# MAHARAJA CHINTAMANI SARAN NATH SAR DEO v. THE COMMISSIONER OF INCOME-TAX, BIHAR & ORISSA

- **Citation:** [1961] 2 S.C.R. 790
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appeal No. 424of1957
- **Bench:** J. L. Kapur, M. Hidayatullah, J. C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/maharaja-chintamani-saran-nath-sar-deo-v-the-commissioner-of-income-tax-bihar-2043
- **Pages:** 9

## Headnote

Income Tax-Capital or Revenue receipt-Prospecting licence
for bauxite-Licensee's right to appropriate samples in reasonable
quantities-Grant of right to a portion of capital-Payments lo
licensor- Liability to tax.
In 1945 the appellant who was a Zamindar granted licences
to different parties to prospect bauxite. Under the licence the
licensee had the right to enter upon the land fo prospect, dig
and prove all bauxite lying in or within the land and to take
away and appropriate samples of bauxite in reasonable quantities not exceeding 100 tons in the aggregate. 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 yea<s.
The income-tax authorities were of the view that the licensees were not granted any
interest in land and that the amounts receivtd by the appellant
from the licensees were revenue receipts and, therefore, assessable to income-tax.
Held, that on its true construction the transaction of 1945
did not amount merely to a grant of the use of the capital of the
licensor but was really a grant of a rii:ht to a portion of the
capital. Accordingly, the amounts received by the appellant
were capital receipts and, therefore, not liable to income-tax.
Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of focome-tax, Bihar and Orissa, ( r943) L.R. 70 I.A. r8o,
The Member for the Board of Agricultural Income-tax, Assam v.
Smt. Sindurani Chaudlturani, [1957] S C.R. ro19 and Commissioner of Income-tax, Bihar and Orissa v. Raja Bahadur Kamakshya
Narain Singh, [r946] r4 T.T.R. 738, considered.

## Text

November 30.
790
SUPREME COURT REPORTS
[1961]
MAHARAJA CHINTAMANI SARAN NATH
SAR DEO
v.
THE COMMISSIONER OF INCOME-TAX,
BIHAR & ORISSA
(J. L. KAPUR, M. HIDAYATULLAH and J. C. SHAH, JJ.)
Income Tax-Capital or Revenue receipt-Prospecting licence
for bauxite-Licensee's right to appropriate samples in reasonable
quantities-Grant of right to a portion of capital-Payments lo
licensor- Liability to tax.
In 1945 the appellant who was a Zamindar granted licences
to different parties to prospect bauxite. Under the licence the
licensee had the right to enter upon the land fo prospect, dig
and prove all bauxite lying in or within the land and to take
away and appropriate samples of bauxite in reasonable quantities not exceeding 100 tons in the aggregate. 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 yea<s.
The income-tax authorities were of the view that the licensees were not granted any
interest in land and that the amounts receivtd by the appellant
from the licensees were revenue receipts and, therefore, assessable to income-tax.
Held, that on its true construction the transaction of 1945
did not amount merely to a grant of the use of the capital of the
licensor but was really a grant of a rii:ht to a portion of the
capital. Accordingly, the amounts received by the appellant
were capital receipts and, therefore, not liable to income-tax.
Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of focome-tax, Bihar and Orissa, ( r943) L.R. 70 I.A. r8o,
The Member for the Board of Agricultural Income-tax, Assam v.
Smt. Sindurani Chaudlturani, [1957] S C.R. ro19 and Commissioner of Income-tax, Bihar and Orissa v. Raja Bahadur Kamakshya
Narain Singh, [r946] r4 T.T.R. 738, considered.
CIVIL APPELLATE JURISDICTION:
Civil Appeal No.
424of1957.
Appeal by special leave from the judgment and
order dated January 25, 1955, of the Patna High
Court in Misc. Judicial Case No. 621 of 1953.
N. 0. Chatterjee and R. 0. Prasad, for the appellant.
K. N. Rajagopal Sastri and D. Gupta, for the respondent.
"
(
I
i
I
-4
2 S.C.R. SUPREME COURT REPORTS
791
1960. November 30. The Judgment of the Court
was delivered by
1960
Maharaja
KAPUR, J.-This is an appeal by special leave Chintamani Saran
against the judgment and order of the High Court at
Nath Sah Dco
Patna answering the question referred to it by the The c0 ,,:;,.issioner
Income-tax Appellate Tribunal against the assessee
of Income-ta:r,
who is the appellant before, us. The appeal relates Bihar & Orissa
to three assessments made on the appellant for the
respective assessment years 1945-46, 1946-4 7 and
' 1947-48.
The appellant is a Zamindar and owns considerable
properties. In the accounting years he granted licences to different parties to prospect for Bauxite. The
particulars of the licences are:
Received from
I. Aluminium
Corpora lion
of India Ltd.
2. Indian Aluminium Co.
Ltd.
3.
Dayanand
Modi.
4.
Indian Aluminium Co.
Date of the
Licence
20-1-1945
26-5-1945
7-5-1945
Period of
AssessAmount
Licence ment year Received.
Rs.
6 months 1945/46
15,290/-.
l year
1946/47
l,24,789/-.
6 months
1947/48
l,500/-.
Ltd.
14-8-1945
l year
1947/48
70,146/-.
The Income-tax Officer held that these amounts were
received as revenue payments and were therefore taxable. On appeal to the Appellate Assistant Commissioner the amounts were held to be capital receipts
but this order was set aside by the Income-tax Appellate Tribunal which held the amounts to be revenue
receipts and taxable as such.
At the instance of the
appellant the case was referred to the High Court
under s. 66(1) of the Income-tax Act and the following
question was stated for the opinion of the Court :-
"Whether in the facts and circumstances of these
cases the sums of Rs. 15,209, Rs. 1,24,789, Rs. 1,500
and Rs. 70,146 received by the assessee are income
assessable to tax under the Indian Income-tax Act?"
Kapur J.
792
SUPREME COURT REPORTS
[1961]
'960
The question was answered in the affirmative and the
'M h
.
High Court held that there was material to support
Chinta::;:1;.,.. the flnding of the Tribunal, and it was a finding of
Nath Sah Deo fact; that the amounts received by the appellant were
v.
revenue receipts and not capital receipts. Against
The Commission" this judgment the appellant has come in appeal to
0! Income-tax, this court by special leave.
Bi.har & Orissn:
f
The question that alls fbr decision is whether the
K•P•• ;.
amounts received by the assessee arc capital or
revenue receipts and for that purpose it is necessary
to investigate the nature of the grants made by the
appellant. Under the licence the licensee was granted
the sole and exclusive right and liberty to
(a) to enter into and upon, to prospect, search for,
mine quarry, bore, dig and prove all Bauxite lying and
being in, under or within the said lands.
1.
(b) For the purposes aforesaid and all other purposes incidental thereto dig, drive, ma.ke and maintain
such pits, shafts, borings, inclines, admits levels,
drifts, air courses drains, water courses, roads and
ways and to set up, erect and construct such temporary engines, machinery sheds and things as may be
reasonably necessary for effectually carrying on the
prospecting operations hereby licenced.
(c) To remove, take away and appropriate samples and specimens of Bauxite of every quality, kind
and description and in reasonable quantities not
exceeding one hundred tons in all during the terms of
this grant.
(d) For the purposes aforesaid to clear undergrowth brushwood and to make use of any drains or
water courses on the lands or for clearing sites of
working from any water which may flow or accumulate thereon or therein.
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 I
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
2 S.C.R. SUPREME COURT REPORTS
793
required to plug all holes made by them. The licenz960
sor convenanted to give a reasonable right of passage
M -h -
.
through and over the adjoining lands and properties CMnta:::;1;aran
and in qonsideration of the premium paid, the licenNath Sah D•n
sees could, at their option, after giving necessary
v.
notice and on payment of a further sum, get a mining The Commissioner
lease for a term of thirty years on the terms and conof Income-tax,
ditions set out in the indenture attached as schedule 2 Bihar &- Orissa
to the licence. The Income-tax Appellate Tribunal
Kapur 1.
found that the licensees were not granted any interest in land and the amounts received were revenue
receipts and therefore, assessable to income-tax
A reference to some of the. cases would assist in
determining the nature of the transaction which was
evidenced by the documents placed on the record. In
Raja Baha<Zur Kamakshya Narain Singh of Ramgarh
v. Commissioner of Income-tax, Bihar & Orissa (1) the
payments by way of premium were held to be capital
receipts. In that case large payments by way of
royalty for granting various mining
~eases were
received by the assessee. The leases were for a period
of 999 years for mining coal with liberty to search for,
work; make mercl:lantable and carry away the coal
there found and with power to dig and sink pits. In
consideration of these rights the lessees paid a sum
by way of salami (premium) and an annual sum as
royalty on the amount of coal raised subject to minimum annual royalty. The lessor had the right to reenter in case of failure to pay the royalty. ·It was contended by the assessee there that the sums received as
salami and royalty were capital receipts representing
the price of the minerals removed. It was held that
salami was a single payment paid for the acquisition
of the right to enjoy the benefits granted by the lease
and was a capital asset and that the two other forms
of royalty-both minimum and per ton-fl.owing from
the covenants in the lease were not on capital account
and fell w.ithin the meaning of other income under
s. 12 of the Act. Lord Wright said at p. 190:-
"The salami, has been, rightly in their Lordships'
opinion, treated as a capital receipt. It is a single
(1) (~943) L.R. 70 I.A. 186.
794
SUPREME COURT REPORTS
(1961]
r96o
payment made for the acquisition of the right of the
M -.- .
lessees to enjoy the benefits granted to them by the
a ara;a
1
Th
1 •
b
Chlntamani Sa.a• ease.
at genera nght may properly e regarded as
Nath Sah Dea a capital asset, and the money paid to purchase it may
v.
properly be held to be a payment on capital account.
The Commissioner But the royalties are on a 'different footing."
of Income-lax,
,
.
.
Bihar .,_ Orissa This case was sought to be distmgmshed by counsel
for the respondent on the ground that the lease was
Kapur J.
for a long period of 999 years but the observations
above quoted were not based on this consideration but
on the nature of the right which was conveyed. In
Commissioner of Income-tax, Bihar & Orissa v. Raja
Bahadur Kamak,~hya Narain Singh (1) a coal company
had been given by the Court of W.ards a prospecting
licence · in respect of certain coal bearing lands with
the option of renewal and also to take a mining lease
on certain terms and conditions. The prospecting
licence was subsequently extended on four occasions.
When the assessee attained majority he claimed that
the giving of the licence was ultra vires the Court of
Wards but there was a settlement between the licencee and the assessee by which the latter agreed to
accept -the various prospecting licences, their extensions and leases in consideration of which he received
by way of salami Rs. 5,25,000 and capital lump sum
of Rs. 40,000 and some other payments in lieu of
cesses. The question arose whether the amounts were
capital or revenue and it was held that the amount of
Rs. 5,25,000 received as salami and the amounts received as cesses were capital receipts and therefore not
taxable. Manohar Lal, A. C. J., held that the amount
was received by way of settlement and not by way of
salami but S. K. Das, J. (as he then was) held that
&alami was a lump sum payment for rights which
were being given to the licensee, namely, the right to
prospect for a certain number of years and also the
right to get mining leases and therefore salami in
question was undoubtedly a capital receipt.
In The Province of Bihar v. Maharaja Pratap Udai
Nath Sahi Deo of Ratugarh (') it was contended that
payments in the nature of premium or salami were
(1) [1946] 14 I.T.R. 738._
(2) [1941] 9 I.T.R. 313.
2 S.C.R. SUPREME COURT REPORTS
795
not part of the income of the assessee and were therer96o
fore not taxable and it was held that salami may, in
M h
.
•
b
d d
t
f
•
a ara;a
certain cases,
e regar e
as a paymen · o rent in Chintamani Sara'
advance and it would in those cases be regarded as
Nath Sah Deo
income but where it could not be so regarded it would
v.
not be income and therefore not taxable. It was also The Commissione•
held that prima l"acie salami is not income.
·
0! Income-t~x,
J'
d .r
.
I
Billar & Onssa
In The Member for the Boar
OJ Agricultural ncome
Tax, Assam v. Smt. Sindurani Ohaudhurani (1) this
Kapur J.
Court <lefined as salami as follows:
The indicia of salami are (1) 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.
Thus if it is a consideration paid by the tenant or the
licensee for being let into possession with the object
of obtaining a tenancy or as in this case with the
object of obtaining a right to remove QJ.inerals, it
cannot be termed rent or revenue but is a capital
receipt. In Sindurani's case (1) salami was a lump
sum payment a.s 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 Sindhurani's case(1). 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 dec,ided 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 Raja Bahadur Hamakshya Narain
Singh's case (g) also the Privy Council laid t~e 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.
In reply. to the argument of counsel for the appellant, Mr. Rajagopal Sastri for the respondent argued
(1) [1957] S.C.R. 1019.
{:z) (1943) L.R. 70 I.A. 180.
796
SUPREME COURT REPORTS
[1961]
1960
that the question was whether the licensor had allowMaharaJa
e~ the licensee to ta:ke his capital or he had allowed
C!iintamani Saran him to use the capital. If it was the former, the
Nath Sah Deo receipts were in the nature of capital receipts and if
v.
latter they were in the nature of revenue. His conThe Commis;ioner tention was that it was really the latter because all
Bofh1"':"0"-
1"" that the licensee was allowed to do was to enter on
i ar c>"
rissa
,
the lands and make use of the assets belongmg to the
Kapur ;.
appellant. This, in our opinion, is not a correct approach to the question. What the licence 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 Bauxite 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.
In support of this distinction between the u3e of
capital and the taking away of capital, counsel relied
upon the following observation of Lawrence, J., in
Greyhound's case('):
"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 as~ets 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 R. B. H.P. Bannerji v. Commissioner of Income-tax, Bihar & Orissa (•) where it
was held that compensation received by the assessee
(1) (1936) 20 T.C 373.
(2) [1951] 19 I.T.R. 5g6.
2 S.C.R. SUPREME COURT REPORTS
797
for uise by the military of his lands for a short period
i96o
was a revenue receipt. In that case the assessee purM "
.
chased 13 bighas of land for purposes of setting up a Chinta':n:;:1;aran
market. That plot was requisitioned by the military Nath Sah De.a
authorities under the Defence of India Rules and the
v.
assessee received compensation for the use of the The Commissioner
land. It was held to be a revenue receipt because it
0! Income-t~'"·
.
B•har <£.. Onssa
•
was really profit derived from the land for the use of
a capital asset.
Kapur J.
Another case upon which counsel for the respondent placed reliance is Smethurst v. Davy (1). That was
a case which was decided on the wording of s. 3l(l)(d)
of the Finance Act ·of 1948, and therefore is not of
much assistance.
Reference was also made to Stow Bardolph Gravel
Oo., Ltd. v. Poole (2).
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 capitalasset and not stock-in-trade. The case
turned upon a finding by the Special Commissioners
and is not helpful. Relian9e was also placed on Rajah
Nanyam Meenakshamma v. Commissioner of Incometax, Hyderabad (3). 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.
None of these cases is of any assistance to the respondent's 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.
(1) [1957] 37 T.C. 593·
(2) (1954) 35 T,C. 459.
.
(3) [1956] 30 I. T.R. 286.
IOI
798
SUPREME COURT REPORTS
(1961]
In our opinion the High Court was in error and the
question referred should have been decided in favour
Ch . Mahar~jsa
of the appellant.
We therefore allow the appeal, set
inta111a•U
aran
.
.
.
Nath Sah Deo aside the judgment and order of the High Court and
v.
answer the question in favour of the appellant who
The Commissio"'' will have his costs in this Courc and the High Court.
of lncome-taK.
Bihar 6- Orissa
T<apur ].
.. Vovetnber 30.
Appeal allowed.
DELHI STOCK EXCHANGE ASSOCIATJON LTD.
v .
COMMISSIONER OF INCOME TAX, DELHI
(J. L. KAPUR, M. HIDAYATULLAH and J.C. SHAH, JJ.)
Income-tax-Assessment-Company running a Stock Exchange
and dealing in shares-Admissionfees of Members and Authorised
Assistants-If taxable income.
The object with which the appellant company was formed
was to promote ~nd regulate the business in shares, stocks and
securities etc., and to establish and conduct a Stock Exchange
in order to facilitate the transaction of such business. Its capital was divided into shares on which dividend could be earned.
It provided a building wherein business was to be transacted
under its supervision and control. It made rules for the conduct of business of sale and purchase of shares in the Exchange
premises. During the assessment year in question the company's receipts consisted of certain amounts received as admission fee from Members and Authorised Assistants and the question stated to the High Court for its opinion was whether these
fees in the hands of the appellant were taxable income. The
High Court answered the question in the affirmative. It held
that the appellant was not a mutual society, that dividends
could be earned on its share capital, that any person could become a share-holder but every share-holder was not a member
unless he paid the admission fee and the real object of the company was to carry on business of exchange of stocks and earn
profits. The case of the appellant, inter alia, was that as the
amount received as membership fee was shown as capital in the
books of the company and there was no periodicity, it should be
treated as capital receipt exempt from assessment.