Commissioner Of Income-Tax, Assam Etc v. The Panbari Tea Co. Ltd

COMMISSIONER OF INCOME-TAX, ASSAM ETC. THE PANBARI TEA CO. LTD. April 19, 1965 [K. SUBBA RAO, J. C. SHAH AND S. M. SIKRI, JJ.J Indian Income-tax Act (11 of 1922)-"Premium" and "rent"-Distinction-Premium paid in instalments-Whether caPitai gains c or revenue receipts. The assessee leased out its tea estates for a period of ten years in consideration of a sum as and by way of premium and an annual rent to be paid by the lessor to the assessee. As premium a part of the sum was paid at the time of the execution of the lease and the balance was spread over in ten annual instalments; and the annual rent was payable in monthly instalments. The annual instalment paid as premium was taxed by the Income Tax authorities as re-venue receipt of the assessee. On reference, the High Court held it to be capital gains. In appeal by certificate. HELD: The annual instalmeni paid as premium was capital gains. When the interest of the lessor is parted for a price the price paid is premium or salami. But the periodical payments made for the con-tinuous enjoyment of the benefits under the lease are in the nature (,f rent. The former is a capital income and the latter a revenue receipt. There may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology. In some cases, the sci-called premium is in fact advance rent and in others rent is a deferred price. It is not the form but the substance of the transaction that matters. The nomenclature used may not be deci-sive or conclusive but it helps the court, having regard to the other circumstances, to ascertain· the intention of the parties. Premium can be paid in a single payment or by instalments. The real test is whether the said amount paid in a lump sum or in instalments is the consideration paid by the tenant for being let into possessi001. [813 H; 814 E-G] Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Com-missioner of Income-tax, Bihar and Orissa, (1943) 11 I.T.R. 513 Mem-ber for the Board of Agriculture Income-tax Assam v. Sindhurani Chaudhurani, (1957) 32 I.T.R. 169, and Chintamani Saran Nath Sah Dea v. Commissioner of Income-tax, Bihar and Orissa, (1961)41 I.T.R. 506, applied. The parties, who were businessmen well-versed in their trade must be assumed to have known the differen~e between the two ex~ pressions ·'premium" and "rent", and they had designedly used those two expressions to connote two different payments. The annual rent fixed was a considerable sum of Rs. 54,500/- and the premium, when spread over 10 years would work out to Rs. 22,500 /- a year. There was no reason. therefore, to assume that the parties camouflaged their real intention and fixed a part of the rent in the ~hape of premium. The J,/P(D)5SC f--13 811 mere fact that the premium was made payable in instalments could .l not obviously be decisive of the question, for that might have been to accommodate the lessee. [815 B, C] The construction based on the clause in the lease deed that on the d~fault in the payments of the instalments of the premium or rent, the lessor shall be entitled to recover the balance of the unpaid premium and not the entire balance of the premium, really ignores the main terms of the lease. In the context of the other clauses, this cl.ause could not be so construed as to override or come into conflict with the main terms of the lease deed. [815 H, 816 BJ . C1v1L APPELLATE JURISDICTION: Civil Appeal No. 150 of 1964. Appeal frbm the judgment and order dated March 22, .1960, of the Assam High Court in Income-tax Reference No. 7 of 1959. N. D. Karkhanis and R. N. Sachthey, for the appellant. Sam- pat Ayyangar and J. P. Goyal, for the respondent. The Judgment of the Cou.rt was delivered by