TMI Blog1962 (4) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... um - ₹ 20,000; rent per month ₹ 800 and the period of the lease is 51 years with an option of renewal for a further period of 10 years at the same rent. The lessee also covenanted to build within three years from the date of the lease, the said plot of land, a brick built building at his own cost of not less than ₹ 1 lakh, for use and occupation as residential-cum-office building. On the expiring or sooner determination of the said term, the lessee was to surrender and give up to the lessor the premises thereby demised to together with the said brick built mansion, which (the said mansion) upon such expiration or sooner determination of the said term, with all out-houses, shall become the absolute property of the lessor. In a proceeding started under section 34 of the Income-tax Act, 1922, by the Income-tax Officer, the assessee contended that the receipt of the said sum of ₹ 20,000 was a capital receipt and therefore not taxable. In support of the said contention the assessee also produced evidence before the Income-tax Officer showing that another plot of land, about 2 furlongs away from the disputed plot, viz., at 27, Bentinck Street, being an area of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definitions of salami in Baden Powells Land Systems in British India, Macnaughtons Principles of Mahomedan Law, Willsons Glossary and in the Arabic-English Dictionary of Johnson, we find that they show that salami is a payment by the tenant as a present or price for parting by the landlord with his rights under the lease of a holding. It is lump sum payment as consideration for what the landlord transfers to the tenant. A reference to some of the reported decisions would assist in determining the nature of the transaction which was evidenced by the documents placed on the record. In Commissioner of Income-tax v. Shaw Wallace Co. Sir George Lowndes describes Income as a periodical monetary return coming with some sort of regularity or expected regularity from definite sources . Lord Russel of Killowen in Maharajkumar Gopal Saran Narain Singh v. Commissioner of Income-tax, after referring to the said definition give by Sir George Lowndes, held that held that life annuity paid out of an estate is income. In Kamakshya Narain Singh v. Commissioner of Income-tax, the payments by way of premium were held to be capital receipts. In the said case large payments by way of roya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax v. Manavikraman Rajah, moneys paid for the renewal of leases were held to be agricultural income within the meaning of section 2(1)(a) of the Indian Income-tax Act. Here again it should be remembered that moneys were paid, not for the constitution of the relationship of landlord and tenant, but after the said relationship had come into existence and for the continuance of the same. The Orissa High Court in the case of S.M. Bose v. Secretary, Board of Revenue, held that salami is not a payment of rent in advance nor is it income but is a payment by way of capital receipt. In the case of Commissioner of Income-tax v. Raja Bahadur Kamakshya Narain Singh, a coal company had been given by the court of wards a prospecting licence in respect of certain coal bearing lands with the option of renewal and also to take a mining lease of certain terms and conditions. The period of prospecting licence was extended of four occasions. On attaining majority, the assessee having asserted that the court of wards had no power to give the licence, a settlement followed between the licensee and the assessee by which the latter agreed to accept the various prospecting licences, their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Maharaja Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax, is not a correct approach to the question. Their Lordships held that what the licence gave to the licensee was not merely 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 itself. In this case the assessee received certain amounts, namely, ₹ 15,290, ₹ 1,24,789, ₹ 1,500 and ₹ 70,146 for four licences granted for the purpose of prospecting bauxite. The periods of the licences were six months in two cases and a year each in the other two and thus comparatively short as noticed by their Lordships of the Supreme Court. Under the licences, the licensees were granted, inter alia, the sole right to enter upon the land to prospect and prove the said mineral and for the said purpose had the right to dig pits, etc., and appropriate samples of bauxite, not exceeding 100 tons in the aggregate. Under the covenants, the licensees were to cause as little damage to the surface and to plug the holes to be made by them. The licensor also covenanted that, in consideration of the premium paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tural income which was affirmed on appeal by the Assistant Commissioner. The revision taken to the Commissioner being dismissed, the assessee took a reference to this court which held in 1945 that the receipts were agricultural income. Against the said judgment of this court, an appeal was taken to the Privy Council but, on the abolition of the jurisdiction of the Privy Council, the appeal was transferred to the Federal Court and was heard by that court as C.A. No. 30 of 1949. The Federal Court set aside the judgment of the High Court and remitted the case to this court for consideration of certain additional factors. After remand, the case was again stated by the Board and this court then held that, on a consideration of the facts found by the Board, the amounts received by the assessee as salami were not agricultural income. Against the said judgment, the Board brought the above appeal to the Supreme Court. The Supreme Court in the said case defined 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 neit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench decision of our court, Mehar Bano Khanum v. Secretary of State salami was defined to be an amount received by the landlord for the recognition of the transfer of a non-transferable holding which was paid to the landlord because of his ownership of the land. It was held to be agricultural income as it was rent or revenue within the meaning of that expression. The counsel appearing for the Secretary of State for India conceded that it was not revenue but his argument was that it was not revenue derived from land but that it was a question of the transfer and not of tenancy and therefore did not flow from the land. It is also important to notice that the case of Birendra Kishore Manikya v. Secretary of State was expressly overruled by the said Full Bench decision. I may also mention that in neither of these two cases two cases was it argued whether salami was a revenue receipt or a capital receipt and, therefore, the case of Birendra Kishore Manikya is of no assistance to Mr. Meyer. From the discussion made above, the following principles are deduced : (1) Prima facie or premium is no income; it is for the taxing authorities to prove that the facts exist which would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms of the lease in the instant case, we hold that the payment has a close analogy to the payments as in Sindhuranis and Chintamanis cases. We also find that the sum of ₹ 20,000 in the present case is a consideration paid by the tenant at the beginning for being let into possession with the object of obtaining a new tenancy and the covenants of the lease show that there was a transfer or parting with of the landlords right under the instant building lease. The sum of ₹ 20,000 was also paid prior to the creation of the tenancy and not after the relationship of landlord and tenant had come into existence. The payment is also of a single non-recurring character in the nature of the premium for granting the lease. In view of the absence of any evidence on behalf of the department to show that the rental of ₹ 800 is low and the period of the lease is short and there being no other attending circumstance and in view of assessees proof of another building lease of a contiguous area showing the same state of affairs, we find that the receipt of the said sum of ₹ 20,000 is a capital receipt and not an advance rent. In our opinion, the question referred to u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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