B.L.GUPTA J. - (1.) THIS a reference under section 66(1) of the Income-tax Act. Two questions have been referred for opinion of the court : (1) Whether, on a true interpretation of the terms of the deed of lease, the sum of Rs. 6,000 received by the assessee as compensation for leasing out a land for a period of five years for the purposes of digging earth and moulding bricks therefrom, etc., was a capital receipt or a revenue receipt ? (2) If the above receipt is held to be a revenue receipt whether the entire amount of Rs. 6,000 would be taxed as the income of the year of receipt or should be spread over a period of five years, i.e., the tenure of the lease ?
(2.) IT is clear that the second question will arise only if the answer to the first question is that the amount of Rs. 6,000 is revenue receipt and not capital receipt. If on the other hand the answer is that the amount is capital receipt, the second question would not arise. As in our opinion the answer to the first question would not arise. As in our opinion the answer to the first question is that the amount of Rs. 6,000 is capital receipt, the second question does not arise and we do not, therefore, propose to answer that question. So far as the first question is concerned the material facts are that the assessee which is a Hindu undivided family was, inter alia, the owner of certain zamindari properties and land. During the year Kartik Samvat 2007-2008, which is the relevant accounting period for the assessment year 1952-53, the assessee leased out to one Madan Lal 6 bighas 13 biswas of land for a period of five years for a lump sum payment of Rs. 6,000 on the terms and conditions set out in the agreement which is a part of the statement of the case and is annexed as annexure A" thereto. The reason for the giving of the land on lease is contained in the recital and is as follows : The land does not yield good crops on account of poor soil. The lessee is in need of earth for preparation of bricks for setting up a kiln and he expressed a wish to the lessor for the land. The lessor has accordingly decide to give the lessee the earth of the land for manufacture of bricks and have the soil of the land changed. The terms of the lease are contained in the succeeding paragraphs and are to the effect that the lessee shall remain in possession of the land for the period of the lease, namely, five years, and shall dig earth for the manufacture of bricks. The earth shall be dug up to a depth of five feet and in such manner as to leave the lower bed of the excavation level. If any kankar was found, that was to belong to the lessor. The lessee shall set up a kiln fitted with a chimney or an open kiln over part of the land, bake bricks and make sale of them but except for the setting up of a kiln and taking earth the lessee shall not be entitled to carry on cultivation or to use the land for any other purpose. On the expiry of the term of five years the lessee was to surrender the land to the lessor. If he failed to do so he would be responsible for damages at the rate of Rs. 2,000 per annum and any costs incurred in legal proceedings for dispossession. If at the end of five years any manufactured bricks were left to be removed they could continue lying over an undemarcated area of about 2 bighas pukhta of land out of the land in question for a period of one year but during that year on earth could be dug or bricks prepared or kiln worked or bricks baked. The income-tax authorities as well as the Income-tax Appellate Tribunal held that the amount of Rs. 6,000 was a revenue receipt liable to income-tax. The view of the Tribunal was that the amount was in the nature of compensation which the occupier paid to the landlord for entering on the land, digging earth and moulding bricks, etc., and was a sort of rent for allowing the land to be used as wasting asset and the rent bore a close analogy to the royalties received from mineral bearing lands and the fact that the amount was received in a lump sum was immaterial. After the appeal had been decided by the Tribunal, the assessee asked for a reference to this court and the case has been stated as already mentioned above.
(3.) THE question whether in such or similar circumstances the receipt amounts to a capital or a revenue receipt has always presented difficulty to courts whether in this country or elsewhere. THE question has, however, never been treated as a pure question of law but as a mixed question of law and fact depending upon the particular facts and circumstances. Naturally, the facts and circumstances have to be gathered from the terms of the lease or the licence. It is well settled, however, that it is not the form of the document or the form in which the transaction is couched that is determinative of the matter. It is the real nature of the transaction upon which the answer to the question depends. It is also well settled that it is also not conclusive whether the receipt in a particular case is a lump sum receipt or is spread over the terms of years or is partly paid by an initial lump sum payment and partly by subsequent annual payments. A lump sum payment may in some cases represent the value of the rights or the property transferred or may merely be a capitalised annual rent for the use of the property during the term of the lease paid in the beginning of the lease. THE principle on the basis of which the question has to be decided is whether the document or the transaction embodied in the document is a transfer of any rights and the amount paid is the price of those rights or the transaction is merely the right or the liberty to use the property for a term of years any the amount paid is the price of the use. If it is the former, the receipt is a capital receipt; if the latter, the receipt is a revenue receipt. It is a question of law in every case whether on the language of the document or having regard to the true nature of the transaction it is the one or the other. This principle is laid down in a recent decision of the Supreme Court in Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax. In that case, at page 511 of the report, it is stated as follows : What the licence gave to the licensee was the right to enter upon the land to prospect, search and mine, quarry, bore, dig and prove all bauxite lying in or within the land and for that purpose the licensee had the right to dig pits, shafts, borings and to remove, take away and appropriate samples and specimens of bauxite in reasonable quantities not exceeding 100 tons in the aggregate. It cannot be said that this amounts merely to a grant of the use of the capital of the licensor but it was really a grant of a right to a portion the capital in the shape of a general right to the capital asset. The Supreme Court went on to state : The terms of the covenant in the present case which have been quoted above show that the transaction was not one merely of the user of capital assets but of their realisation. Accordingly, the rights were on capital account and not revenue. Further at page 512, the Supreme Court observed as follows : The covenants in the licence show that the licensee had a right to enter upon the land and take away and appropriate samples of all bauxite of every kind up to 100 tons and, therefore, there was a transfer of the right the consideration for which would be a capital payment. Several things will be noticed from this decision : (i) that the transaction there was a licence and not a lease but the real nature of the licence was interpreted by the Supreme Court to be that of a transfer and not of mere use; (ii) the payment there also was a lump sum payment; (iii) the grant consisted of rights to come upon the land, to stay there, to do something on the land as well as the right to carry away bauxite in quantities not exceeding 100 tons; (iv) the term of the licence was from six months to one year. Compare these terms with the terms of the lease in our case. Here the transaction is not merely a licence but is in fact and reality a lease. Once this is accepted it necessarily follows that there is a transfer of property involved and not merely the use of property as in a licence. The term is five years which is much longer than the term in the Supreme Court case. The rights conferred are both the right to enter upon the land, to remain there, to dig earth, to mould bricks, to set up a brick kiln and to bake the bricks and sell them. The right is also there to dig and appropriate earth and use it for moulding bricks and after they have been baked in the kiln on the land to sell them there, that is to say, to remove them or to carry away the earth dug in the form of bricks. The payment in either case is a lump sum payment. No portion of that payment is referable to any single one of the various rights conferred upon the lessee. In the circumstances, it seems to me, that if anything, the present case, on facts, is on a higher footing than the case before the Supreme Court. It follows that the case is fully governed by the principle laid down in that case and it must, therefore, be held that the amount of Rs. 6,000 was received by the assessee as capital and not as revenue. ;