# COMMISSIONER OF INCOME-TAX, ASSAM ETC v. THE PANBARI TEA CO. LTD - **Citation:** [1965] 3 S.C.R. 811 - **Court:** Supreme Court of India - **Decided:** 1965-04-19 - **Bench:** K. Subba Rao, J. C. Shah, S. M. Sikri - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-income-tax-assam-etc-v-the-panbari-tea-co-ltd-3463 - **Pages:** 7 ## Headnote Indian Income-tax Act (11 of 1922)-"Premium" and "rent"- Distinction-Premium paid in instalments-Whether caPitai gains or revenue receipts. 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 of 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 it to be capital gains. In appeal by certificate. HELD: The annual instalmeni 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 (,f 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 sci-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 possessi001. [813 H; 814 E-G] Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of Income-tax, Bihar and Orissa, (1943) 11 I.T.R. 513 Member for the Board of Agriculture Income-tax Assam v. Sindhurani Chaudhurani, (1957) 32 I.T.R. 169, and Chintamani Saran Nath Sah Dea v. Commissioner of Income-tax, Bihar and Orissa, (1961)41 I.T.R. 506, applied. The parties, who were businessmen well-versed in their trade must be assumed to have known the differen~e between the two ex~ pressions ·'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. 54,500/- and the premium, when spread over 10 years would work out to Rs. 22,500 /- 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 ~hape of premium. The J,/P(D)5SC f--13 811 812 Rlil>UEME l.'OUR'l' Rli!POR'l'.~ [1965] 3 S.C.R. mere fact that the premium was made payable in instalments could .l 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 d~fault 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 cl.ause B could not be so construed as to override or come into conflict with the main terms of the lease deed. [815 H, 816 BJ . C1v1L APPELLATE JURISDICTION: Civil Appeal No. 150 of 1964. Appeal frbm the judgment and order dated March 22, .1960, of the Assam High Court in Income-tax Reference No. 7 of 1959. C N. D. Karkhanis and R. N. Sachthey, for the appellant. Sampat Ayyangar and J. P. Goyal, for the respondent. The Judgment of the Cou.rt was delivered by Sobba Rao, J. By a registered lease deed dated March 31, 1950, the assessee-company, respondent herein, leased out two tea D estates named "Panbari Tea Estate'' and "Barchola Tea Estate", aloug 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 ## Text A B c D E F G H COMMISSIONER OF INCOME-TAX, ASSAM ETC. v. THE PANBARI TEA CO. LTD. April 19, 1965 [K. SUBBA RAO, J. C. SHAH AND S. M. SIKRI, JJ.J Indian Income-tax Act (11 of 1922)-"Premium" and "rent"- Distinction-Premium paid in instalments-Whether caPitai gains or revenue receipts. 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 of 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 it to be capital gains. In appeal by certificate. HELD: The annual instalmeni 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 (,f 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 sci-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 possessi001. [813 H; 814 E-G] Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of Income-tax, Bihar and Orissa, (1943) 11 I.T.R. 513 Member for the Board of Agriculture Income-tax Assam v. Sindhurani Chaudhurani, (1957) 32 I.T.R. 169, and Chintamani Saran Nath Sah Dea v. Commissioner of Income-tax, Bihar and Orissa, (1961)41 I.T.R. 506, applied. The parties, who were businessmen well-versed in their trade must be assumed to have known the differen~e between the two ex~ pressions ·'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. 54,500/- and the premium, when spread over 10 years would work out to Rs. 22,500 /- 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 ~hape of premium. The J,/P(D)5SC f--13 811 812 Rlil>UEME l.'OUR'l' Rli!POR'l'.~ [1965] 3 S.C.R. mere fact that the premium was made payable in instalments could .l 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 d~fault 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 cl.ause B could not be so construed as to override or come into conflict with the main terms of the lease deed. [815 H, 816 BJ . C1v1L APPELLATE JURISDICTION: Civil Appeal No. 150 of 1964. Appeal frbm the judgment and order dated March 22, .1960, of the Assam High Court in Income-tax Reference No. 7 of 1959. C N. D. Karkhanis and R. N. Sachthey, for the appellant. Sampat Ayyangar and J. P. Goyal, for the respondent. The Judgment of the Cou.rt was delivered by Sobba Rao, J. By a registered lease deed dated March 31, 1950, the assessee-company, respondent herein, leased out two tea D estates named "Panbari Tea Estate'' and "Barchola Tea Estate", aloug 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 l, 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 E 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. 1,80,000/- in 16 half yearly instalments of Rs. 11,250/- Im 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 F 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 accountG ing year as a revenue receipt of the assessee. On appeal, the Appellate Assistant Commissioner confirmed the order of the Incometax Officer. On further appeal, the Income-tax Appellate Tribunal also held that the premium was really the rerit payable under the lease deed and, therefore, it was chargeable to income-tax. At the instance of the assessee, the Tribunal referred the following quesH tion to the High Court under s. 66(1) 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. 11,250/- received by the assessee during the year of account is re: venue or capital receip_t". 4 •• C.I.T. v. PANBARI TEA co. (Subba Rao, J.) 818 A The High Court held that the said sum of Rs. l l,25_D/- rece~ved by the assessee during the year of account was a capital receipt and answered the question accordingly. On a certificate iss~ed ~y the High Court, this appeal has been filed by the Revenue ID this Court. B 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. C The distinction between premium and rent was brought out by D E the Judicial Committee in Raja Bahadur Kamakshya Narain Singh of Ramgarh v. ,Commissioner of Income-tax, Bihar & Orissa (') 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, thbugh it was one of the circumstances, it was not a ·decisive factor in the Judicial Committee coming tG 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 v. SindF hurani Chaudhurani (') defined "salami" as follows: G P. "The indicia of salami are (I) 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 s~m, but that was not a. conclusive test, for salami can be paid in a smgle payment or by mstalments. 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 possessibn. This Court again in Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax, Bihar & Orissa(') considered all the relevant decisions on the subject in the context of licences granted to the assessee to (') [1943] 11 I.T !<. 513, 519. (') [1957] 32 I.T.R 169. IUPJl.J:llE COUB.'l' RBPOltTS [1965] :1 s.c.a. · prospect for bauxite in some cases for 6 months and in others for A 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 tlilis 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 aot necessary to multiply citations. B c Under s. 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, D 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. E When the interest of the lessor is parted with for a price, the price μaid 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 fom1er is a capital income and the latter a ·revenue receipt. There may be circumstances where the parties may ~amouflage the real nature of transaction by using clever F phraseology. In some cases, the so-called premium is in fact advance rent ·and in oth.ers 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. G 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 H 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. 2.25.000/- bad to be ' ~· - ... A 0 D F C.I.T. !'. PA: