Case: Commissioner Of Income-Tax, Assam Etc Vs. The Panbari Tea Co. Ltd

1. 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 10 years commencing from January 1, 1950. The lease was executed in consideration of a sum of Rs. 2,25,000 /- as and by way of premium and an annual rent of Rs. 54,000/- to be paid by the lessee to the lessor. The premium was made payable as follows : Rs. 45,000/ - to be paid in one lump sum at the time of the execution of the lease deed and the balance of Rs. 1,18,000/ - in 16 half yearly instalments of Rs. 11,250/ - on or before January 31 and July 31 of each year. The annual rent of Rs. 54,000/- was payable as follows : Rs. 1,000/ - per month to be paid on or before the last day of each month, making in all Rs.12,000/- per year, and the balance of Rs. 42,000 / - 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. 11,250/ - 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 S. 66(1) of the Income-tax Act, 1922, hereinafter 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. 11,250 received by the assessee during the year of account is revenue or capital receipt."The High Court held that the said sum of Rs. 11,250 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 the Court.

Court's reasoning:
Before comparing the figures given for the two periods, i.e., the period before March 1950 and the period thereafter, it is necessary to add back the said three items of expenditure totalling Rs. 28,123/- to the net profit of the year ended with 31st March, 1952; if they, were added, instead of Rs. 17,686/-, the profit would be Rs. 45,809/-. 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 figure;. In the absence of the relevant material it is not possible to accept the argument built upon the said figures9. 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.