The question whether premium is a capital or a revenue receipt cannot be decided as a pure question of law
Its decision necessarily depends upon the facts and circumstances of each case
It would not however be wrong to say that prima facie premium or salami is not income and it would be for the income tax authorities to show that facts exist which would make it a revenue receipt
467 B According to the terms of the lease in the present case  the payment of rent was to commence not from the date of the lease which was February 23 1946 but with effect from June 1 1946
The lessees entered into possession after the cinema house had been completed which was subsequent to the date of the lease
These facts coupled with the payment of a lump sum which was of a non recurring nature showed that the amount in question had all the characteristics of a capital payment and was not revenue
467 C D Henriksen vs Grafton Hotel Ltd  Commissioner of Income tax Bihar  Orissa vs Visweshwar 1939 7 ITR 536 and 463 Member for the Board of Agricultural Income tax vs Sindhurani Chaudhurani  Ors  applied