Lease-end building value treated as capital receipt, not taxable revenue in the lessor's hands

Value received by a lessor on expiry of a lease for a building erected by the tenant was treated as a capital receipt, not taxable as income. The monthly rent was found to be normal rent for the land, with no evidence that it represented reduced or deferred rent for the building. As the tenant had constructed the building largely for its own purposes, the lessor's acquisition of the building on lease termination was an accretion to capital and did not constitute revenue receipt in the lessor's hands.

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Issues: Whether the value of the building received by the lessor on expiry of the lease was a capital receipt exempt from inclusion in total income, or a revenue receipt assessable to tax.

Analysis: The consideration for the lease was not shown to be reduced rent or deferred rent. There was no evidence that the monthly rent represented anything other than normal rent for the land. The tenant had undertaken to construct the building largely for its own purposes, and the fact that the lessor received the building on determination of the lease did not, on the facts proved, establish that the value of the building was rent or revenue in the lessor's hands. The receipt was treated as an accretion to capital and not as income.

Conclusion: The amount received on acquiring the building was a capital receipt and not taxable as revenue receipt.

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