MASUD, J. - (1.) THE short point argued before us in this reference under s. 66(1) of the IT Act is whether a sum of Rs. 55,200 received by the assessee is a capital receipt or a revenue receipt. THE facts stated are as follows :
(2.) THE assessment year is 1947-48, the corresponding accounting year being the financial year ending 31st March, 1947. On the 19th July, 1945, the assessee took on lease the premises No. 157, Upper Circular Road, Calcutta, for a term of 99 years from the sons of Shrish Chandra Pal, deceased, and their mother on a monthly rent of Rs. 750. THE important conditions of the lease were that the assessee was at liberty to assign the lease with the consent of the lessor and that he could alter the constructions on the premises with a view to run a cinema, if necessary. After spending a sum of Rs. 35,000 on some alterations to the premises, the assessee required finance for converting it into a cinema-house and for that purpose he executed a deed of lease on the 23rd Feb., 1946, in favour of Nani Gopal Dutt, Makhan Lal Dutt and Shiv Kumar Khanna, whereby the said constructions at 157, Upper Circular Road, Calcutta, known as Khanna Cinema House was given on lease to the said Nani Gopal Dutt, Makhan Lal Dutt and Shiv Kumar Khanna (hereinafter described as "the said lessees") for a period of 30 years. Under the said lease the lessees agreed to pay Rs. 55,200 to the lessor towards the cost of completing the said cinema together with a rent of Rs. 2,100 a month w.e.f. the 1st June, 1946. THE relevant provisions of the lease are as follows : "Whereas the lessees approached the lessor for having a lease of about 11 cottahs of land out of the total area of 32 cottahs comprised in the said hereinbefore in part recited Head Lease together with the cinema house to be constructed therein for a term of 30 years and erect a cinema house as per plan sanctioned by the Corporation of Calcutta on the said portion of the said premises No. 157, Upper Circular Road, Calcutta, 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 and whereas the lessees agreed to pay to the lessor a sum of Rs. 55,200 towards the cost of 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, 1946, and whereas the lessees 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 towards the cost of building the said cinema-house and whereas the lessees have paid to the lessor the said sum of Rs. 55,200 for which separate receipt has been granted by the lessor. Now this witnesseth as follows : In consideration of the rents hereinafter reserved and of the covenants and agreements on the part of the said lessees hereinafter contained the lessor doth hereby sub-demise a lease unto the lessee of all that messuage tenement or cinema-house now in course of construction . . . for a term of 30 years computed from the date on which possession of the cinema-house will be delivered to the lessees . . . . And the lessees for themselves their successors and assigns and to the intent that the obligation may continue throughout the term hereby created covenants with the lessor as follows : 1. That the lessees shall during the term hereby granted pay to the lessor monthly and every month a sum of Rs. 2,100 . . . 2. And also from time to time and at all times hereinafter during the term hereby granted duly pay and discharge all rates and taxes assessments and imposition which now or hereafter may be payable by the lessor or by the lessees in respect of the said cinema-house . . . . 6. And also will from time to time and at all times during the said term will keep the demised premises in good condition and tenantable repair . . . 12. That upper class seats at least 10 in number in the cinema hall shall be kept reserved during every show for the lessor or his men who shall be entitled to admission without any charge." Thereafter, the cinema-house was constructed and the said lessees took possession of the same and commenced cinema business. In the assessment proceedings, the assessee contended, inter alia, before the ITO that the said sum of Rs. 55,200 so received in the accounting year, relevant to the asst. yr. 1947- 48, was to be treated as a capital receipt and, as such, not liable to tax. The ITO rejected the assessee's contention and the assessees, thereafter, appealed to the AAC and the Tribunal who held that the said sum of Rs. 55,200 constituted a payment in advance of rent and, as such, was a revenue receipt and taxable. The question of law that has arisen out of the said facts is as follows: "Whether, on the facts 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 ?" Mr. Pal, learned advocate for the assessee, has strenuously argued that the said sum of Rs. 55,200 cannot be held to be revenue receipt inasmuch as the said sum, on the construction of the lease itself, cannot constitute rent received in advance. According to him, there has been no finding that the rent payable by the lessees is not adequate or unreasonable or below the market rate. He has argued that one important fact which has been overlooked by the Department and also by the Tribunal was that the lessees, apart from payment of monthly rent of Rs. 2,100, had to discharge other obligations under the deed of lease which are as follows : (a) The lessee was liable to pay all rates and taxes, assessments and impositions in respect of the said premises. (b) The lessee undertook to bear all costs of repairs. (c) The lessee would have to at least reserve 10 upper class seats in the cinema hall for the lessor or his men who would be entitled to admission without any charge.
(3.) ACCORDING to Mr. Pal, in view of these financial obligations or liabilities in addition to the monthly rent of Rs. 2,100, the monthly rent cannot in any sense be considered to be inadequate. In any event, there has been no finding of fact, according to him, to the effect that because the rent was unusually low, therefore, the said sum of Rs. 55,200 was really paid as advance payment of rent. Mr. Pal has added that the said sum of Rs. 55,200 has been paid in consideration of the fact that the assessee is forgoing a very valuable right to run the cinema on the said cinema premises by agreeing to this transfer and, as such, it is a consideration for parting with such right. In our opinion, the assessee's contention cannot be accepted. A particular receipt, whether it is a revenue receipt or a capital receipt, would have to be gathered from all the surrounding circumstances. The deed of lease, which is being relied upon by both the parties, itself categorically states that the lessees agreed to pay to the assessee the said sum of Rs. 55,200 towards the costs of erection of the said cinema-house according to their suggestion and other charges and expenses incurred therefor by the lessor. The agreed statement of case mentions the fact that the assessee, after spending Rs. 35,000 on construction of the cinema-house, required finance for completing the same. The deed of lease also mentions the fact that an estimated total cost of erection would amount to about Rs. 1,00,000. Thus, the only object of the payment of the said sum of Rs. 55,200 could only be to advance the balance costs of construction or to meet the existing liabilities of the assessee for completing the cinema- house. At no stage it was argued that the said sum was paid in consideration of the assessee's forgoing a valuable right to run the cinema. 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. No other point of law has been argued before us and no cases have been cited.;