Capital receipt test for leasehold land transactions turns on the real nature and object of the dealings, not formal powers.

Receipts from salami, premia, sub-leases and compulsory acquisition of leasehold land were treated as capital receipts because the controlling test was the real nature and object of the transactions. The assessee had been formed to preserve and manage a family estate, had not carried on an independent business of dealing in land, and had merely granted long-duration sub-leases as part of estate management. Powers in the memorandum, dividend declarations and reserve creation were not decisive. Compensation for compulsory acquisition was also regarded as a substitute for capital assets lost, so the amounts were excluded from business income.

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Issues: Whether the amounts received by way of salami, premia and compensation on grant of sub-leases and compulsory acquisition of land were capital receipts or business income.

Analysis: The decisive question was the true nature and object of the assessee's dealings with its leasehold interest. The assessee had been formed primarily to preserve and manage the family estate, had not carried on any independent business of acquiring and dealing in other lands, and had merely granted sub-leases of coal-bearing parcels for long durations as part of estate management. The existence of a power in the memorandum to sub-lease land, the declaration of dividends, and the creation of reserves were not decisive. Compensation for compulsory acquisition was also a substitute for capital assets lost.

Conclusion: The receipts in question were capital receipts and not includible as business income; the answer was in favour of the assessee.

Final Conclusion: The revenue's view was rejected and the exclusion of the amounts from taxable income was upheld.

Ratio Decidendi: To determine whether receipts from dealings in leasehold property are capital or revenue, the controlling test is the real nature and object of the transactions, namely whether the assessee dealt with the property as landowner or as trader treating it as stock-in-trade.

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