ppeal No 150 of 1964
Appeal from the judgment and order dated March 22 1960 of the Assam High Court in Income tax Reference No 7 of 1959
ND Karkhanis and RN Sachthey for the appellant
Sampat Ayyangar and JP Goyal for the respondent
The Judgment of the Court was delivered by Subba Rao J
By a registered lease deed dated March 31 1950 the assessee company respondent herein leased out two tea estates named Panbari Tea Estate and Barchola Tea Estate along with machinery and buildings owned and held by it in Darrang in the State of Assam to a firm named Messrs Hiralal Ramdas for a period of ten years commencing from January 1 1950
The lease was executed in consideration of a sum of Rs 225000as and by way of premium and an annual rent of Rs 54000 to be paid by the lessee to the lessor
The premium was made payable as follows Rs 45000 to be paid in one lump sum at the time of the execution of the lease deed  and the balance of Rs 180000in 16 half yearly instalments of Rs 11250 on or before January 31 and July 31 of each year
The annual rent of Rs 54000 was payable as follows Rs 1000 per month to be paid on or before the last day of each month making in all Rs 12000 per year and the balance of Rs 42000 on or before December 31 of each year
On February 25 1957 for the assessment year 1952 53 the Income tax Officer made the assessment treating the instalment of Rs 11250 paid towards the premium in the relevant accounting year as a revenue receipt of the assessee
On appeal the Appellate Assistant Commissioner confirmed the order of the Income tax Officer
On further appeal the Income tax Appellate Tribunal also held that the premium was really the rent payable under the lease deed and therefore it was chargeable to income tax
At the instance of the assessee the Tribunal referred the following question to the High Court under section 661 of the Income tax Act 1922 herein after called the Act Whether on the facts and in the circumstances of the case and upon the construction of the terms of the lease dated 31st March 1950 the sum of Rs 11250 received by the assessee during the year of account is revenue or capital receipt
813 The High Court held that the said sum of Rs 11250 received by the assessee during the year of account was a capital receipt and answered the question accordingly
On a certificate issued by the High Court this appeal has been filed by the Revenue in his Court
The short question that arises in this appeal is whether the amount described as premium in the lease deed is really rent and therefore a revenue receipt
Before we look at the lease deed it will be convenient to notice briefly the law pertaining to the concept of premium which is also described as salami
The distinction between premium and rent was brought out by the Judicial Committee in Raja Bahadur Kamakshya Narain Singh of Ramgarh vs Commissioner of Income tax Bihar  Orissa 1 thus It salami is a single payment made for the acquisition of the right of the lessee 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 It is true that in that case the leases were granted for 999 years but though it was one of the circumstances it was not a decisive factor in the Judicial Committee coming to the conclusion that the salami paid under the leases was a capital asset
This Court in Member for the Board of Agriculture Income tax Assam vs Sindhurani Chaudhurani 2 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
 It is true that in that case the payment was paid in a single lump sum but that was not a conclusive test for salami can be paid in a single payment or by instalments
The real test is whether the said amount paid in a lump sum or in instalments is the consideration paid by the tenant for being let into possession
This Court again in Chintamani Saran Nath Sah Deo vs Commissioner of Income tax Bihar  Orissa1 considered all the relevant decisions on the subject in the context of licences granted to the assessee to 1  519
2 814 prospect for bauxite in some cases for 6 months and in others for a year or two and observed The definition of salami was a general one in that it was a consideration paid by a tenant for being let into possession for the purpose of creating a new tenancy
 Applying that test this Court held in that case that under the said licences there was a grant of a right to a portion of the capital of the licensor in the shape of a general right to the capital asset
In view of these three decisions it is not necessary to multiply citations
Under section 105 of the Transfer of Property Act a lease of immovable property is a transfer of a right to enjoy the property made for a certain time express or implied or in perpetuity in consideration of a price paid or promised or of money a share of crops service or any other thing of value to be rendered periodically or on specified occasions to the transferor by the transferee who accepts the transfer on such terms
The transferor is called the lessor the transferee is called the lessee the price is called the premium and the money share service or other thing to be so rendered is called the rent
The section therefore brings out the distinction between a price paid for a transfer of a right to enjoy the property and the rent to be paid periodically to the lessor
When the interest of the lessor is parted with for a price the price paid is premium or salami
But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent
The former is a capital income and the latter a revenue receipt
There may be circumstances where the parties may camouflage the real nature of transaction by using clever phraseology
In some cases the so called premium is in fact advance rent and in others rent is deferred price
It is not the form but the substance of the transaction that matters
The nomenclature used may not be decisive or conclusive but it helps the Court having regard to the other circumstances to ascertain the intention of the parties
Bearing the said principles in mind let us scrutinize the lease deed dated March 31 1950
Under that document interest in two large tea estates comprising 320 acres and 305 acres respectively under tea along with the bungalows factory buildings houses godowns cooly lines and other erections and structures was parted by the lessor to the lessee for a period of 10 years and during that period the lessee could enjoy the said tea estates in the manner prescribed in the document
Under the document therefore there was a transfer of substantive interest of the lessor in the estates to the lessee and a conferment of a right on the lessee to use the said estates by exploiting the same
Under cl 4 of the lease deed for the transfer of the right a premium of Rs 225000 had to be 815 paid to the lessor and for using the estates the lessee had to pay
an annual rent of Rs 54000 
Both the premium and the rent were payable in instalments in the manner provided in the document
The parties were businessmen presumably well versed in the working of tea estates
They must be assumed to have known the difference between the two expressions premium and rent and they had designedly used those two expressions to connote two different payments
The annual rent fixed was a considerable sum of Rs 54000 and the premium when spread over 10 years would work out to Rs 22500 a year
There is no reason therefore to assume that the parties camouflaged their real intention and fixed a part of the rent in the shape of premium
The mere fact that the premium was made payable in instalments cannot obviously be decisive of the question for that might have been to accommodate the lessee
Nor is cl 8 of the lease deed on which strong reliance is placed by the learned counsel for the Revenue a pointer to the contrary
It reads 1 If any of the aforesaid instalments towards the premium or annual rent shall remain unpaid for two months after becoming payable whether formally demanded or not or if the lessee shall make default in payment to the Lessor any other sum or any part thereof in due dates or in observing or performing any of the covenants conditions or stipulations hereinbefore contained and on the part of the Lessee to be paid observed and performed or if the Lessee s firm is dissolved except for reconstruction or if any of the partners of the Lessee is adjudicated insolvent then and in any such cases it shall be lawful for the Lessor immediately or at any time or times thereafter upon the demised Tea EStates and premises or any part thereof in the name of the whole to re enter and thereupon this demise shall absolutely determine but without prejudice to the rights of the Lessor to damages or compensation in respect of any breach of Lessee covenants herein contained and all other rights and remedies including the right to recover the balance of the instalment unpaid premium or rent payable in that particular year
 The argument is that in the case of default contemplated in this clause it shall be lawful for the lessor to re enter and in that event in terms of cl 8 he will be entitled only to recover the balance of the instalment of unpaid premium and not the entire balance of the premium
This construction though it appears to be plausible at first sight really ignores the main terms of the lease
The default clause is pressed into service to destroy the main term of the lease
Under el 1 of the lease deed the sum of Rs 225000 is the consideration by way of premium to be paid by the lessee to the lessor
Under cl 4 thereof the said entire premium has to be 816 paid in instalments under cl 8 the lessor has the option to terminate the lease and re enter the premises in the circumstances mentioned therein without prejudice to all his rights under the document
One of his rights is to recover the premium in instalments
The fact that one of the rights saved is his right to recover the balance of the instalment of unpaid premium cannot possibly deprive him of all his _other rights which are also expressly saved thereunder
The drafting of the clause is not artistic and is rather confused but in the context of the other clauses it cannot be so construed as to override
or come into conflict with the main terms of the lease deed
Thirdly it was contended that the income the lessor was getting under the lease after 1950 ie after the execution of the lease deed viz the total of the instalments of premium and rent was not higher than the profits he was getting before the lease and that was an indication that what was rent really was split up into premium and rent for ulterior purposes
This argument is based upon the following data collected from the published accounts of the assessee company Year ended Profit Deprecia Net Divided tion Profit tax free 1 2 3 4 5 Rs Rs Rs  31st March 1947  60186 8665 51521 9 31st March 1948  33118 7872 23246 9 31st March 1949  31581 7475 24106 6 31st March 1950  47734 17868 29866 12 31st March 1951  71888 17726 54162 6 31st March 1952  33213 15527 17686 6 31st March 1953  69550 15410 54140 6 In the accounts of the year to 31st March 1952 there are the following three items of expenditure Rs Transit charges   10605 Legal Expenses   7518 Gratuity to Managing Director  10000 28123 Before comparing the figures given for the two periods ie the period before March 1950 and the period thereafter it is necessary to add back the said three items of expenditure totalling 817 Rs 28123 to the net profit of the year ended with 31st March 1952 if they were added instead of Rs 17585  the profit would be Rs 45809 
A comparative study of the said figures discloses a higher return in the second period than during the earlier period
But an attempt is made to show that the figures of the later period include other items and if they are deducted the net profit would be comparable with that in the earlier period but there is no agreed data for this attempt and it is not possible on the material placed before us to scrutinize the figures
In the absence of the relevant material it is not possible to accept the argument built upon the said figures
The result is that there is no material placed before us either direct or circumstantial to displace the description given in the lease deed to the said amounts as premium and to hold that they are not in fact premium but only rent
Indeed the circumstances mentioned supra confirm the said description
In the result we hold that the High Court has given a correct answer to the question submitted to it by the Income tax Appellate Tribunal
The appeal is dismissed with costs
Appeal dismissed


Summary:
The assessee leased out its tea estates for a period of ten years in consideration of a sum as and by way of premium and an annual rent to be paid by the lessor to the assessee
As premium a part the sum was paid at the time of the execution of the lease and the balance was spread over in ten annual instalments and the annual rent was payable in monthly instalments
The annual instalment paid as premium was taxed by the Income Tax authorities as revenue receipt of the assessee
On reference the High Court held to be capital gains
In appeal by certificate
HELD The annual instalment paid as premium was capital gains
When the interest of the lessor is parted for a price the price paid is premium or salami
But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent
The former is a capital income and the latter a revenue receipt
There may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology
In some cases the so called premium is in fact advance rent and in others rent is a deferred price
It is not the form but the substance of the transaction that matters
The nomenclature used may not be decisive or conclusive but it helps the court having regard to the other circumstances to ascertain the intention of the parties
Premium can be paid in a single payment or by instalments
The real test is whether the said amount paid in a lump sum or in instalments is the consideration paid by the tenant for being let into possession 813 H 814 E G Raja Bahadar Kamakshya Narain Singh of Ramgarb vs Commissioner of Income tax Bihar and Orissa  Member for the Board of Agriculture Income tax Assam vs Sindhurani Chaudhurani  and Chintamani Saran Nath Sah Deo vs Commissioner of Income tax Bihar and Orissa 196141 ITR 506 applied
The parties who were businessmen well versed in their trade must be assumed to have known the difference between the two expressions premium and rent  and they had designedly used those two expressions to connote two different payments
The annual rent fixed was a considerable sum of Rs 54500 and the premium when spread over 10 years would work out to Rs 22500 a year
There was no reason therefore to assume that the parties camouflaged their real intention and fixed a part of the rent in the shape of premium
The LPD5SCII 13 812 mere fact that the premium was made payable in instalments could not obviously be decisive of the question for that might have been to accommodate the lessee
815 B C The construction based on the clause in the lease deed that on the default in the payments of the instalments of the premium or rent the lessor shall be entitled to recover the balance of the unpaid premium and not the entire balance of the premium really ignores the main terms of the lease
In the context of the other clauses this clause could not be so construed as to override or come into conflict with the main terms of the lease deed
815 H 816B