Grover, J. - (1.) This is an appeal by special leave from the judgment of the Calcutta High Court in an Income-tax Reference in which the question that had to be answered by the High Court was "whether on the acts and circumstances of the case the sum of Rs. 55,200 was a revenue receipt being rent received in advance thus liable to be taxed -
(2.) On July 19, 1945, the assessee took on lease premises No. 157 Upper Circular Road, Calcutta for a term of 99 years on a monthly rental of Rs. 750/. It was stipulated inter alia that the lessee could assign the lease with the consent of the lessor. He could alter the structures on the premises so as to convert it into a cinema if necessary. After expending Rs. 35,000/- on some alterations to the premises the assessee felt the necessity of having some more money in order to convert the building into a cinema. He entered into a lease on February 23, 1946 with three persons, namely, Nani Gopal Dutt, Makhan Lal Dutt and Shiv Kumar Khanna. By this lease, the building which was called 'Khanna Cinema House' at 157, Upper Circular Road, Calcutta was demised to the lessees for a period of 30 years. The lessees agreed to pay under the indenture of lease Rs. 55,200/- to the lessor towards the cost of erecting the said cinema. The rent which was agreed to be paid was Rs. 2,100/- per month. It was payable with effect from June 1, 1946. It is necessary to set out the relevant portion of the lease: "And whereas the lessor obtained sanction from the Corporation of Calcutta and other necessary authorities and commenced the erection of a Cinema House the estimated total cost of which is about Rs. 1.00,000 (Rupees one lac):And whereas the lessees agreed to pay to the lessor a sum of Rs. 55,200/- (Rupees Fifty five thousand and two hundred) toward the cost of the erection of the said cinema house according to their suggestion and other charges and expenses incurred therefor by the lessor. And whereas the construction of the said Cinema House is almost complete and is expected to be completed by the end of March, One Thousand Nine Hundred and Forty-six and whereas the lessee have called upon the lessor to grant to them a lease of the said Cinema House which the lessor has agreed to do upon payment by the lessees of the said agreed sum of Rs. 55,200/- (Rupees Fifty-five thousand and two hundred ), towards the costs of building the said Cinema House and whereas the lessees have paid to the lessor the said sum of Rs. 55, 200/(Rupees Fifty-five thousand and two hundred ) for which separate receipt has been granted by the lessor" After the Cinema House had been completed the lessees entered into possession and started exhibiting shows there.
(3.) For the assessment year1947-48 the corresponding accounting year being the financial year ending March 31, 1947, the Income-tax Officer sought to treat the sum of Rs. 55,200 receive by the assessee-as his income. The contention of the assessee was that the aforesaid amount should be treated as capital receipt. Alternatively if it was to be treated as salami (premium) and was to be taxed as a revenue receipt it should be distributed evenly over the entire term of the lease i. e. 30 years. The Income-tax Officer did not accept either of the contentions of the assessee. It was held by him that the lease was not permanent but was temporary and that the salami had been fixed as an advance payment of rent and not as payment for transfer of the lease-hold interest. According to him the system of accountancy for this source of income being on cash basis the whole of the receipt of salami was liable to be taxed as one years income in the year of the receipt. The assessee appealed to the Appellate Assistant Commissioner who agreed with the Income-tax officer. In his view the lessees were under no legal obligation to contribute towards the cost of construction of the cinema house and the sum of Rs. 55,200 constituted payment of advance rent. The assessee appealed to the Tribunal which held that the receipt of the aforesaid amount was in the nature of advance payment of rent since the assessee was short of funds at the time the lease was entered into and that the lease was for a short term and that the amount in question represented consolidated rent for thirty years paid in advance. The High Court answered the question which was referred in the affirmative and against the assessee. According to the High Court the only object of the payment of the sum of Rs. 55,200/- could be to advance the cost of construction or to meet the existing liabilities of the assessee for completing the cinema house. It was observe:- "Further it should be noted that the period of lease is only for 30 years and the assessee's investment on the Cinema is about Rs. 60,000/-. Rs. 35,000/- being the costs of construction and Rs. 25,000/being costs of machinery with a liability to pay Rs. 750/- rent to the owner of the plot. As a result of this lease he has got a rent of Rs. 2,100/- for a term of 30 years. Thus there is no question of payment of any salami as no further inducement for grant of the lease was necessary. It is obvious that if the cost of construction of the Cinema House would have been met in its entirety by the assessee and thereafter if the assessee would have granted the lease to the lessee, the rent would certainly have been much higher. Thus, the said sum of Rs. 55,200/- in the absence of a different recital can only be deemed to have been paid as an advance rent in respect of the said Cinema House." ;