SETH MADAN GOPAL BAGLA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS a reference under section 66(1) of the Income-tax Act. Two questions have been referred for opinion of the court :

(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.

(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 :