TMI Blog1967 (1) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... It is common ground before us that the second question should be answered against the assessee in view of Commissioner of income-tax v. A. Gajapathy Naidu and it is accordingly answered. On the first question, the revenue as well as the Tribunal considered the receipt to be of a revenue nature. The assessee was a registered firm deriving income through money-lending, house property and garden, etc., in Malaya. For the assessment year 1960-61, the firm returned an income of dollar 43,829. But its total income was determined at Pudukkottai by the Income-tax Officer at dollar 65,883. This included an addition made by the officer of dollar 8,540 received by the assessee from one Cheena Pang Yong (Foong Seong of Ipoh). The assessee owned a rubber estate in Malaya in respect of which it entered into an agreement with Foong Seong on December 30, 1954, to lease out a total extent of 39 acres for a period of 10 years for mining purposes. This was followed by a lease deed executed by the assessee on December 18, 1955. 23 acres out of a total extent covered by the lease were intended for mining for minerals in the manner and under the conditions mentioned in the lease deed. During the fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of the tribute which the assessee would have got had the mine been worked in accordance with the terms of the lease deed. This was in fact an estimate made on the basis of results arrived at in a neighbouring proprietary mine for tin as in the instant case. We may mention in passing that the assessee had been in receipt of dollar 13,129.97 by way of tribute from the lessee of which dollar 4,030.49 was received in the assessment year 1958-59 and a sum of dollar 558.53 was received in the assessment year 1960-61. The assessee itself treated these sums as revenue receipt. The revenue partly relied on this in coming to the conclusion that the balance of dollar 8,540.95 was of the same character. The Tribunal, in accepting that view of the revenue, observed that the receipt was not on account of sterilization of the source of income of the assessee, that the assessee had entered into a lease in the ordinary course of business and that it did not therefore consider that the contract was in the nature of a capital asset. In its opinion, the mere cancellation or termination of the lease would not convert the receipt into a capital receipt. Whether a receipt is of a capital or re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appear. Raja Bahadur Kamakshya Narain Singh v. Commissioner of Income-tax was in a sense such a case. There was a mining lease there in respect of which the assessee was in receipt of salami and minimum royalty apart from royalty based on actual tonnage of coal mined. Receipt of salami was considered to be of a capital character but the receipt of minimum royalty viewed as a species of annual guarantee was held to be income flowing from the covenants in the lease and not in any sense a payment on capital account. Dealing with that question, Lord Wright, on behalf of the Judicial Committee, observed : "But, in their Lordships' judgment, the royalties here are clearly income and not capital. They are periodical payments for the continuous enjoyment of the various benefits under the leases. The actual acquisition of the property in a particular ton of coal at the moment when the lessees have cut and taken away the coal is only the final stage." This approach was made by the Board on the principle embedded in the following further observations : "The authorities already cited and many others to the same effect show that the fact that the mines, which form an element in the consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The other is again payment at a fixed rate for use of the land for the purpose of tailing and dumping. The third is as tribute at 17% of tin mined and produced. If and when tin is produced, it has to be sold within a specified time and the assessee would be entitled to 17% of the sale proceeds. If there is delay in sale by the lessee, liberty is reserved for the assessee to sell the available tin on its own initiative and appropriate 17% of the sale proceeds as tribute payable to itself. The terms of the lease clearly show that only if tin is produced by mining that any liability to pay tribute at the stipulated rate would arise. No amount of damage to the land by excavation or other reasons in the process of mining without production of tin will attract any liability to pay tribute. Having regard to these terms, it seems that, although in character the transaction is a mining lease, on account of the specific terms we mentioned in respect of payment of tribute, this is a case of payment of tribute as price for the quantity of tin produced by mining. On that view the facts here are more akin to Maharaja Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax and Seth Madan Gopa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted or came to an end. The consequence was the very source of income, namely, the transaction of lease, ceased to exist. That being the case, the payment of damages under the award can hardly be related to the tribute paid or payable under the contract if it was worked. As we mentioned, it is only when actually tin was produced that any liability to pay tribute would be attracted. In Helen Rubber Industries Ltd. v. Commissioner of Income-tax the Kerala High Court had to consider the nature of a receipt by way of damages. One of the clauses of the contract provided that if the lessee discontinued the lease before the termination of the period fixed therein, he should pay the lessor a stated sum by way of liquidated damages for the discontinuance. Dealing with the question, the learned judges referred to Hari Kailash Company v. Commissioner of Income-tax and stated : "Thus, damages paid under contracts are divided by the learned Chief Justice into two classes, one received for the non-performance of a contract entered into in the course of business for the purpose of making trading profits, and the other, damages paid for the discontinuance of the business itself. . . . As the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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