Case: Durga Das Khanna Vs. Commissioner Of Income-Tax, Calcutta

for 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. 1,00,000. Alternatively the sum of Rs. 55,200 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.5. It seems to us that the departmental authorities as well as the High Court were in error in treating the amount of Rs. 55,200 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 suggestion 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. 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 held that the sum of Rs. 55,200 was 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. 2,100 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. 2,250 per month and not Rs. 2,100 which was the agreed rent.6. 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., (1942) 24 Tax Cas 453:"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, J., (as he then was) in Commissioner of Income-tax, Bihar and Orissa v. Visweshwar Singh, 1939-7 ITR 536 (Pat), 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 v. Messrs Shaw Wallace and Co., AIR 1932 PC 138 , income in the Indian Income-tax Act connotes a periodical monetary return, coming in with sort of regularity or expected regularity from definite sources. The premium or 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. . .........It has not been even remotely suggested in the present case that the rent of Rs. 2,100 per month was ridiculously low as compared with the amount of Rs. 55,200 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 v. Sindhurani Chaudhurani, 1957-32 ITR 169 =(AIR 1957 SC 729 ) 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.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]5. It seems to us that the departmental authorities as well as the High Court were in error in treating the amount of Rs. 55,200 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 suggestion 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 thet has not been even remotely suggested in the present case that the rent of Rs. 2,100 per month was ridiculously low as compared with the amount of Rs. 55,200 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 notwould be in accord with the principles laid down by this Court in Member for the Board of Agricultural Income-tax v. Sindhurani Chaudhurani, 1957-32 ITR 169  =(AIR 1957 SC 729  ) 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.