TaxTMI 
TaxTMI 
1962 (7) TMI 45
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....ndian Income-tax Act?" It will be clear from the form of the question that it relates to two classes of money paid: (1) the "lease" money; and (2) the rent. It may be stated that in the fifteen leases which are under consideration in these cases a certain sum of money was paid by the assessee in a lump sum at the time of the execution of the lease, and this has been described in the question as "lease" money. Another sum of money was payable by the assessee year after year and this has been described in the question as "rent". In the second and the third references the questions referred are stated respectively as follows: "Whether, on the facts and in the circumstances of the case, part of the initial lease amount paid by the applicant to its lessors and adjusted during the year in question, is a permissible deduction within the meaning of clause (xv) of sub-section (2) of section 10 of the Income-tax Act? and Whether, on the facts and circumstances of the case, the sum of Rs. 1,215 and Rs. 1,630 representing the lease amounts paid in the assessment years 1954-55 and 1955-56 by the applicant to its lessors are permissible deductions within the meaning of cl....
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....cified depth of 10 ft., construct wells pucca and katcha. Construct buildings without foundation for the residence of employees, construct roads, construct kilns, manufacture tiles, and set up an engine for manufacture of lime, build a workshop, use the land in any manner they wish and transfer their rights under the lease. 6,400 40-6-0 4. Ashrafali 25-2-41 5 yrs. Construct katcha and pucca wells, roads, kilns, houses for employees and labourers, stock bricks and tiles, dig earth up to a depth of 12 ft., cultivate the land and sublet it. 1,170 47-12-0 5. Ramraj & Others 1-2-46 10 yrs. Dig earth up to a depth of 10 ft., build a kiln, manufacture bricks, tiles, and on the land, instal an engine, cultivate the land, sublet the land or do whatever he might choose to do on the land. 145-4-0 8-4-6 6. Chhedi & Others " " do. 344-8-0 19-11-0 7. Ramshanker " " do. 91-8-0 5 4-0 8. Mahadeo & Others " " do. 657-14-0 37-8-6 9. Sheo Shanker & Others 4-2-46 10 yrs. do. 2,600-0-0 57-0-0 10. Th Bhanu Pratap 14-10-41 5 yrs. Dig earth. No s....
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....oney in the assessment years 1948-49 and 1949-50 respectively though during the assessment proceedings an allowance in respect of those amounts was claimed. In the subsequent years, however, it claimed the allowance of the amounts paid as lease money etc. The details of the payments claimed are as under: Rs. 1948-49 9,277 1949-50 3,431 1950-51 4,121 (the other items claimed have been allowed by the I.T.O.). 1951-52 2,044 1952-53 3,625 1953-54 1,393 (2320-18-909) 1954-55 1,215 1955-56 1,630 In the years involved in the first reference the Income-tax Officer disallowed both classes of payments, namely, the lump sum payments and the annual payments and also the expense connected with the execution of the leases holding that the expenditure was of a capital nature and not a revenue nature so as to be allowable under section 10(2)(xv). In appeal by the assessee the Appellate Assistant Commissioner allowed 80 per cent. of both classes of payments relying on the Full Bench decision of the Lahore High Court in Benarsidas Jagannath v. Commissioner of Income-tax [1947] 15 I.T.R. 185 (F.B.) but holding that as in some of the leas....
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....owed only the annual payments while disallowing the lump sum payments following its order in the preceding year 1953-54. Thereafter the assessee made applications for the statement of the cases to this court and the applications were allowed and the references are now before us. The point for decision before us is: 1. Whether the lump sum payment made by the assessee under the various leases was for the acquisition of an interest in land or was the price paid for the purchase of raw material; and 2. Whether the annual payment made by the assessee during the term of the lease was revenue expenditure allowable in the first reference for the five assessment years in question in that reference. So far as the second class of payment is concerned, while it is true that it has been separately mentioned in the question which has been referred to us, the distinction does not appear to have been drawn at any stage of the proceedings before the authorities below nor have the authorities below discussed or decided the matter on the basis of any such distinction. It may also be stated that in the first two years the assessee himself lumped both classes of payment together in its books and....
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....he same and whether or not the lump sum payments were capital or revenue payments the annual payments were different in nature and were revenue payments. So far as the lump sum payments are concerned, the basis of the argument of learned counsel for the assessee is that as earth was to be dug to be taken away by the assessee from specific plots only up to a specified depth, the quantity of earth to be dug and taken away by it, was a specified quantity and as such the lump sum payment was the price of raw material and was not a payment for the acquisition of an interest in land or for the acquisition of an asset of an enduring nature; in other words, that it was not for the acquisition of an apparatus of profit making or a capital asset. From the analysis of the leases made in the early part of this judgment it will be seen that it was only in nine lease deeds, namely, the lease deeds Nos. 1 to 9, there was a mention of the depth to which earth could be dug. In the other six leases there was no mention of any depth. It follows that so far as the last six leases, namely, Nos. 10 to 15, are concerned the assessee could not, on his own argument, urge that the lump sum payment made by t....
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....enue cases regard must be had to the substance of the transaction rather than to its mere form." It follows that the decision of the question in the present case depends not on the form of words used in lease deeds but on the real nature of the transaction evidenced by the first nine leases. Before proceeding to decide the question I should like to quote an observation made by the Supreme Court in a recent decision where a similar question was involved. The decision is in Abdul Kayoom v. Commissioner of Income-tax [1962] 44 I.T.R. 689 (S.C.). It is stated there as follows: "What is attributable to capital and what to revenue has led to a long string of cases here and in the English Courts. A decision of this court in Assam Bengal Cement Co. Ltd. v. Commissioner of Income-tax [1955] 27 I.T.R. 34; [1955] 1 S.C.R. 972 and Pingle Industries case [1960] 40 I.T.R. 67; [1960] 3 S.C.R. 681 have considered all the leading cases, and have also indicated the test, which are usually applied in such cases...None of the tests is either exhaustive or universal. Each case depends on its own facts, and a close similarly between one case and another is not enough, because even a singl....
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....93. Subba Rao C.J. (as he then was) observed as follows: "When the interest of the lessor is parted with for a price, the price paid is premium or salami. But the periodical payments made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is a capital income and the latter a revenue receipt. There may be circumstances where the parties may camouflage the real nature of the transaction by using clever phraseology. In some cases, the so-called premium is in fact advance rent and in others rent is deferred price. It is not the form but what matters is the substance of the transaction. The nomenclature used may not be decisive or conclusive but it helps the court, having regard to the other circumstances, to ascertain the intention of the parties. In the decided cases, where the lease was for a long period and the document provided both for salami and periodical payments of rent, the courts came to the conclusion that the initial payment was in the nature of a capital income." It cannot be disputed that the consideration for a lease may be premium plus rent or premium or rent alone. Thus merely because part of the consideratio....
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.... of the first nine leases and not in respect of the rest. This he did for the reason that it is in the first nine leases alone that a depth has been specified up to which only the lessee could dig and remove earth, kankar and sand for the purpose of its business. By reason of the specification of the depth in these nine leases learned counsel argued that the actual description of the lump sum payment as price of the earth in the lease deeds was also the correct description as by reason of the specification of the depth up to which the digging could be carried on, the payment was a payment of the price of a measured quantity of earth which was the raw material required by the assessee for its business of manufacturing bricks. Learned Counsel strongly relied on the Full Bench decision of the Lahore High Court in Benarsidas Jagannath [1947] 15 I.T.R. 185 (F.B.) and urged that as in that case, so in this case the lump sum payment should be treated as a revenue expenditure and not as a capital expenditure and should be allowed as a deduction under section 10(2)(xv). It appears to me that there are two difficulties in the acceptance of this argument. One is by reason of the decision of t....
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....native of the problem before us.......I think that the real test is, in the context of the controversy before us, what was acquired--an enduring asset or advantage, or raw materials for running the business? Judged by that test the present case stands on the same footing as the case of Benarsidas Jagannath [1947] 15 I.T.R. 185 (F.B.)." I have quoted these observations of S.K. Das J. to show two things: (1) that the learned judge was of the opinion that the Supreme Court had approved of the decision in Benarsidas Jagannath's case [1947] 15 I.T.R. 185 (F.B.) in Assam Bengal Cement Co.'s case [1955] 27 I.T.R. 34; [1955] 1 S.C.R. 972; and (2) that the case in Pingle Industries Ltd. [1960] 40 I.T.R. 67; 3 S.C.R. 681 stood on the same footing as the case in Benarsidas Jagannath and as such the amount spent in acquiring the right to extract stones from quarries should be held to be a revenue expenditure and not a capital expenditure. The majority view was, however, different on both the points. Hidayatullah J. who delivered the majority judgment in the case observed at page 87 as follows: "The approval given to Benarsidas' case [1947] 15 I.T.R. 185 (F.B.) by thi....
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.... and confer no substantial rights in the land at any rate such as are not subsidiary for the purpose of digging the earth. The main object of the agreements was no other than the procuring of earth for the purpose of preparing bricks..... The agreements........clearly prescribed the limits not only to the extent of the length and breadth of the land but even the extent of its depth to which earth was to be excavated. These agreements did not convey the property in favour of the assessee. In effect and substance, they are for the purchase of earth with a privilege to enter upon the land for the purpose of digging and removing the earth. The arrangements evidenced by these transactions are transitory in character and the whole intention and purpose of these so-called leases was to procure raw material for the manufacture of bricks. Once the earth was dug and removed, the right created by these agreements in the assessee had automatically to come to an end. The arrangements evidenced by these documents can neither be given the status of leases nor of permanent grants. All that may be reasonably suggested is that they confer on the assessee temporary rights of easements, even if they a....