1939 (8) TMI 28 - HC - Income Tax

Summary

Issues Involved:
1. Nature of the lease (permanent or temporary).
2. Taxability of the salami (capital receipt or income).

Detailed Analysis:

1. Nature of the Lease:
The primary question was whether the lease was permanent or created a mere tenancy at will or from year to year. The lease terms, as found in the kabuliyat, indicated that the settlement was for an indefinite period starting from 1340 Fs., with annual rent payments and provisions for default, enhancement of rent, and restrictions on selling residential rights without the landlord's permission. The lease stated the purpose was to build a gola and platform for a rice mill. The Commissioner of Income-Tax initially held that the lease was not permanent, relying on the decision in Must. Parshan Kaur v. Must. Tulsi Kuar. However, this was not authoritative for all circumstances, as clarified in subsequent cases like Kangali Charan Mukerji v. Suraja Narain Sah and Forbes v. Hanuman Bhagat, where similar leases were deemed permanent. The Privy Council in Raja Janki Nath Roy v. Dinanath Kundu also held a bemeyadi patta to be a permanent lease under specific terms.

The judgment concluded that the lease was intended to be permanent, supported by facts such as the lease's indefinite term, provisions for heirs and representatives, and the purpose of building permanent structures. Additionally, the lease was described as a Mokarari settlement in the landlord's challan, evidencing the payment of salami.

2. Taxability of the Salami:
The next issue was whether the salami of Rs. 1,800 received by the assessee should be treated as a capital receipt or income. The Commissioner of Income-Tax initially justified the taxation of salami on the grounds that the lease was not permanent. However, the argument shifted to whether the salami should be considered income even if the lease was permanent. Mukherji Ag. C.J., in Birendra Kishore Manikya v. Secretary of State for India, suggested that salami could be seen as the capitalized value of a portion of the rent, but this view was not accepted in Raja Shiva Prasad Singh v. The Crown, where it was held that salami is the price for parting with the property, not advance rent.

The judgment emphasized the distinction between a single payment made at the time of settlement (salami) and recurring payments (rent). According to Section 105 of the Transfer of Property Act, premium and rent are defined distinctly, with premium being the price for the land and rent being the periodic payment for its use. The judgment concluded that the Rs. 1,800 salami was a capital receipt, as it was a one-time payment for transferring a significant interest in the land, not a recurring income.

Separate Judgment by Manohar Lall, J.:
Manohar Lall, J. concurred, stating that the kabuliyats indicated a permanent settlement for building a gola house and platform for a rice mill, with the settlement being descendible to the lessee's heirs and representatives. He reviewed various cases to differentiate between capital and revenue receipts, emphasizing that income-tax is a tax on income, not capital. He referenced several cases, including Commissioner of Inland Revenue v. British Salmson Aero Engines, Ltd., to illustrate the difficulty in distinguishing between capital and income. He concluded that the Rs. 1,800 salami was a capital receipt, not taxable as income.

Procedural Observations:
The judgment criticized the Commissioner of Income-Tax for procedural lapses, including not hearing the assessee and failing to restate the case as directed by the High Court. This led to unnecessary delays and additional hearings, causing harassment to the assessee.

Conclusion:
The High Court answered the reference in the negative, holding that the Rs. 1,800 received as salami was a capital receipt and not taxable as income. The assessee was entitled to a hearing fee of ten gold mohurs.