1965 (3) TMI 9 - HC - Income Tax

Court rules lease advance payment as revenue receipt, subject to taxation

Durga Das Khanna Versus Commissioner of Income-Tax, Calcutta.

The court determined that the sum of Rs. 55,200 received by the assessee was a revenue receipt rather than a capital receipt. The amount, received as part ... Capital receipt or a revenue receipt - Under the lease the lessees agreed to pay Rs. 55,200 to the lessor towards the cost of completing the cinema Issues:Determining whether a sum of Rs. 55,200 received by the assessee is a capital receipt or a revenue receipt.Analysis:The case involved a dispute over whether a sum of Rs. 55,200 received by the assessee was a capital receipt or a revenue receipt for the assessment year 1947-48. The amount was received as part of a lease agreement for a cinema house. The lease agreement required the lessees to pay Rs. 55,200 towards the cost of completing the cinema house, in addition to a monthly rent of Rs. 2,100. The Income-tax Officer, Appellate Assistant Commissioner, and Appellate Tribunal considered the amount as a payment in advance of rent, making it a revenue receipt subject to taxation.The assessee argued that the sum of Rs. 55,200 should not be considered a revenue receipt as it was paid in consideration of forgoing a valuable right to run the cinema on the premises. The assessee contended that the monthly rent, along with other financial obligations like taxes, repairs, and reserved seats, made the total consideration adequate and not merely an advance rent payment. However, the court rejected this argument, emphasizing that the purpose of the payment was to advance the balance costs of construction or meet existing liabilities for completing the cinema house.The court analyzed the surrounding circumstances, including the lease agreement terms and the total investment made by the assessee in the cinema house. It was noted that the payment of Rs. 55,200 was primarily to cover construction costs and liabilities, rather than as a consideration for forgoing a right. The court highlighted that if the assessee had borne the entire construction cost and then leased the property, the rent would have been higher. Therefore, the court concluded that the sum of Rs. 55,200 was indeed an advance rent payment for the cinema house, affirming that it was a revenue receipt subject to taxation.In conclusion, the court ruled in favor of the revenue department, answering the question posed in the affirmative against the assessee. The judgment highlighted the importance of considering all relevant circumstances to determine the nature of a receipt, whether it qualifies as a capital or revenue receipt.