1965 (2) TMI 5 - HC - Income Tax

Court rules lease assignment consent fee not taxable as income under Indian Income-tax Act.

National Tobacco Company of India Limited Versus Commissioner of Income-Tax.

The court ruled in favor of the assessee, determining that the sum of Rs. 50,000 received for consenting to the assignment of lease was a capital receipt ... Sum received by the assessee in consideration of consenting to the assignment of lease by M Ltd., in favour of B Ltd., is not a revenue receipt - Where the source of a sum of money is proved, the question of taxability depends on a consideration of all the circumstances of the case Issues Involved:1. Whether the sum of Rs. 50,000 received by the assessee for consenting to the assignment of lease is a revenue receipt taxable under the Indian Income-tax Act.2. Whether the receipt was a capital receipt or a revenue receipt.3. Whether the receipt was casual or non-recurring in nature, exempt under section 4(3)(vii) of the Indian Income-tax Act.Issue-wise Detailed Analysis:1. Nature of the Sum Received (Revenue Receipt):The primary issue was whether the sum of Rs. 50,000 received by the assessee for consenting to the assignment of lease was a revenue receipt taxable under the Indian Income-tax Act. The Income-tax Officer held the amount as income taxable under the Act, while the Appellate Assistant Commissioner considered it a capital receipt. The Tribunal concluded that since no acquisition of any capital asset was involved, the amount was a revenue receipt liable to be taxed. The Tribunal also rejected the contention that it was a casual receipt, stating that the amount was in the nature of income obtained from leasing property, thus not undesigned.2. Capital Receipt vs. Revenue Receipt:The court analyzed whether the sum of Rs. 50,000 was a capital receipt or a revenue receipt. The assessee argued that the payment was for the right to withhold consent to the assignment, which was a right in the property itself, thus a capital receipt. The revenue argued that the amount was for recognizing the transfer of tenancy, akin to a mutation or transfer fee, hence a revenue receipt. The court opined that if the consideration was for wiping out the liability to pay monthly rent, it would be a revenue receipt. However, any payment made to compensate the owner for changes in the demised premises would be a capital payment. The court held that the payment was not in the nature of a mutation fee or salami.3. Casual or Non-recurring Nature:The court also examined whether the receipt was casual or non-recurring, thus exempt under section 4(3)(vii) of the Act. The court held that the payment of Rs. 50,000 was referable to a predetermined agreement between the parties and could not be described as a gift, windfall, or something wholly unexpected. The court remitted the case back to the Tribunal to determine if any part of the payment was referable to the consent given for filling in the tank. The Tribunal noted that the deed of assignment did not specify what portion of the sum was attributable to the consent for filling in the tank and refrained from taking additional evidence.Final Judgment:The court concluded that the receipt was not a revenue receipt but a capital receipt. The court held that the assessee was giving up its right against the original lessee, which was a right in respect of a capital asset. Therefore, the receipt was not taxable as income. The court also dismissed the argument that the onus of proving that a particular receipt was not income was on the assessee, stating that the taxability depends on all circumstances of the case.Conclusion:The court answered the question in the negative and in favor of the assessee, holding that the sum of Rs. 50,000 was a capital receipt and not taxable under the Indian Income-tax Act. The assessee was awarded the costs of the reference.