Capital receipt from land lease turns on transfer of rights, not lump-sum form, in brick-making arrangement.

Consideration received for a five-year lease of land for digging earth and manufacturing bricks was characterised by examining the true nature of the transaction, not its lump-sum form. Where an arrangement transfers rights in a capital asset, the receipt is capital; where it is only payment for use of property, it is revenue. Because the lessee obtained extensive rights to enter and remain in possession, dig and appropriate earth, set up and work a kiln, and sell bricks for a fixed term, the arrangement was treated as a transfer of rights in a capital asset. The sum of Rs. 6,000 was therefore a capital receipt, not a revenue receipt.

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Issues: Whether the sum of Rs. 6,000 received for granting a five-year lease of land for digging earth and manufacturing bricks was a capital receipt or a revenue receipt.

Analysis: The character of the receipt had to be determined from the true nature of the transaction and not from its form or the fact that the payment was made in a lump sum. Where the transaction amounts to a transfer of rights in a capital asset, the consideration is capital; where it is merely payment for the use of property, it is revenue. On the terms of the lease, the lessee obtained extensive rights to enter upon the land, remain in possession, dig and appropriate earth, set up and work a kiln, bake bricks and sell them, for a fixed period of five years. The arrangement was treated as more than a mere permission to use land and was held to be governed by the principle that consideration for a transfer of rights in a capital asset is capital in character.

Conclusion: The sum of Rs. 6,000 was a capital receipt and not a revenue receipt.

Ratio Decidendi: The true character of a receipt from land-based exploitation depends on whether the transaction transfers rights in a capital asset or merely permits its use; consideration for the former is capital receipt, even if paid as a lump sum.

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