TMI Blog1987 (6) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... his court by the Tribunal in M.C.C. No. 369 of 1978, with regard to the assessment year 1974-75. The amount involved in this year also is Rs. 2,084. The necessary facts for appreciating the question aforesaid may be stated in brief. The assessee, which is a registered firm, is engaged in the business of motor and automobile parts. It also carried on the business of running a petrol pump and service station. All these businesses were carried on by the assessee on plot of land belonging to M/s. Hindustan Steel Company Limited, Bhilai Steel Plant Project. It appears that the plot aforesaid was held by the assessee as a licensee on payment of Rs. 50 per month. On December 1-4, 1960, M/s. Hindustan Steel Company Limited wrote a letter to the assessee stating therein that the licence given to the assessee prior to July 9, 1959, for using the plot of land on temporary basis for petrol pump and service station was being terminated from the date of the said letter. An option was, however, given to the assessee that if it was interested in taking the plot on a permanent basis, it may make an application in the prescribed form. It was made clear in the said letter that if the assessee was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this clause shall, in case of dispute, be referred to the arbitration of the sole arbitrator agreed upon by both parties or in the absence of such agreement by two arbitrators one to be appointed by each party. The provisions of the Arbitration Act, 1940, and any statutory modification thereof shall apply to any such arbitration. (10) You will abide by any terms and conditions that may be imposed by the company or Government, Central or State, in future. (11) You will be required to execute a formal lease deed as and when desired by the project authorities. In pursuance of the terms aforesaid, the assessee paid to M/s. Hindustan Steel Company Limited towards instalments the total premium of Rs. 62,500, the respective amounts in the assessment years aforesaid, and claimed deduction thereof on the assertion that the amounts of premium paid by it should be treated as revenue expenditure. At this place, it may be mentioned that the same plea had been raised by the assessee in the assessment years 1964-65 to 1969-70 also with regard to the instalment of premiums paid in those years. The Income-tax Officer repelled the contention of the assessee and took the view that the payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground rent which was to be paid by it on yearly basis on the other. According to him, on a reading of the terms of the lease as a whole, there was no manner of doubt that the sum of Rs. 62,500 stipulated to be paid as premium was in the nature of price paid for acquiring permanent lease of the plot which was a benefit of an enduring nature and the Tribunal committed an error in taking the view that the said amount also represented advance rent. Learned counsel for the assessee, on the other hand, submitted that the view taken by the Tribunal that the amount of premium paid was an expenditure of a revenue nature inasmuch as the premium in substance represented advance rent was correct. In order to appreciate the respective submissions made by counsel for the parties, it would be useful to refer to certain decisions laying down principles for determination of the question as to whether a particular expenditure was in the nature of capital expenditure or of revenue expenditure. In Indore Municipal Corporation v. CIT [1981] 132 ITR 540 (MP), the facts were that the assessee which was a local body and derived income from sale of manure prepared out of waste and night soil dumped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agricultural holding in favour of the proposed lessee. Thus, salami is a payment by the tenant as a present or as price for parting by the landlord of his rights under the lease of a holding. It is a lump sum payment as consideration for what the landlord transfers to the tenant. When a tenant pays salami, he does so in order to get in return an estate in the land owned by the zamindar. Salami is, therefore, not rent because it is a payment to the landlord by the tenant as a consideration for the transfer of a right in zamindari lands owned by the landlord. It has, therefore, all the characteristics of a capital payment and is not revenue. In Pingle Industries Ltd. v. CIT [1960] 40 ITR 67 (SC), the assessee under certain leases acquired the right to extract stones from quarries. The stones were not lying on the surface but were to be extracted methodically and skilfully before they were dressed and sold. For the lease, the assessee paid a certain amount in lump sum and the rest was to be paid in easy monthly instalments. The assessee claimed deduction in respect of the lease money paid by him as revenue expenditure. It was held that the assessee acquired by his long-term lease a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the lease agreement was entered into by the assessee with the lesser. The manganese ore deposits did not belong to the lessor and he could not have granted any rights to win the ore as that right could be conferred only by the Government through the mining department in whom the deposits lying under the earth vest and royalty was payable separately to the Government in respect of manganese ore extracted by excavating the land. It was held that the expenditure involved in payment of rent by the assessee to the lessor was one which was incurred for acquiring an asset or advantage of enduring character to the business of the assessee and must, therefore, be held to be capital in nature and hence was not allowable as business expenditure. In Maharaja Chitamani Saran Nath Sah Deo v. CIT [1971] 82 ITR 464 (SC), it was held by the Supreme Court that 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 on capital account. In CIT v. Bombay Burmah Trading Corporation [1986] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Department. We may now consider the cases on which reliance has been placed by learned counsel for the assessee. Reference was made by him to a decision of the Andhra Pradesh High Court in Rajah Manyam Meenakshamma v. CIT [1956] 30 ITR 286. It was a case where the assessee had granted two mining leases, one for a period of 30 years and the other for 25 years. In the first lease, Rs. 12,000 and in the second lease, Rs. 23,000 in lump sum were fixed " as royalty for the whole period of the lease ". It was held on the facts of that case that the two sums paid as royalty were consolidated advance payments of the amounts which would otherwise be payable periodically for the occupation of the mines and were consequently revenue receipts. It was pointed out that the word " royalty " meant rent, though on the facts of a particular case the mere use of the word may not be decisive on the question of the character of payment. It would be seen that in that case apart from the payment of royalty in lump sum, no other payment as annual rent was contemplated. It was pointed out that the lessees were persons conversant with the terms under which the leases of the mines were given and wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate Assistant Commissioner. The Tribunal, however, held that as the assessee was not the owner of the premises and as there was no long lease in its favour, it could not be said to have obtained an enduring benefit and accordingly directed the allowance. On these facts, the High Court held that the Tribunal was right in its conclusion that the amounts spent were revenue expenditure. Counsel for the assessee then placed reliance on CIT v. Cinceita Private Ltd. [1982] 137 ITR 652 (Bom). In this case, the assessee had taken on lease for an initial period of 20 years a building on a monthly rental of Rs. 3,500, with an option for a renewal of the lease at a higher rent, to be used as business premises of the assessee. For the relevant assessment year, the assessee claimed as deduction an expenditure of Rs. 10,700 towards registration fees, stamp duty and solicitors' fees in connection with the drawing up of the lease deed. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the entire expenditure on the ground that it had been incurred by the assessee for acquiring a benefit of an enduring nature and hence was capital expenditure. On further appeal, however, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total amount of Rs. 44,822 and claimed deduction of one-seventh thereof for each of the assessment years 1967-68 and 1968-69 as revenue expenditure. It also claimed deduction of the expenditure incurred on the construction of a chimney and a well. The deduction was allowed by the Tribunal as regards the lease money which it held was just an advance payment in lump sum for obtaining the raw material. The claim for deduction of cost of the chimney and the well was disallowed. Cases were referred to the High Court on the applications of the assessee as well as the Department. It was held affirming the decision of the Tribunal that the payment of Rs. 44,822 was made by the assessee in advance to ensure regular supply of earth over a period of seven years. The assessee had no right or interest in the land and was to deliver back possession on the expiry of the stipulated period. The expenditure incurred by the assessee was thus a revenue disbursement. This case is again distinguishable inasmuch as the terms on which the permanent lease was granted in favour of the assessee in the instant case were entirely different. Here a right of an enduring nature was created in favour of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts and circumstances of the instant case. From a perusal of the various terms, subject to which the permanent lease was granted by M/s. Hindustan Steel Company Limited in favour of the assessee, it is apparent that the assessee obtained a right of an enduring nature in the plot in question and in order to obtain this right it had to pay a sum of Rs. 62,500 as premium. On the terms of the contract, it is again apparent that ground rent in the sum of Rs. 3,125 per annum was payable by the assessee in addition to the premium of Rs. 62,500. The amount of premium, in our opinion, could not, on the facts of the instant case, be treated as advance rent. The fact that facility of paying the amount of premium in instalments was provided to the assessee will, in our opinion, in no way derogate from the nature of the amount payable as premium. The payment of the sum of Rs. 62,500 was apparently in the nature of a salami payment in order to obtain the right of an enduring nature in the plot in question. In our opinion, the clause contemplating resumption of possession by the lessor if the premises were required by it for its own use for a public purpose on the conditions stated in the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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