MITTER, J. - (1.) THE question referred to us under s. 66(1) of the IT Act is : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 50,000 received by the assessee in consideration of consenting to the assignment of lease by M/s Godfrey Phillips (India) Ltd., in favour of M/s Blackwood Hodge (India) Ltd., is a revenue receipt taxable under the Indian IT Act ?"
(2.) THE assessment year is 1950-51, the accounting year ending on 31st Dec., 1949. THE facts taken from the statement of the case are as follows : THE assessee-company's business is dealing in the purchase and manufacture of tobacco and cigarettes. THE Gramophone Co. Ltd. had given a lease of premises mentioned below to B.N. Elias and Co. Ltd. on 17th June, 1941, which would terminate on 27th Feb., 1957. On 21st Sept., 1945, B. N. Elias and Company Limited executed and registered a lease in favour of Godfrey Phillips (India) Ltd., of a piece and parcel of land with buildings being premises Nos. 139 and 139/1, Beliaghata Road, for the period commencing from 1st July, 1946, and expiring on 27th Feb., 1957, on the following terms and covenants : THE lessee was-- (a) to pay the monthly rent of Rs. 2,200 only besides municipal taxes, assessments, etc. ; (b) to execute and perform at its own cost and expense such necessary repairs to the demised premises during the said term as the lessor was under obligation to carry out in accordance with the provisions of the lease executed by the Gramophone Company Limited in favour of the lessor ; (c) not to make any alterations in the demised premises which might depreciate the value thereof ; and (d) at the expiration or sooner determination of the term to yield and deliver up possession of the demised premises to the lessor in the condition in which the same should then be. THEre is no dispute that the real lessor was the National Tobacco Co. of India Limited, the assessee, and B. N. Elias and Co. Private Limited merely acted as managing agents of the assessee. It would further appear that in between 1945 and 1949, Godfrey Phillips (India) Ltd. had filled up a tank on the said land and erected certain structures. On 20th Sept., 1949, Godfrey Phillips (India) Limited assigned the residue of the unexpired term of the lease to Blackwood Hodge (India) Limited with the consent of B. N. Elias and Co. Ltd. and an agreement recording the same as also the assignment was executed and registered on 20th Sept., 1949. In this document Godfrey Phillips (India) Ltd. is described as the assignor, B. N. Elias and Co. Ltd. as the confirming party and Blackwood Hodge (India) Limited as the assignee. The recitals to this document show : (a) The assignor had agreed to assign and transfer unto the assignee its leasehold interest in the demised premises as from 1st Sept., 1949, and all its property and interest in the buildings, structures and erections thereon put up by the assignor at and for the consideration of Rs. 1,25,000 and the observance and performance by the assignee of all the covenants and conditions to be observed and performed by the lessee including the covenant to pay to the confirming party the monthly rent reserved by the lease. (b) The assignor had applied to the confirming party for its consent to the transfer and assignment and to the filling in of the water tank in the demised premises. (c) In consideration of the payment by the assignor to the confirming party of the sum of Rs. 50,000, the confirming party had given its consent to the said transfer and assignment and the filling in of the tank, as was evidenced by its letter to the assignor annexed to the agreement and marked "A". (d) At the request of the assignor the confirming party had agreed to join in and execute the document for the purpose of confirming the transfer and assignment in the manner set forth in the document. By the said deed the assignor assigned unto the assignee the said lands and premises with factories, etc., and the buildings and structures standing thereon in pursuance of the agreement mentioned and the assignee agreed to observe and perform all the covenants and conditions contained in the lease dt. 21st Sept.21, 1945, on the part of the lessee thereunder to be observed and performed including the payment to the confirming party of the monthly rent therein reserved. In pursuance of the said agreement and in consideration of the premises the confirming party confirmed the transfer and assignment of the premises mentioned in the schedules unto the assignee. The assignor covenanted with the assignee that the lease dt. 21st Sept., 1945, was of full force and effect. The assignor also agreed that, in the event of the assignee being called upon on the expiration of the lease dt. 21st Sept., 1945, to re-excavate the said tank and the assignee being legally liable to do so, the assignor undertook and agreed to cause the tank to be re- excavated at its own cost and to indemnify and keep indemnified the assignee from and against all costs, damages, expenses, etc., by reason of such tank not being re-excavated and restored to the same position in which the tank was then existing. The confirming party covenanted with the assignor and the assignee that it had not committed or suffered or been party or privy to any act, deed or matter whereby the said premises or any part thereof may be impeached, affected or encumbered in estate, title or otherwise or by reason whereof it was prevented from confirming the premises unto the assignee in the manner aforesaid.
(3.) THE amount of Rs. 50,000 was held by the ITO as income taxable under the Indian IT Act. THE AAC considered the receipt to be a capital one. On further appeal, the Tribunal held that, since no acquisition of any capital asset was involved in respect of the sum of Rs. 50,000, the amount received by the assessee was clearly a revenue receipt liable to be taxed in the hands of the assessee. THE Tribunal negatived the contention that it was a casual receipt on the ground that since the receipt was in the nature of income which the assessee had obtained in respect of leasing its property, the amount of Rs. 50,000 could not be said to be undesigned. When the reference first came up for hearing by another Division Bench consisting of Mr. Justice Laik and myself, many different points were argued. The contentions raised on behalf of the assessee were as follows : (a) Merely because the assessee happened to be the lessor of the property, there was no presumption that moneys received from the lessee or the assignee of the lease was income in its hands. (b) The lessor had a right to withhold consent to the assignment ; such a right was one in the property itself and payment received in lieu thereof was a capital receipt. On behalf of the Revenue it was argued : (a) The amount charged to the lessee was for recognition of the transfer of tenancy and as such was in the nature of a mutation or transfer fee. It was therefore a revenue receipt. (b) The amount was paid by the lessee to terminate his obligation to pay rent. In effect it was a lump sum paid in lieu of a series of recurrent and periodic revenue payments and as such of a revenue character. (c) Assuming the payment to be of the nature of salami, it was taxable in this case because of the short period during which the lease was to be in force and in consideration of the further fact that there could be no increase of rent by reason of the West Bengal Premises Rent Control Act of 1948. (d) The receipt was not of a casual or non-recurring nature, because the lease showed that the word "lessee" was to include "its successors and assigns." So far as the assessee's contentions were concerned, the Court was of the opinion that, if the consideration was for the wiping out of the liability to pay the monthly rent, it would partake of the capitalised value of the liability and as such of a revenue receipt. The same remark applied to the obligation to effect repairs and discharge rates, taxes and impositions. All this liability was of a periodic nature which the lessee had to discharge. This would not hold true of the obligation not to make any alteration in the demised premises. Such alteration would affect a capital asset, and any payment made to compensate the owner for change in the demised premises would savour of a capital payment. So far as the contentions of the Revenue were concerned the Court held that the payment was not in the nature of a mutation fee. Neither was it salami or in the nature of salami. With regard to the last contention of the Revenue that if the payment was in the nature of a revenue receipt the assessee was not entitled to any exemption under s. 4(3)(vii) of the Act as being a receipt of a casual or non-recurring nature, the Court held that, on the materials, it was not possible to hold that the receipt arose from business. According to the Division Bench "the payment of Rs. 50,000 was referable to a predetermined agreement between the parties, namely, that the assessee would be absolved from further compliance with the covenants under the lease by reason of this payment. It may be that such payments are not common and the lessor may probably never receive another sum of money in similar circumstances but it cannot be described as a gift or a windfall or something wholly unexpected like the picking up of a thing of value or winning a prize in a lottery." Holding that the payment of Rs. 50,000 was referable not only to the release of the lessee from its covenants under the lease but may include a sum referable to the consideration for the filling in of the tank, the Court remitted the case back to the Tribunal for finding out whether any, and if so, what, portion of the payment of Rs. 50,000 was referable to the consent given for the filling in of the tank.;