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TMI Blog1965 (2) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... odfrey Phillips (India) Ltd., of a piece and parcel of land with buildings being premises Nos. 139 and 139/1, Beliaghata Road, for the period commencing from July 1, 1946, and expiring on February 27, 1957, on the following terms and covenants : The lessee was-- (a) to pay the monthly rent of Rs. 2,200 only besides municipal taxes, assessments, etc. ; (b) to execute and perform at its own cost and expense such necessary repairs to the demised premises during the said term as the lessor was under obligation to carry out in accordance with the provisions of the lease executed by the Gramophone Company Limited in favour of the lessor ; (c) not to make any alterations in the demised premises which might depreciate the value thereof ; and (d) at the expiration or sooner determination of the term to yield and deliver up possession of the demised premises to the lessor in the condition in which the same should then be. There is no dispute that the real lessor was the National Tobacco Co. of India Limited, the assessee, and B. N. Elias & Co. Private Limited merely acted as managing agents of the assessee. It would further appear that in between 1945 and 1949, Godfrey Phillips (Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he premises mentioned in the schedules unto the assignee. The assignor covenanted with the assignee that the lease dated September 21, 1945, was of full force and effect. The assignor also agreed that, in the event of the assignee being called upon on the expiration of the lease dated September 21, 1945, to re-excavate the said tank and the assignee being legally liable to do so, the assignor undertook and agreed to cause the tank to be re-excavated at its own cost and to indemnify and keep indemnified the assignee from and against all costs, damages, expenses, etc., by reason of such tank not being re-excavated and restored to the same position in which the tank was then existing. The confirming party covenanted with the assignor and the assignee that it had not committed or suffered or been party or privy to any act, deed or matter whereby the said premises or any part thereof may be impeached, affected or encumbered in estate, title or otherwise or by reason whereof it was prevented from confirming the premises unto the assignee in the manner aforesaid. The amount of Rs. 50,000 was held by the Income-tax Officer as income taxable under the Indian Income-tax Act. The Appellate A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, taxes and impositions. All this liability was of a periodic nature which the lessee had to discharge. This would not hold true of the obligation not to make any alteration in the demised premises. Such alteration would affect a capital asset, and any payment made to compensate the owner for change in the demised premises would savour of a capital payment. So far as the contentions of the revenue were concerned the court held that the payment was not in the nature of a mutation fee. Neither was it salami or in the nature of salami. With regard to the last contention of the revenue that if the payment was in the nature of a revenue receipt the assessee was not entitled to any exemption under section 4(3)(vii) of the Act as being a receipt of a casual or non-recurring nature, the court held that, on the materials, it was not possible to hold that the receipt arose from business. According to the Division Bench " the payment of Rs. 50,000 was referable to a predetermined agreement between the parties, namely, that the assessee would be absolved from further compliance with the covenants under the lease by reason of this payment. It may be that such payments are not common and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Godfrey Phillips India Ltd., was under no obligation to take the consent of the assessee to the assignment of the lease but by such assignment confirmed by the assessee the lessee certainly rid itself of the liability to pay rent and to keep the demised premises in repair. But for the consent given to the transfer, the assessee might have enforced the covenants under the original lease to Godfrey Phillips India Ltd. and sued it from time to time to recover the rent reserved under the lease as also to enforce other covenants with regard to repairs, etc. Mr. Mitra appearing for the assessee raised a two-fold contention before us. His first contention was that we should consider whether the receipt of Rs. 50,000 was of a revenue nature and secondly, whether the receipt even if it partook of that character was " casual " so as to attract section 4(3)(vii). The first point was developed in the following way : Mr. Mitra said that one must consider the nature of the receipt. If it was not of a revenue nature, then the question of taxability did not arise. He argued that ordinarily by an assignment the liability to pay rent is left undisturbed and all that happens is that the lessee cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test formulated in Kettlewell Bullen & Company's case is applicable. It can be said that what the assessee has parted with in this case in lieu of money or money's worth received by him is the right to derive rents regularly from a responsible lessee. It may be that the assignee is no less responsible and respectable but that is not what we are concerned with. The matter does not seem to have been argued in this light before it was remitted for a supplementary statement of the case to the Tribunal. As against this our attention was drawn to the first order of the Tribunal at page 29 of the paper book of paragraph 4 where the Tribunal had observed " since no capital asset or right in a capital asset was involved in respect of the payment of the said sum of Rs. 50,000 and as the assessee wanted to gain a sum of Rs. 50,000 in respect of the transaction mentioned supra, we consider that the amount that had been received by the assessee is clearly a revenue receipt liable to be taxed in the hands of the assessee. " It was argued that we are bound by this finding but this finding is not one of a primary fact. It was an inference sought to be drawn from all the circumstances of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ney became due to the plaintiffs in respect of rent. When they sought to get their rent and found that Manns Motors Ltd. were apparently insolvent, they made an application against the company and found that it had been dissolved. It then started the action against Goodman, the liquidator. Bennett J., who tried the action, observed " it was argued for the defendant, and this is the proposition which was asserted by Mr. Christie (counsel for the defendant) that, in a case where a company, whilst still a going concern, has assigned a lease to an assignee with the licence of the landlord as required by the terms of the lease, there is nothing whatever to prevent the company from liquidating and distributing its assets to its creditors and shareholders and being dissolved in the ordinary way. " His Lordship came to the conclusion that if the liquidator had done his duty and kept the assets, the plaintiffs' claim for rent under the leases might have been satisfied thereout but as the liquidator was in breach of his duty he was liable for damages. This judgment was upheld by the Court of Appeal. Lord Hanworth M.R. observed that the liquidator had misconceived his position, misconceived t ..... 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