Permanent lease and salami treated as capital receipt where lump sum reflected transfer of a substantial interest in land.

A settlement was treated as a permanent lease because the kabuliyat granted rights for an indefinite period, made those rights descendible to heirs and legal representatives, and described the land as a mokarari settlement for construction of a gola house and rice-mill platform. The lump sum salami received on that grant was held to be capital in nature, since it was a single premium paid once for all and represented the price of parting with a substantial interest in land rather than recurring rent or advance income. Applying the distinction between premium and rent, the receipt was found not taxable as income, and the reference was answered in favour of the assessee.

---

---

Issues: (i) whether the settlement was a permanent lease; (ii) whether the sum received as salami was capital receipt or income taxable as revenue.

Issue (i): Whether the settlement was a permanent lease.

Analysis: The terms of the kabuliyat showed that the settlement was for an indefinite period, that rights and obligations were made descendible to heirs and legal representatives, and that the land was settled for construction of a gola house and rice-mill platform. The surrounding circumstances, including the contemporaneous description as a mokarari settlement, supported the view that the parties intended a settlement in perpetuity rather than a tenancy at will or from year to year.

Conclusion: The settlement was a permanent lease.

Issue (ii): Whether the sum received as salami was capital receipt or income taxable as revenue.

Analysis: A distinction was drawn between recurring rent and a single premium paid once for all on grant of a lease. Applying the statutory distinction between premium and rent under section 105 of the Transfer of Property Act, and the principle that income connotes periodical return from a definite source, the lump sum received on settlement of the land was treated as the price for parting with a capital asset or capital interest, not as advance rent. The amount was received before the land was put into use and was not shown to represent recurring income.

Conclusion: The salami was a capital receipt and was not taxable as income.

Final Conclusion: The reference was answered against the Revenue and in favour of the assessee, with the sum of Rs. 1,800 held to be non-taxable.

Ratio Decidendi: A lump sum salami received on grant of a permanent lease is capital in nature where it represents the price for parting with a substantial interest in land and is not shown to be advance rent or recurring income.

---