# i>i.JRGA DAS kHANNA v. COMMISSIONER OF INCOME-TAX, CALCUTTA

- **Citation:** [1969] 3 S.C.R. 462
- **Court:** Supreme Court of India
- **Decided:** 1969-01-30
- **Case number:** Civil Appeal No. 873 of 1966
- **Bench:** J.C. Shah, V. Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/i-i-jrga-das-khanna-v-commissioner-of-income-tax-calcutta-4601
- **Pages:** 6

## Headnote

lncome•tax--CapitaL or Revenue-Thirty years
lease of cine1naLessee contributing part of 1noney for construction of cinema-No stipulation that it wt:t.· to be trea1ed as advance rent or salami-Nature of re ..
ceipt-Whether taxable.
On July 19, 1945 the asscssee took on lease certain premises in Cal-,,
cutta on a monthly rentaJ.
He made some alterations in the premises so
as to convert it into a cinema house but found himself shore of money.
As permitted by the terms of his lease he leased the premises on February
23, 1946 to certain parties.
According to the terms of the indenlure the
lessees agreed to pay him Rs. 55,200 towards construction of the cinema
house which would on completion be let to them ,at a monthly renLal of
Rs. 2,100 payable with effect from June I, 1946. The Income-tax authorities treated the sum of !ls. 55,200 thus received as taxable and the High
Court on reference held '!1e same.
In .appeal by the. assessee this Court
had to consider whether the receipt was taxable.
HELD : (i) 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
whi'ch
it could be inferred that the
aforesaid amount had been paid by way of advance rent. The transaction embodied in the indenture o! 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 suggestions and re·
quirement of the lessees.
The lessees agreed to pay him the aforesaid
amount by way of a lump :$Um without making any provision 1for its ad~
justment towards the rent or repayment by the lessor.
10n the terms of
the lease and in the absence of any other material or evidence it could
not be held that the sum of Rs. 55,200 was paid by way of advance
rental. [465 G-466 BJ
(ii) The question whethe1· 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 fac:ie
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.
{467 B]
According to the terms of the lease, in the present case, the payment
of rent was to commence not from the date of the lease which was February 23, 1946 but with effect from June I, 1946.
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
;t. lump sum which was of a non-recurring nature showed that "the etmoun.t
in question had all the char<.icteristics of a capital payment and was not
revenue.
[467 C-D]
Jienriks." v. G1u}lvfi /fo1d Ltd., 24 T.C.
453,
Commissioner of
Income-tax, Bihar & Orissa v. Visweshwar,
[1939] 7 I.T.R. 536 and
A
c
D
E
F
G
H
DURGA DAS v. c.1:r. (Grover, J.)
463
A
Member for the Board of Agricultural Income-tax v. Sindhurani Chaudhurani & Ors., [1957] 32 l.T.R. 169, applied.

## Text

i>i.JRGA DAS kHANNA
v.
COMMISSIONER OF INCOME-TAX, CALCUTTA
January 30, 1969
[J.C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.]
lncome•tax--CapitaL or Revenue-Thirty years
lease of cine1naLessee contributing part of 1noney for construction of cinema-No stipulation that it wt:t.· to be trea1ed as advance rent or salami-Nature of re ..
ceipt-Whether taxable.
On July 19, 1945 the asscssee took on lease certain premises in Cal-,,
cutta on a monthly rentaJ.
He made some alterations in the premises so
as to convert it into a cinema house but found himself shore of money.
As permitted by the terms of his lease he leased the premises on February
23, 1946 to certain parties.
According to the terms of the indenlure the
lessees agreed to pay him Rs. 55,200 towards construction of the cinema
house which would on completion be let to them ,at a monthly renLal of
Rs. 2,100 payable with effect from June I, 1946. The Income-tax authorities treated the sum of !ls. 55,200 thus received as taxable and the High
Court on reference held '!1e same.
In .appeal by the. assessee this Court
had to consider whether the receipt was taxable.
HELD : (i) 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
whi'ch
it could be inferred that the
aforesaid amount had been paid by way of advance rent. The transaction embodied in the indenture o! 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 suggestions and re·
quirement of the lessees.
The lessees agreed to pay him the aforesaid
amount by way of a lump :$Um without making any provision 1for its ad~
justment towards the rent or repayment by the lessor.
10n the terms of
the lease and in the absence of any other material or evidence it could
not be held that the sum of Rs. 55,200 was paid by way of advance
rental. [465 G-466 BJ
(ii) The question whethe1· 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 fac:ie
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.
{467 B]
According to the terms of the lease, in the present case, the payment
of rent was to commence not from the date of the lease which was February 23, 1946 but with effect from June I, 1946.
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
;t. lump sum which was of a non-recurring nature showed that "the etmoun.t
in question had all the char<.icteristics of a capital payment and was not
revenue.
[467 C-D]
Jienriks." v. G1u}lvfi /fo1d Ltd., 24 T.C.
453,
Commissioner of
Income-tax, Bihar & Orissa v. Visweshwar,
[1939] 7 I.T.R. 536 and
A
c
D
E
F
G
H
DURGA DAS v. c.1:r. (Grover, J.)
463
A
Member for the Board of Agricultural Income-tax v. Sindhurani Chaudhurani & Ors., [1957] 32 l.T.R. 169, applied.
CIVIL APPELLATE JURISDICTION :
Civil Appeal No. 873 of
1966.
Appeal by special leave from the judgment and order dated
8
March 26, 1 \165 of the Calcutta High Court in I. T. Ref. No. 107
of 1960.
c
D
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Sukumar Mitra and D. N. Mukherjee, for the appellant.
Niren De, Attorney-General, S. C. Manchanda and R. N.
Sac ht hey, for the respondent.
The Judgment of the Court was delivered by
Grover, J,
This is an appeal by special leave from the judgment of the Calcutta High Court in an Income tax Reference in
which the question that had to be answered by the High Court
was "whether on the facts and circumstance of the case the sum
oi Rs. 55,200/- was a revenue receipt being rent received in
advance thus liable to be taxed ?"
On July 19, 1945, the assessee took on lease premises No. 157
Upper Circular Road, Calcutta for a term of 99 years on a monthly rental of Rs. 750/-. It was stipulated inter-alia that the lessee
could assign the lease with the consent of the lessor.
He could
·after the structures on the premises so as to convert them into a
cinema if necessary.
After expending Rs. 35.000/- on some
alterations to the premises the assessee felt the ne1..essity of having
some more money in order to convert the building into a cinema.
He entered into a lease on February 23, 1946 with three persoplll,
namely, Nani Gopal Dutt, Makhan Lal Dutt and Shiv Kumar
Khanna.
By this lease, t\J.e building which was called 'Khanna
F
Cinema house' at 157, Upper Circular Road, Calcutta was demised to the lessees for a period of 30 years.
The lessees agreed to
pay under the indenture of lease Rs. 55,200/- to the lessor towards the cost of erecting the said cinema.
The rent which was
agreed to be paid was Rs. 2, 100 I - per month.
It was payable
With effect from June 1, 1946. It is necessary to set out the
G
H
relevant portion of the lease :
"And whereas the lessor obtained sanction
from
the Corporation of Calcutta and other necessary authorities and commenced the erection of a Cinema House
the estimated total cost of which is about Rs. 1,00,000/-
(Rupees one lac). And whereas the lessees agreed
to pay to the lessor a sum of Rs. 55,200/- (Rupees
Fifty five thousand and two hundred)
towards
the
cost of the erection of the said cinema house according
to their suggestion '&lld other charges
and expenses
'
464
SUPREME COURT REPORTS
[1969] 3 S.C.R.
incurred therefor by the lessor.
And whereas the construction of the said Cinema: House is almost complete
and is expected to be completed by the end of March,
One Thousand Nine Hundred and Forty six and whereas
the lessee have called upon the lessor to grant to them
a lease of the said Cinema House which the lessor lras
agreed to do upon payment by the lessees of the said
agreed sum of Rs. 55,200/- (Rupees fifty five thousand
and two hundred), towards the costs of building the
said Cilllema House and whereas the lessees have paid
to the lessor the said sum of Rs. 55,200 (Rupees Fifty
five thousand and two hundred) for which
separate
receipt has been granted by the lessor."
After the Cinema House had been completed the lessees entered
into possession and started exhibiting shows there.
For the assessment year 194 7-48 the corresponding accounting year being the financial year ending March 31, 194 7,
the
Income tax Officer sought to treat the sum of Rs. 55,200/ received
by the assessee as his income.
The contention of the assessee
was that the aforesaid amount should be treated as capital receipt.
Alternatively if it was to be treated as salami (premium) and
was to be taxed as a revenue receipt it should be distributed evenly
over the ·entire term of the lease i.e. 30 years. The Income tax
Officer did not accept either of the contentions of the assessee.
It was held by him that the lease was i!!Ot permanent but was
temporary and that the salami had been fixed as an advance payment of rent and not as payment for transfer of the lease-hold
interest.
According to him the system of accountancy for this
source of income being QT) cash basis the whole of the receipt of
salami was liable to be taxed as one year's income in the year
of the receipt.
The assessee appealed to the Appellate Assistant
Commissioner who agreed with the Income tax Officer.
In his
view the lessees were under no legal obligation to contribute towards the cost of construction of the cinema house and the sum
of Rs. 55,200/-
constituted payment of advance rent.
The
assessee appealed to the Tribunal which held that the receipt of
the aforesaid amount was in the nature of advance payment of
rent since the assessee was short of fonds at the time the lease
was entered into and that the lease was for a short term and that
the amount in question repl"!sented consolidated rent for thirty
years paid in advance.
The High Court answered the question
which was referred in the affirmative and against the assessee.
According to the High Court the only ob_ject of the payment of
the sum of Rs. 55.200 1:ould bo lo advance the 1:ost of c·unstruction or to meet the existing liabilities of the asses;cc for completing the cinema house.
It was observed :-
A
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DURGA DAS '" C.l.T. (Grover, J.)
"Further it should be 1wtcd that the period of ]ease
is only for 30 years and the assessee's investment on
the Cinema is about Rs. 60.000/-, Rs. 35,000/- being
the costs e>f constructi<>n and Rs. 25,000/- being costs
of machinery with a liability to pay Rs. 750/- rent to
the owner of the plot.
As a result of this ]ease he has
got a rent of Rs. 2, 100/- for a term of 30 years.
Thus
there is no question of payment of any salami as no
further inducement for grant of the lease was necessary.
It is obvious that if the cost of construction of
the Cirrema House would have been met in its entirety
by the assessee and thereafter if the assessee
would
have granted the lease to the lessee, the rent would
certainly have been much higher.
Thus. the said sum
of Rs. 55.200/- in the absence of a different recital
can only be deemed to have been paid as an advance
rent in respect of the said Cinema House."
465
On. behalf of the appellant-assessee it has been urged that
the sum of Rs. 55,200/ was paid to the lessor in lump for completing the cinema house without which the lessee could not have
used the building for the purpose of exhibiting cinematograph
films.
According to the recitals in the deed which must be given
due effect the lessees agreed to give this amount towards the cost
al erection of the cinema house according to their suggestion and
for defraying other charges and expenses.
The payment of rent
was expressly stipulated at the rate of Rs. 2,100/- 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 beinl! about Rs. (00,000/-.
Alternatively the sum of
Rs. 55.200/- could be re1?arded iinly as
payment
of salami
(peemium) and could not be treated as revenue receipt, the payment being of a non-recurrinq nature.
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 e>f rent.
The lease by which the
cinema
house was demised did not contain anv condition or stipulation
from which it could be inferred that the aforesaid amount had
been paid bv wav 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 apparentlv represented that he did
not have enough money to complete it in accordance with' the
<;U~gestions and requirememt of the lessees.
The lessees agreed
to pav hill! the aforesaid amount pv way of μ lump sum without
465
SUPRBMB COURT REPORTS
[1969] 3 S.C.R.
makin.g 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 o{ 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 mQnth and not
Rs. 2, 100/ - which Was the agreed rent.
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.(') "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 iin fact."
Fazl Ali t, (as he then
was) in Commissioner of Income tax, Bihar & Orissa v. Visweshwar Singh( 2 ) 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 einiovment by
the lessee.
'fhis distinction. according to the learned Judge. is
clearly recognised in s. 105 of the Trans4'er of Property Act which
defines both premium and rent.
This is what was observed at
pa~ 545:
''It is obvious that if the premium represents the
whole or part of the price of the land it caninot be
income.
As pointed out by Sir George Lowndes in
the Commissioner of Income· tax. Ben{!al v. Messrs. Shaw
Wallace & Companv. income in the Indian· Income-tax
Act connotes a periodical monetary return, coming in
with some sort of rewlaritv or expected rewlaritv from
definite sources. The premium of 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
hil?h, it may be possible to argue that the premium
includes advance rent ........ "
(I) 241T.C. 4S3,
(2) [19391 7 J.T.R. S~6.
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DURGA DAS v. C.I.T. (Grover, J.)
467
It has not beon even remotely suggested in the present case that
the rent of Rs. 2100 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 oi 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 )!iot disputed that the lessees entered into
possession after the cinema house hacl 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 reveinue.
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 & Others(') 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.
For the reasons given above we hold that the question which
was referred to the High Court ought to have been answered in
the negative and in favour of the assessee. The appeal is accordingly allowed with costs in this Court and the High Court and the
answer returned by the High Court is hereby discharged.
G.C.
Appeal allow~d.
(1) [19571 321.T.R. 169,