Lease premium as salami was treated as capital receipt, not revenue income, absent proof of disguised royalty.

Lease premium described as salami is ordinarily a capital receipt where it secures a leasehold benefit, while recurring payments for use under the lease are revenue receipts. The form used by the parties is not conclusive; the revenue must establish from the facts that an amount labelled salami is ively income. On the material available, a comparison between an earlier short-term prospecting lease and a later long-term mining lease did not prove that the premium was a disguised advance royalty. The amount received on grant of the lease was therefore treated as capital receipt and not assessable as income.

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Issues: Whether the sum of Rs. 2,20,000 received on grant of lease was salami on capital account or an advance payment of royalty assessable as income under the Income-tax Act, 1922.

Analysis: Salami is ordinarily a single premium paid for acquisition of the leasehold benefit and is generally a capital receipt, while periodic payments for enjoyment under the lease are revenue receipts. The description given by the parties is not conclusive, but the revenue must show by relevant facts and circumstances that an amount called salami is in substance income. A comparison of the terms of an earlier short-term prospecting lease with those of a later long-term mining lease, without more, did not furnish a reliable basis for holding that part of the premium represented capitalised royalty. The material relied upon did not sufficiently discharge the burden of proving that the lease premium was a disguised advance payment of royalty.

Conclusion: The amount of Rs. 2,20,000 was not assessable as revenue income and was held to be capital receipt in favour of the assessee.

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