# Commissioner o/" lncome-nrx. Assam v. The Pcmbari Tl!a Co. Ltd

- **Citation:** [1972] 1 S.C.R. 36
- **Court:** Supreme Court of India
- **Decided:** 1971-08-05
- **Case number:** Civill Appeal No. c 1732 of 1967
- **Bench:** K.S. Hegde, A.N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-o-lncome-nrx-assam-v-the-pcmbari-tl-a-co-ltd-5365
- **Pages:** 8

## Headnote

}ik.'OIIle-tax- Prelllit/111 for mining Jease- fl' r £'1'£'111/e vr capital receipt-
:Priw:iples for determining.
The assessee had granted a prospecting, lease of his land to a com.
pany in 1941 for a period of one y_ear. In 1944 he granted ~~ h.:asc or
mining rights to the same company m respect of a part of the land for a c
period of 30 years.
T~e assessee took a large amount by way of pre.
mium bul charg;ed a sl1ghtly lesser amouru than what he had charged
·in the prospect1ng lease, by way of royalty. The assessee had also
HTantcd other leases and the premium per acre in the case of those leases
~as very much less than the premium per acre in the 1944-lease.
On the question whether the premium or· a pJrt of it was in the nature D
of a revenue receipt. the High Court on reference, held against the
. assessee.
In appectl to this Coun,
·IIELD: (I) When the interest of the
l~ssor is parted for a price,
the price paid is premium or salami but the periodical payments made
ror the continuous enjoyment of the benefits under the lease are in the
£
nature or rent. The former is capitC:Jl receipt and the Iauer a revenue
receipt. ln finding the real natLtre of the transaction it is not the nomcndature or fonn but the circumstances of the transaction that
matter.
The onus. however. is upon the Income-tax ;tuthorities to show that
there exist racts an LI circumstances which would make payment or what
has been called salami. income. l 39E-Hl
Commissioner o/" lncome-nrx. Assam v. The Pcmbari Tl!a Co. Ltd.
F
f 19651 3S.C. R. 811 ~ fo ll owed .
(2) The terms of 1941-lease wl1ich was only for one year and which
was for the entirely diffei·ent purpose of prospecting would not afford
any reasonable basis for hold·i,,g that the ·terms of J 944-lease. which
·was a mining lease for 30 years, were fixed in such a manner that part
pf the proceeds of the royalty were included in the figure of the sala1~1 i .
G
When the lessor creates a lease for a lonu IJeriod it is leo-itimate for h 1111
~
e
to charge more amount by way of premium as he is transferring posscs-
., ion or the demised land and he may cl1arge -royalty at a slightly l c~sc-r
rate. The mere !'act that the amount taken on account or prcnuulll
was substamial and on the face of it looked considerably large would
not .iu~ til·y the view that the amount represented capitalised royalty.
_
J.40H . .t I.L\-E] J1
. _t}) The fact that the prem.ium was approximately equal
to _,~~~~
-~IJikrcnce betWC'Cll the total ~ll1 0 Uilt S or royalty (a)cu!Htel~ ~ ( the J,li~ -
Jll the 194 1-lcasc and the "1 944-.lea ~c, would not justify :tn Jnfc rt.: J lC~ tll.lt
f
CHlNTAMANI V. C.l.T. (Grover, J.)
37
A
the amount was taken in exchange of. royalty because, the assessee could
·not have known how much mineral could be extracted from the areas
:11 the time of granting the 1944-lease. [ 43A-C]. ·
.
(4) It was open to the Departmental authorities to have examined
the assessee or his representative and discovered all the reasons for the
terms in the various ·leases being different. The Department could
B
l'!)so have ascertained the details of the quantity of mineral which could
be extracted from the areas covered by the l1ther leases and discharged
the onus which lay on the Revenue to show that the payment of premium was in fact of royalty.
But the same was not done.[ 42E-G] .

## Text

CfllNTAMANl SARAN
NATH SAH DEO
l '.
C.I.T. BIHAR & ORISSA
August 5, 1971
[K.S. HEGDE AND A.N. GROVER, JJ.]
}ik.'OIIle-tax- Prelllit/111 for mining Jease- fl' r £'1'£'111/e vr capital receipt-
:Priw:iples for determining.
The assessee had granted a prospecting, lease of his land to a com.
pany in 1941 for a period of one y_ear. In 1944 he granted ~~ h.:asc or
mining rights to the same company m respect of a part of the land for a c
period of 30 years.
T~e assessee took a large amount by way of pre.
mium bul charg;ed a sl1ghtly lesser amouru than what he had charged
·in the prospect1ng lease, by way of royalty. The assessee had also
HTantcd other leases and the premium per acre in the case of those leases
~as very much less than the premium per acre in the 1944-lease.
On the question whether the premium or· a pJrt of it was in the nature D
of a revenue receipt. the High Court on reference, held against the
. assessee.
In appectl to this Coun,
·IIELD: (I) When the interest of the
l~ssor is parted for a price,
the price paid is premium or salami but the periodical payments made
ror the continuous enjoyment of the benefits under the lease are in the
£
nature or rent. The former is capitC:Jl receipt and the Iauer a revenue
receipt. ln finding the real natLtre of the transaction it is not the nomcndature or fonn but the circumstances of the transaction that
matter.
The onus. however. is upon the Income-tax ;tuthorities to show that
there exist racts an LI circumstances which would make payment or what
has been called salami. income. l 39E-Hl
Commissioner o/" lncome-nrx. Assam v. The Pcmbari Tl!a Co. Ltd.
F
f 19651 3S.C. R. 811 ~ fo ll owed .
(2) The terms of 1941-lease wl1ich was only for one year and which
was for the entirely diffei·ent purpose of prospecting would not afford
any reasonable basis for hold·i,,g that the ·terms of J 944-lease. which
·was a mining lease for 30 years, were fixed in such a manner that part
pf the proceeds of the royalty were included in the figure of the sala1~1 i .
G
When the lessor creates a lease for a lonu IJeriod it is leo-itimate for h 1111
~
e
to charge more amount by way of premium as he is transferring posscs-
., ion or the demised land and he may cl1arge -royalty at a slightly l c~sc-r
rate. The mere !'act that the amount taken on account or prcnuulll
was substamial and on the face of it looked considerably large would
not .iu~ til·y the view that the amount represented capitalised royalty.
_
J.40H . .t I.L\-E] J1
. _t}) The fact that the prem.ium was approximately equal
to _,~~~~
-~IJikrcnce betWC'Cll the total ~ll1 0 Uilt S or royalty (a)cu!Htel~ ~ ( the J,li~ -
Jll the 194 1-lcasc and the "1 944-.lea ~c, would not justify :tn Jnfc rt.: J lC~ tll.lt
f
CHlNTAMANI V. C.l.T. (Grover, J.)
37
A
the amount was taken in exchange of. royalty because, the assessee could
·not have known how much mineral could be extracted from the areas
:11 the time of granting the 1944-lease. [ 43A-C]. ·
.
(4) It was open to the Departmental authorities to have examined
the assessee or his representative and discovered all the reasons for the
terms in the various ·leases being different. The Department could
B
l'!)so have ascertained the details of the quantity of mineral which could
be extracted from the areas covered by the l1ther leases and discharged
the onus which lay on the Revenue to show that the payment of premium was in fact of royalty.
But the same was not done.[ 42E-G] .
CIVIL APPELLATE JURISDICTION : Civill Appeal No.
c 1732 of 1967.
D
Appeal from the judgment and order dated December
22, 1965 of the Patna High Court in Misc. Judicial Case
No. 101 of 1962.
M. C. Chagla and B. P. Singh. for the appeii~nt.
Jagadish Swarup' Solicitor-General J. R{lmamurthi.
R.N. Sachthey and B. D.
Sharma for the respondent.
The Judgment of the Court was delivered by
£
•
Grover, J. This is an appeal from a judgment of
the Patna High Court in a reference made to it under
s. 66(1) of the Income-tax Act, 1922, by the AppelJate Tribunal by which the following question of law was referred
for\ietetmination by the High Court:-
F ·
"Whether on the facts artd' circumstances
G
of this case, the T~ibunal was right' in ho1d'itlg
that the sum of Rs. 2,20,000/- was the incotne·
of the assessee assessa~le to tax underthe provisions of the lncome-tax A:ct ?"
The otiginal assessee was Maharaja· Partap. U gainath
. Sah D .
.!o~ the holder of an impaTtible ·estate: Oh January
22, 1944 the- as-s.essee. gt'anted a lease of certai~ mini 1g
riglits to Aluminium Production Company 'ttti. in resptct
of 1'11·03·. acres of land for a period of 30'. years~
Tl1~>:
H main terms wete as fo11'ows-: -
(i)· Salami (i-nclusive of Mt>harkari,and .. Bewani'
Negi amounthig to . Rs.S,OOO/··
R~: 2,25,600/-..
38
SUPREME COURT REPORTS
(ii) Rent
(iii) Royalty
(iv) Minimum royalty
[1972] 1 S.C.R.
-/8/- per acre
-/6/- per ton.
Rs. 22/- per acre.
Previously the asses~ee had granted a prospecting lease
B
of 311 acres of land to the same Company on March 20,
1941 for a period of one year. The area covered by that
lease though larger included substantially the area leased
out subsequently. The terms of the 1941-lease were that
sa1amj was payable at the rate of Rs. 100/- per acre and
royalty at the rate of -/8/- annas per ton.
c
\Vhile making the
assessment for the year 1944-45
the Incorne-tax Officer took the view that the assessee
had c-hosen to ~ake large sum by way of salami while
granting the lease in the year 1944 and had accepted Jesser
0
rate of royalty, the salami represented an advance paymem of royalty. He treated Rs. 5,000 out of the sum of
Rs. 1,25,000 as Dewani Negi and Moharkari and
the balance of Rs. 2,20,000 was treated by him as income
of th-: assessee, and the assessment was made accordingly.
On appeal the Appe1Iate
Assistant Commissioner held
F.
that the amount of Rs. 2,20,000 was paid by the Company
to the assessee as salami and as such it was a capital '
receipt and not taxable. On appeal by the Revenue the
Appellate Tribunal by an order dated August 7, 1952
remanded the case to the Appellate Assistant Commissioner for finding whether there were circumsta:r:ces to indi1<
cate that the salami was really receipt of income. The
Appellate Assistant Commissioner made a report dated
April 12, 1956. He gave a finding that the assessee had
intentionally accepted lower royalty and taken higher salami
and therefore the major portion of the sum of Rs. 2,20,000
had b~en taken in exchange of royalty that would have acG
crued during the period of lease. The Tribunal by an order
dated July 26, 1956 allowed the appeal of the Revenue and
restored the order of the Income-tax Officer.
The High
Court held that out of the sum ofRs. 2,20, 000 the amount
which could be regarded to be salami and treated as a capi~
tal receipt could reasonably be estimated at a sum of H
Rs. 20,000 which was not assessable to tax-:but,the remaining amount of Rs. 2, 00,000 was revenue teceipt and was
' .
f
i
A
B
CHINTAMANI V. C.I.T. (Grover, J.)
taxable as such. The question referred was reframed as
follows:-
"Whether on the facts and the circumstances of
this case,
the Tribunal was right in holding
that the sum of Rs. 2,20,000 or any portion
thereof was the income of the assessee assessable to tax under the provisions of the Incometax Act ?"
c It was answered partly in favour of the assessee but
substantially in favour of the Revenue.
The principles on which the courts have acted whenever a question has arisen whether a payment described
as a salami is capital or revenue receipt are well settled.
D
Salami is a single payment made for the acquisition of
the right of the lessor by the lessee to enjoy the benefits
granted to him 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 merely because a certain amount
E paid to the lessor is termed as salami it does not follow that
no inquiry can be made to determine whether it has or
has not an element of revenue receipt in the shape of
advance payment of royalty or rent. The onus, however,
is upon the income tax authorities to show that there
exist facts and circumstances which would make payment
F of what has been called salami, income. The position
may be summed up in this way. 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
G in the nature of rent; the former is a capital receipt and
the latter a revenue receipt.
Parties may camouflage
the real nature of the transaction by using clever phraseology and, therefore, it is not the form but the circumstances of the transaction that matter. The nomenclature
used may not be decisive or conclusive but it helps the
courts, having regard to the other circumstances, to
H ascertain the intention of the parties. (See Commissioner of
Income-tax, Assam etc., v. The Panbari Tea Co. Ltd.)(1).
(1) fl965J 3 s.c.R. st 1.
.4-M 1245Sup. Cif71
40
SUPREME COURT REPORTS
(1972] 1 S.C.R.
Now the Appellate Tribunal appears to have based
its decision only on the difference between the amount
of salami and the rate of royalty between the prospecting
lease which was granted in 1941 and the subsequent
lease of 1944. This is what the Tribunal stated inlpara 7
of its order:-
"In 1941, the assessee had granted a prospecting
lease in favour of the very lessee taking a much
smaller premium fixing the ·royalty at -/8/- per
ton. He has not shown any justifiable reason for
fixing up a lower amount of -/6/- per ton by way
of royalty in the later lease. We found that outof the area of 171 acres that was covered by the
later lease a substantial portion of it about 140
acres were comprised in the area leased out by
the earlier deed of 1941. A weak argument was
attempted by the assessee's representative the
older lease was only for Bauxite whereas the ·
later lease was for laterite also. In view of
the fact that major portion of the area that is
covered in the new lease was in the older lease
and as in the course of the producing Bauxite,
Laterite also becomes available, we do not see
any justification for the assessee agreeing to
take a lesser amount by way of royalty."
the Tribunal proceeded to say:-
"Here in the present case what we find is that
the assessee had chosen to take a large amount
by way of premium. but a lesser amount by way
of royalty. The patent reason for the assessee
to take a lesser amount by way of royalty was
that the amount received by him as salami was
not taxable. There is, therefore, no doubt in
this case that the sum received by the assessee by
way of salami or premium was in substance an
advance payment of royalty. We are, therefore,
in entire agreement with the Income-tax Officer's
order."
We are unable to appreciate how a comparison of the
terms o.f the lease of 1941 which was only for one year
and which was for a different purpose, namely, prospecting could afford a reasonable basis
for determining
A
B
c
D
E
F
G
H'
CHINTAMANI V. C,I.T. (Grover, /.)
41
A whether the terms of the 1944 lease were fixed in such
manner that part of the proceeds of royalty were included
in the figure of the salami. The object of a prospecting
lease is entirely different and since the period was
only one year it is quite reasonable to assume that the royB alty was . fixed at a higher rate because it was not known
how much quantity of mineral would be extracted during
that period. The lease of 1944 was for a much longer
period i.e. 30 years. When a lessor creates a lease for
that period it is legitimate for him to charge more amount
,,
by way of salami or premium as he is transferring pose session of the demised land for a considerably long period.
A lessor may also think that the rate of royalty need
not be the same· as it was in the case of the prospecting
lease and taking an over all business view royalty at a
slightly less rate may be charged. The Tribunal's decision
based as it was only on a comparison of the terms of the
D leases of 1941 and 1944 does not appear to take into
consideration all these
relevant matters. It must not
}
be forgotten that the mere fact that the amount taken on
account of salami was substantial and on the face it looked
considerably large '.vould not justify the view that that
amount represented capitalised royalty. ]n the Panbari
E Tea (1) case certain tea estates had been leased out
for a period of 10 year. The lease was executed on
a consideration of a sum of Rs. 2,25,000 as and by way
of premium or salami and an annual rent of Rs. 54,000
to be paid by the lessee to the lessor. The payments
were to be made by instalments. This Court declined to
F assume that the parties had camouflaged their real intention and fixed .a part of the rent in the· shape of premium and it was observed that no material had been
placed either direct or circumstantial to disbelieve the
description given in the lease deed to the amount as.
G premium and to hold that it was not in fact premium but
only rent. The position does not seem to be different
in the present case.
A good deal of emphasis has been laid on behalf
of the Revenue on the statement in the order of the T ribu_nal towards the conclusion that it was in entire agreeH ment with the Income-tax Officer's order. It is submitted
that the Income tax-.:Oflicer had gone into the details of
(1} P965j 3 S.C.R. 811.
42
SUPREME COURT REPORTS
[1972] 1 S.C.R.
other leases which had been granted by the assessee. of A
similar nature and after a comparison of the terms of
those leases the Income-tax Officer had reached the conclusion that the amount of salami represented the capitalised royalty. We cannot read the order of the Tribunal
in that way.
The Tribunal agreed only with the operative
B
part of the order of the Income-tax Officer but not with
his reasoning. At any rate, the Appellate Assistant Commissioner had submitted a remand report pursuant to
a previous order of the Tribunal and it does not appear
that the facts given in that report were at all considered
by the Tribunal although the High Court based its deci- c
sion largely on them. The terms of the leases on which
the High Court relied related to the years 1933, 1938 and
1945, the rate of royalty varied from 8 annas to 12 annas
per ton and that of salami from Rs. 100 to Rs. 130
per acre.
No attempt was made to examine anyone on
be'1alf of the assessee to explain all the circumtances in
D
which these leases had been granted.
The High Court
felt that it was for the assessee to furnish an explanation
as to why salami in the case of 1944 lease was raised to
Rs. 1284 per acre whereas in the other ]eases the figure
was much less as stated before. This approach cannot
be regarded as correct. The onus was on the Revenue
E
to show what was stipulated in the indenture of lease as
a payment by way of salami was some other kind of payment, namely, royalty, camouflaged as salami. In this
situation it was open to the Appellate Assistant Commissioner at the stage of submitting the remand report to
have examined the assessee or his representativ.e and disF
covered all the reasons for the terms being different. AnDther factor that was relied upon was the report of the
Mines Superintendent dated January 7, 1956 according
to whom the area leased out in 1944 contained commercial
grade Bauxite of approximately 13 lakh
tons.
The
G
Appellate Assistant Commissioner at the stage of remand
worked out the amount which would be payable as roya1ty on this estimated quantity of the total reserve of Bauxite in the demised area.
The total
amount of
royalty
was
calculated
at
Rs.
6,50,000
according
to
the rates fixed by the 1941 lease and at Rs. 4,87,500
H
according to the rate agreed upon
in the
1944
lease.
The High Court was of the view that these figures showed
}
CHINTAMANI V. C.I.T. (Grover, j,)
43
A
that the major part of the salami of Rs 2,25,000 had been
taken in exchange of the royalty that would have accrued
during the period of the lease. We have already pointed
out that a comparison of the terms of the prospecting
lease which was only for one year with the subsequent
8
lease of 1944 which was for 30 years could not furnish a
proper basis for determining the point in dispute. Mcrcover
the High Court lost sight of the fact that the report of the
Mines Superintendent was made long after the date of
the 1944 lease and it could not be assumed that at the time
of the granting of that lease the assessee knew how much
c quantity of the mineral could be extracted from the area
which had been leased out. Even the High Court felt, in
disagreement with the Tribunal, that the entire amount
of the salami could not be regarded as representing the
capitalised value of royalties. The High Court proceeded to assess the salami at Rs. 20,000 on the basis that
D
for the other leases the rate agreed upon was Rs. 100
per acre.
We .are unable to concur in this method of
computing the
amount of the
salami. Much more
material was required for discharging the onus which lay
on the Revenue to show that the assessee was bound to
charge only the same amount of salami which had been
E taken for the other leases about which the details of the
quantity of minerals which could be extracted from the
area covered by them were altogether lacking.
For the reasons given above the appeal is allowed
and the order of the High Court is set aside. The answer to
F the question referred is returned in favour of the assessee
and against the Revenue. The assessee shall be entitled
to costs in this Court and in the High Court.
V.P.S.
Appeal a!lu~tr:d.