TMI Blog1939 (8) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... have the power to enhance the rent if at any time the area of the land, as specified in the lease, is on measurement found increased. Lastly, the lessee bound himself not to sell the residential right to any one without a reference to the landlord or his heirs and representatives and without obtaining his or their permission in writing. The lease clearly stated that the lands had been settled with the lessee to enable him to build a gold house and platform for ricemill. The first question which arose upon the terms of this lease was whether the lease was a permanent one or it created a mere tenancy at will or a tenancy from year to year. The learned Commissioner of Income-Tax relying upon the decision of this Court in Must. Parshan Kaur v. Must. Tulsi Kuar held that the lease was not a permanent one. That case, however, is no authority for the proposition that a bemeyadi patta can in no circumstance be regarded as a permanent lease and it has been fully explained in two subsequent cases, viz. Kangali Charan Mukerji v. Suraja Narain Sah and Forbes v. Hanuman Bhagat In the last mentioned case where the lessee had obtained settlement of a parcel of land under a bemeyadi lease for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t reference the main argument advanced by him in favour of the view that the salami was taxable, was that the lease was not a permanent one but for a period of three years only. It was subsequently discovered, that the learned Commissioner of Income-tax had by mistake over looked the lease under which the salami was received and had proceeded to refer to another lease with which we are not at all concerned in this case. The case was then sent back to Commissioner justified the Taxation of salami on the ground that the lease was not a permanent one. The implication of the argument clearly was that if the lease was not a permanent one there was room for holding that the salami was a capital receipt and not income. Before us, however, learned Counsel for the Income-Tax Department has adopted a bolder line of argument and contends that even if the lease is held to be permanent, the sum of ₹ 1,800 receive as salami must be treated as income and not as capital receipt, and he relies in support of this contention, on the following observations made by Mukherji Ag. C.J., in Birendra Kishore Manikya v. Secretary of State for India :- When a new tenancy is created in respect of uno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the property by himself and his successors, but with regard to salami it is the price he demands for parting with his direct enjoyment of the property by himself and his successors for a period of 999 years. He is parting with the capital to person who whilst not purchasers of the fee simple are undoubtedly purchases of a large interest therein. The purchase price is presumably not bases upon the estimated outturn with the capital to persons who, whilst not purchasers of the fee simple are undoubtedly purchasers of a large interest therein The purchase price is presumably not based upon the estimated outturn but in exchange for the long term transferred. Possibly it may be objected that the distinction is one of degree rather than of kind, recurring payments at short periods being treated as income and a single payment of a similar kind covering a long period being treated as capital, but after all this is a distinction acknowledge in Section 4 of the Act itself, and, as has been observed, the Income-Tax Acts are not cast upon absolutely logical lines. Not does there appear to be any reason why we should extend the exception made in the case of rent and royalty to the case of a no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eived in this case must be treated as capital receipt and not as income. I would therefore answer the question pronounced by the learned Commissioner in the negative. The assessee will be entitled to a hearing fee of ten gold mohurs. MANOHAR LALL, J. I have come to the same conclusion I have no difficulty whatsoever in construing in construing the kabuliyats printed at pages 16 and 18 of the Paper Book. The terms of these kabuliyats have a close resemblance to the kabuliyat construed in Forbes v. Hanuman Bhagat. By these Kabuliyats a settlement was made for erecting a gola house and for putting a platform for the rice mill given in lease to the lessee by the assessee by another document. The settlement was for an indefinite period and was expressly made descendible to the heirs and representatives of the lessee. The usual convenient against alienation is also to be found obviously in the interest of the lessor so that he may not be compelled to recognise an undesirable tenant. In such circumstances the principle enunciated by their Lordships of the Judicial Committee in Raja Janki Nath Roy v. Dina Nath Kundu assists in coming to a decisions. I hold in agreement with my l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed sum of Pounds 25,000 payable in three installments and in addition to these payments and as royalty a sum of Pounds 25,000 and a like sum each twelve months during the following nine years. The question which required consideration was whether any of these sums, namely, the fixed amount paid in a lump sum in three installments and the fixed sum to be paid annually for nine years were assessable to Income-tax - the Crown contending that all these payments were income and the assessee insisting, on the contrary, that all these payments were in the nature of capital receipts. The Master of the Rolls approached the subject in this way. He pointed out that in the agreement there was a fundamental difference in the nature of the tow classes of sums in this sense, that the former class starts off by being a lump sum payment, definite and fixed which is then to be payable by installments. The other class is not of that description; no lump sum payment is referred to; it is on the face of it, nothing but an undertaking to pay yearly sums as royalty. Speaking quite apart from any close examination of authority and simply regarding the distinction between those two things, it would app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because it is terminable at a certain time, but the rent is swallowed up, or what we may call the rent is much less than what would be the real rent of the premises if they were let from year to year . At the bottom of that page he states: I thought the fair mode would be taking the premium into considerating and the ground rent, to take what an actuary would put as the fair rent for that lease for the time over which that lease extended; that is supposing a party had taken the lease upon an annual rent, and had paid no premium, and the ground rent was, so to speak, absorbed in the recurrent or the annual rent of the premises. I still adhere to that idea as the fair mode of compensation . He puts the question not be decided at page 80 thus: Therefore we have virtually got to this question: Is that the proper sum to be deducted from the Income-Tax, or is whatever fancy price the party pays for a speculative purchase to be dictated? I think former of these two is the proper alternative, that is to say, the one insisted upon by the Crown in this case. The other would lead to extreme difficulty, and it would lead possibly to a great deal of fraud, because factitious prices w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of earning profits of the years which follow its expenditure. Lord Sands took the same view and agreed that in a matter of this kind one cannot altogether ignore the form because when parties contract in certain forms different results may flow according to the form of the contract, however little difference there may be in substance . Lord Blackburn took a different view and gave a dissenting opinion. He makes some pertinent observations at page dissenting opinion. He makes some pertinent observations at page 43 (14 Tax Cas.) If the site has been depreciated in value by the deposit laid upon it, it may very well be that the landowner was fully justified in attributing each and all of the payments to be made to him as capital payments. But if the converse is the case and the value of the land remains unaltered, or possibly has appreciated for building purposes, it would hardly appear to be a good answer to a claim against him for Income-Tax on the sums of Pounds 400 received annually, to refer to the agreement as evidence that he had received them as capital payments and as fruits of his land. This case was recently considered in Race Course Betting Control Board v. Wil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a sum of money to an Indian Company under an agreement which provided that interests was to be paid at 3 per cent. per annum and that on repayment of the principal sum or any part thereof there should also be paid an premium varying with the date of repayment. The premium prescribed by the agreement for each of the ten years of the currency of the loan are set out in the agreement, the first of them is at the rate of 2 per cent., the second is at 4 per cent., in each of the next five years there is an increase of 2 1/2 per cent., in arithmetical progression and for the last three years of the ten the rate of increase per annum is 3 per cent. The full amount of the loan was ultimately repaid to the assessee together with the accrued interest and the premium payable under the agreement. The contention raised by the assessee was that the premiums were part of the principal sums repaid and were capital payments. The Lord President decided that question as a question posed on the particular terms of the contract. In his opinion the premiums were in the nature of annual profits or gains being part of consideration given by the borrowers for the use of the capital lent to them, and part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, this decision of the Calcutta High Court was disapproved. The Patna Case dealt with a lease of a coalfield for 999 years for a fixed premium at an annual rent. The learned Chief Justice pointed out that the essence of the transaction was (1) that the salami was really in the nature of a premium paid for granting a lease, in other words it was the purchase price of a leasehold interest and (2) that in so far as rent and royalty are reserved he, the assessee, is founding an annual increment to the income of the Raj for himself and his successors but with regard to salami it is the price he demands for parting with his direct enjoyment of the property by himself and his successors of a period of 999 years. He is parting with the capital to persons who, whilst not purchasers of the fee simple, are undoubtedly purchasers not based upon the estimated outturn but is paid in exchange for the long term transferred . With respect I agree with these observations and would hold that this applies in proprio vigore to the salami obtained by the permanent settlement in the present case. I notice that the Commissioner, Mr. H. D. Chatterji, was inclined to take the same view in his order of ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. For these reasons, I have no hesitation in holding that this amount of ₹ 1,800 was a capital receipt in the hands of the assessee as it was a capital payment on behalf of the lessee. I wish to make a few observations regarding the procedure adopted by the Commissioner of Income-Tax in sending up the present reference. It appears that the assessee has been considerably harassed by the manner in which the proceedings for reference to this Court were conducted by the Commissioner. On the 16th of November 1937 when the reference came up for hearing before the learned Chief Justice and Agarwalla, J., it was discovered that by some unfortunate slip there was an error in the statement of the case. The learned Judges in agreement with the submission on this point by the learned Advocate for the assessee and the Income-Tax Department, directed that the case should be sent back to the Commissioner in order that he may restate the case with such finding of fact as may be considered necessary. The assessee was in no way to blame when the Commissioner gave his opinion regarding a document which admittedly referred to some other case. When the case went back to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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