Salami and cess reimbursement were treated as non-taxable because the payments were capital in nature, not income.

A lump-sum salami received in settlement of disputed lease and licence rights was treated as capital receipt, because it represented consideration for rights and benefits conferred under the compromise and not advance rent. A separate amount received by way of reimbursement for cess was also outside taxable income, since it merely restored the assessee for an outlay borne on the estate's behalf and did not constitute income. The note states the governing principle that the character of salami depends on the true nature of the payment and that reimbursement of a liability met by the taxpayer is not income.

---

---

Issues: (i) Whether the sum of Rs. 5,25,000 received as salami was taxable as income; (ii) whether the sum of Rs. 1,76,306 received on account of cess was taxable as income.

Issue (i): Whether the sum of Rs. 5,25,000 received as salami was taxable as income.

Analysis: Salami is not taxable as a matter of law in every case. Its character depends on the facts and the true nature of the payment. On the facts found, the amount was received in settlement of the assessee's claim challenging the validity of the licences and leases, and it was not a payment made in respect of rent due to the assessee. The surrounding terms of the arrangement showed that the amount represented consideration for rights and benefits conferred under the settlement rather than advance rent.

Conclusion: The sum of Rs. 5,25,000 was a capital receipt and was not assessable to tax.

Issue (ii): Whether the sum of Rs. 1,76,306 received on account of cess was taxable as income.

Analysis: The amount was paid by way of reimbursement for cess which had been borne by the assessee's estate although the primary liability lay on the coal company. A reimbursement restoring the assessee to the extent of his outlay does not amount to income.

Conclusion: The sum of Rs. 1,76,306 received on account of cess was not taxable.

Final Conclusion: Both amounts were held to be outside the assessee's taxable income, and the reference was answered in his favour.

Ratio Decidendi: A lump-sum payment received on settlement of disputed rights, where it is consideration for rights and benefits and not advance rent, is capital in character; a reimbursement of an amount borne on behalf of the assessee is not income.

---