Lease-linked payment treated as advance rent and revenue receipt where deed showed construction-cost funding

A lease-linked payment must be characterised from the surrounding circumstances and the lease deed recitals, not by label alone. Where the amount was stated to meet the cost of erecting a cinema-house and completing construction, and the recipient had already incurred part of the construction expense, it was treated not as consideration for parting with a capital asset or as salami, but as money connected with the future enjoyment of the premises. On that basis, the sum was regarded as advance rent, i.e. revenue receipt, and was taxable.

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Issues: Whether the sum of Rs. 55,200 received under the lease was a capital receipt or a revenue receipt as advance rent and therefore taxable.

Analysis: The receipt had to be characterised from the surrounding circumstances and from the recitals of the lease deed. The deed stated that the amount was paid towards the cost of erection of the cinema-house and other charges incurred for completing it. The assessee had already spent part of the construction cost and needed finance for completion. In that setting, the payment was not treated as consideration for parting with any capital asset or right, nor as salami. On the facts, the amount could only be regarded as meeting the balance cost of construction and, in substance, as an advance payment connected with the future enjoyment of the premises under the lease.

Conclusion: The sum of Rs. 55,200 was a revenue receipt in the nature of advance rent and was liable to tax, against the assessee.

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