Leasehold structures on reversion are not taxable as income unless they represent deferred rent or revenue accretion.

Where a lessee erected structures at its own cost and those structures vested in the lessor on expiry of the lease, the value received was not taxable as rent in kind or as a revenue receipt because the evidence did not show any reduction in the stipulated rent or that the structure value formed part of rent reserved under the lease. As the lessor was not shown to be carrying on a business of dealing in immovable property, the reversionary receipt was treated as a capital accretion rather than trading income, and taxation was denied.

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Issues: Whether the value of the structures that vested in the lessor on expiry of the lease was taxable as rent in kind or as a revenue receipt.

Analysis: The lease required the lessees to erect shops at their own cost, but the evidence did not show that the stipulated rent was reduced rent or that the value of the structures represented any part of the rent reserved under the lease. The lessor was not shown to be in the business of dealing in immovable property, and the receipt of the structures on the expiry of the lease was therefore not attributable to trading activity. The principle applied was that where the value accruing to the owner on reversion of a lessee-erected structure is not shown to be deferred rent, it is a capital accretion and not taxable as income.

Conclusion: The amount was not taxable as rent in kind or as a revenue receipt and the answer was in favour of the assessee.

Ratio Decidendi: A structure erected by a lessee and transferred to the lessor on reversion is not taxable as income unless it is shown on the facts to represent deferred rent or a revenue accretion in the hands of the lessor.

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