TaxTMI 
TaxTMI 
1962 (7) TMI 45
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....r 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 ₹ 1,215 and ₹ 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 clause (xv) of s....
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....ngine 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 specification, 8 months construct thatched sheds, construct wells, manufacture bricks, construct kilns and to use the land he may choose for the use of workshop. 630-0-0 825 11. Th Bhanu Pratap 2-12-47 3 yrs. Dig earth. No specification about depth, construct ....
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....0-51 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 leases the right of cultivation had also been given to the assessee, and even though no cultivation may actually have been done still as the right was there the entire amount could not be allowed. The department went up in appeal to the Income-tax Appellate Tribunal against the orders of the Appellate Assistant Commissioner and the Tribunal allowed the appeals and reversed the orders of the App....
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....es 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 added them back in its income and it was only during the assessment proceedings that he claimed an allowance in respect of the entire payment and even when he claimed an allowance, as already stated above, he did not draw any distinction between the two classes of payments or address separate arguments in respect thereof. That in a matter like this the manner in which an a?sessee deals with a....
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....o 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 the lessee was for the purchase of raw material and not for the acquisition of an interest in land. In these subsequent leases the lump sum payment is described as nazrana and not as the price of earth. It follows that upon counsel's argument the question of the character of the lump sum payment arises only, if at all, in respect of the first nine leases and not at all in respect of the remaini....
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....upreme 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 single significant detail may alter the entire? aspect. In deciding such cases one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line the case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of the business, the nature....
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.... 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 consideration is payable as premium and part as rent both are parts of the total consideration of the lease. Premium has been defined in section 105 of the Transfer of Property Act as a price for the transfer of a right to enjoy the leasehold property and rent has been held to be a periodical payment for the continuous enjoyment of the benefits conferred under the lease. Merely because a party choose....
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....um 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 the Supreme Court in Pingle Industries v. Commissioner of Income-tax [1960] 40 I.T.R. 67; 3 S.C.R. 681. In that case the question arose with reference to a payment made for acquiring a lease of the right to extract stones from quarries. Kapur and Hidayatullah JJ. held the payment to be a capital payment, S.K. Das J. dissenting. At page 73 of the report S.K. Das J. observed as follows: &quo....
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....hat 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 this court does not extend beyond the summary of the tests settled in it, and the tests have to be applied to the facts of each case in the manner indicated by this court. But the actual decision was not before this court, and cannot be said to have been approved." With regard to the facts of Benarsidas's case [1947] 15 I.T.R. 185 (F.B.) Hidayatullah J. observed at page 86 as follows: "In Benarsidas&#....
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....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 are found to vest some very limited and insignificant interest in the land out of which earth had to be dug. But no advantage of a permanent nature or of an enduring character can be held to have been gained by them. In short, the transaction evidenced by these leases were for the sale of earth." It is needless to say that the rights acquired by the assessee in our case even under the first nine leases....