Case: Maharaja Chintamani Saran Nath Sah Deo Vs. The Commissioner Of Income-Tax, Bihar &amp; Orissa

In Sindhuranis case, 1957 SCR 1019 : ( (S) Air 1957 SC 729 ) salami was a lump sum payment as consideration for what the landlord was transferring to the tenant, i.e., parting with his right, under the lease of a holding. In the instant case the terms of the covenant quoted above show that the payment has a close analogy to the payment in Sinduranis case, 1957 SCR 1019 : ( (S) AIR 1957 SC 729 ). That case was sought to be distinguished by the respondent on the ground that there was a transfer of a tenancy which was capable of ripening into an occupancy holding but that was not the ground on which this court decided the case of salami. 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. In Kamakshya Narain Singhs case 70 Ind App 180 : (AIR 1943 PC 153 ) also the Privy Council laid the definition of salami in general terms and described the characteristics of a payment by way of salami without any reference to the nature of the lease.8. In reply to the argument of counsel for the appellant, Mr. Rajagopala Sastri for the respondent argued that the question was whether the licensor had allowed the licensee to take his capital or he had allowed him to use the capital. If it was the former, the receipts were in the nature of capital receipts and if latter they were in the nature of revenue. His contention was that it was really the latter because all that the licensee was allowed to do was to enter on the lands and make use of the assets belonging to the appellant. This, in our opinion, is not a correct approach to the question. What the license gave to the licensee was the right to enter upon the land to prospect, search and mine quarry, bore, dig and prove all Bauxite lying in or within the land and for that purpose the licensee had the right to dig pits, shafts, borings and to remove, take away and appropriate samples and specimens of Bauxites in reasonable quantities not exceeding 100 tons in the aggregate. It cannot be said that this amounts merely to a grant of the use of the capital of the licensor but it was really a grant of a right to a portion of the capital in the shape of a general right to the capital asset.9. In support of this distinction between the use of capital and the taking away of capital, counsel relied upon the following observation of Lawrence J. in Greyhound Racing Assocn. (Liverpol) Ltd. v. Cooper, (1936) 20 Tax Cas 373 :"The question as to what receipts are revenue and what are capital has given rise to much difference of opinion; but it is clear, in my opinion that, if the sum in question is received for what is in truth the user of capital assets and not for their realisation it is a revenue receipt, not capital;"That may be so but the question has to be decided on the nature of the grant. The terms of the covenant in the present case which have been quoted above show that the transaction was not one merely of the user of capital assets but of their realisation By this test therefore the receipts were on capital account and not revenue. Counsel then referred to a judgment of the Patna High Court in H. P. Bannerji v. Commissioner of Income-tax B. and O., 1951-19 ITR 596 : (AIR 1951 Pat 565) where it was held that compensation received by the assessee for use by the military of his lands for a short period was a revenue receipt. In that case the assessee purchased 13 bighas of land for purposes of settling up a market. That plot was requisitioned by the military authorities under the Defence of India Rules and the assessee received compensation for the use of the land. It was held to be a revenue receipt because it was really profits derived from the land for the use of a capital asset.10. Another case upon which counsel for the respondent placed reliance is Smethurst v. Davy, (1957) 37 tax Cas 593. That was a case which was decided on the wording of S. 31(10) (d) of the Finance Act of 1948, and therefore is not of much assistance.11. Reference was also made to Stow Bardolph Gravel Co. Ltd. v. Pool, (1955) 35 Tax Case 459. There the assessee company, which carried on business in sand and gravel, purchased two unworked deposits. The company contended that the payments made to acquire the deposits were deductible being expenditure which was incurred in the acquisition of trading stock or otherwise of revenue character. It was held that the company had acquired a capital asset and not stock-in-trade. The case turned upon a finding by the special commissioners and is not helpful. Reliance was also placed on Meenakshamma v. Commr. of Income-tax, Hyderabad, 1956-30 ITR 286 : (AIR 1956 Andhra 229). In that case certain fixed sums of money were paid as royalty for the whole period of the lease which were held to be revenue receipts as consolidated advance payments of the amount which would otherwise have been payable periodically.12. None of these cases is of any assistance to the respondents case. The question which has to be decided is what was the nature of the transaction. The covenants in the licence show that the licensee had a right to enter upon the land and take away and appropriate samples of all Bauxite of every kind up to 100 tons and therefore there was a transfer of the right the consideration for which would be a capital payment.13. In our opinion the High Court was in error and the question referred should have been decided in favour of the appellant.

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

Explanation:
1[ds]This, in our opinion, is not a correct approach to the question. What the license gave to the licensee was the right to enter upon the land to prospect, search and mine quarry, bore, dig and prove all Bauxite lying in or within the land and for that purpose the licensee had the right to dig pits, shafts, borings and to remove, take away and appropriate samples and specimens of Bauxites in reasonable quantities not exceeding 100 tons in the aggregate. It cannot be said that this amounts merely to a grant of the use of the capital of the licensor but it was really a grant of a right to a portion of the capital in the shape of a general right to the capital asset.The periods of the licences were comparatively short 6 months in two cases and a year each in the other two. Under the covenants the licensees were to cause as little damage as possible to the surface of the land. They were to give full information regarding the progress of the operations and true copies of all borings to the licensor. The licensees were also required to plug all holes made by them. The licensor covenanted to give a reasonable right of passage through and over the adjoining lands and properties and in consideration of the premium paid, the licensees could, at their option, after giving necessary notice and on payment of a further sum, get a mining lease for a term of thirty years on the terms and conditions set out in the indenture attached as schedule 2 to the licence. The Income-tax Appellate Tribunal found that the licensees were not granted any interest in land and the amounts received were revenue receipts and therefore, assessable to income-tax.There the assessee company, which carried on business in sand and gravel, purchased two unworked deposits. The company contended that the payments made to acquire the deposits were deductible being expenditure which was incurred in the acquisition of trading stock or otherwise of revenue character. It was held that the company had acquired a capital asset and not stock-in-trade. The case turned upon a finding by the special commissioners and is not helpful.In our opinion the High Court was in error and the question referred should have been decided in favour of the appellant