{"id":112545,"date":"1965-04-19T00:00:00","date_gmt":"1965-04-18T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-the-panbari-tea-co-ltd-on-19-april-1965"},"modified":"2015-06-07T16:13:37","modified_gmt":"2015-06-07T10:43:37","slug":"commissioner-of-income-tax-vs-the-panbari-tea-co-ltd-on-19-april-1965","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/commissioner-of-income-tax-vs-the-panbari-tea-co-ltd-on-19-april-1965","title":{"rendered":"Commissioner Of Income-Tax, … vs The Panbari Tea Co. Ltd on 19 April, 1965"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Commissioner Of Income-Tax, … vs The Panbari Tea Co. Ltd on 19 April, 1965<\/div>\n
Equivalent citations: 1965 AIR 1871, \t\t 1965 SCR (3) 811<\/div>\n
Author: K Subbarao<\/div>\n
Bench: Subbarao, K.<\/div>\n
           PETITIONER:\nCOMMISSIONER OF INCOME-TAX, ASSAM ETC.\n\n\tVs.\n\nRESPONDENT:\nTHE PANBARI TEA CO. LTD.\n\nDATE OF JUDGMENT:\n19\/04\/1965\n\nBENCH:\nSUBBARAO, K.\nBENCH:\nSUBBARAO, K.\nSHAH, J.C.\nSIKRI, S.M.\n\nCITATION:\n 1965 AIR 1871\t\t  1965 SCR  (3) 811\n CITATOR INFO :\n R\t    1972 SC  80\t (4,5)\n\n\nACT:\n    Indian  Income-tax\tAct  (11  of  1922)--\"Premium\"\t and\n\"rent\"-Distinction--Premium  paid  in\tinstalments--Whether\ncapital gains or revenue receipts.\n\n\n\nHEADNOTE:\n    The assessee leased out its tea estates for a period  of\nten years in consideration of a sum as and by way of premium\nand an annual rent to be paid by the lessor to the assessee.\nAs  premium  a\tpart the sum was paid at  the  time  of\t the\nexecution  of the lease and the balance was spread  over  in\nten  annual instalments; and the annual rent was payable  in\nmonthly\t instalments. The annual instalment paid as  premium\nwas taxed by the Income Tax authorities\t as  revenue receipt\nof  the\t assessee. On reference, the High Court held  to  be\ncapital gains. In appeal by certificate.\n    HELD:  The\tannual\tinstalment  paid  as   premium\t was\ncapital gains.\n    When  the interest of the lessor is parted for  a  price\nthe  price  paid is premium or salami.\tBut  the  periodical\npayments  made for the continuous enjoyment of the  benefits\nunder  the lease are in the nature of rent. The former is  a\ncapital\t income and the latter a revenue receipt. There\t may\nbe  circumstances where the parties may camouflage the\treal\nnature\tof the transaction by using clever  phraseology.  In\nsome  cases, the so-called premium is in fact  advance\trent\nand  in others rent is a deferred price. It is not the\tform\nbut  the  substance  of the transaction\t that  matters.\t The\nnomenclature  used may not be decisive or conclusive but  it\nhelps  the court, having regard to the other  circumstances,\nto  ascertain the intention of the parties.  Premium can  be\npaid  in a single payment or by instalments.  The real\ttest\nis  whether  the  said\tamount paid in\ta  lump\t sum  or  in\ninstalments  is\t the consideration paid by  the\t tenant\t for\nbeing let into possession.. [813 H; 814 E-G]\n    Raja  Bahadar  Kamakshya  Narain  Singh  of\t Ramgarb  v.\nCommissioner  of  Income-tax, Bihar and\t Orissa,  (1943)  11\nI.T.R.\t513, Member for the Board of Agriculture  Income-tax\nAssam  v. Sindhurani Chaudhurani,<\/a> (1957) 32 I.T.R. 169,\t and\nChintamani  Saran  Nath\t Sah Deo v. Commissioner of  Income-\ntax, Bihar and Orissa, (1961)41 I.T.R. 506, applied.\n    The\t parties, who were businessmen well-versed in  their\ntrade, must be assumed to have ,known the difference between\nthe  two  expressions  \"premium\" and 'rent ,  and  they\t had\ndesignedly  used  those\t two  expressions  to  connote\t two\ndifferent payments. The annual rent fixed was a considerable\nsum  of\t Rs. 54,500\/- and the premium, when spread  over  10\nyears  would work out to Rs. 22,500\/- a year. There  was  no\nreason,\t therefore, to assume that the\tparties\t camouflaged\ntheir  real  intention and fixed a part of the rent  in\t the\nshape of premium. The L\/P(D)5SCII--13\n812\nmere  fact that the premium was made payable in\t instalments\ncould  not obviously be decisive of the question,  for\tthat\nmight have been to accommodate the lessee. [815 B, C]\n    The\t construction based on the clause in the lease\tdeed\nthat  on the de.fault in the payments of the instalments  of\nthe premium or rent, the lessor shall be entitled to recover\nthe balance of the unpaid premium and not the entire balance\nof the premium, really ignores the main terms of the  lease.\nIn the context of the other clauses,  this  clause could not\nbe  so construed as to override or come into  conflict\twith\nthe main terms of the lease deed. [815 H, 816B]\n\n\n\nJUDGMENT:\n<\/pre>\n
CIVIL APPELLATE JURISDICTION:CiVil Appeal No. 150 of 1964.
\n    Appeal from the judgment and order dated March 22, 1960,
\nof  the\t Assam High Court in Income-tax Reference No.  7  of
\n1959.\n<\/p>\n
    N.D.  Karkhanis  and R.N. Sachthey, for  the  appellant.
\nSampat Ayyangar and J.P. Goyal, for the respondent.
\nThe Judgment of the Court was delivered by
\n    Subba  Rao, J.  By a registered lease deed\tdated  March
\n31,  1950, the assessee-company, respondent  herein,  leased
\nout two tea estates named “Panbari Tea Estate” and “Barchola
\nTea  Estate”, along with machinery and buildings  owned\t and
\nheld  by  it, in Darrang, in the State of Assam, to  a\tfirm
\nnamed  Messrs.\tHiralal\t Ramdas for a period  of  ten  years
\ncommencing  from January 1, 1950. The lease was executed  in
\nconsideration  of  a sum of Rs. 2,25,000\/as and\t by  way  of
\npremium and an annual rent of Rs. 54,000\/- to be paid by the
\nlessee\tto  the\t lessor. The premium  was  made\t payable  as
\nfollows: Rs. 45,000\/- to be paid in one lump sum at the time
\nof  the execution of the lease deed’ and the balance of\t Rs.
\n1,80,000\/in 16 half yearly instalments of Rs. 11,250\/- on or
\nbefore January 31 and July 31 of each year. The annual\trent
\nof  Rs.\t 54,000\/- was payable as follows:  Rs.\t1,000\/-\t per
\nmonth  to be paid on or before the last day of\teach  month,
\nmaking in all Rs. 12,000\/- per year, and the balance of\t Rs.
\n42,000\/- on or before December 31 of each year. On  February
\n25,  1957, for the assessment year 1952-53,  the  Income-tax
\nOfficer made the assessment treating the  instalment of\t Rs.
\n11,250\/- paid towards the premium in the relevant accounting
\nyear  as a revenue receipt of the assessee. On\tappeal,\t the
\nAppellate Assistant Commissioner confirmed the order of\t the
\nIncome-tax  Officer.  On  further  appeal,  the\t  Income-tax
\nAppellate Tribunal also held that the premium was really the
\nrent  payable  under the lease deed and, therefore,  it\t was
\nchargeable  to income-tax. At the instance of the  assessee,
\nthe  Tribunal  referred the following question to  the\tHigh
\nCourt  under  s. 66(1) of the Income-tax Act,  1922,  herein
\nafter called the Act:\n<\/p>\n
\t\t  “Whether   on\t  the  facts  and   in\t the
\n\t      circumstances   of  the  case  and  upon\t the
\n\t      construction of the terms of the lease,  dated
\n\t      31st  March  1950,  the sum  of  Rs.  11,250\/-
\n\t      received\tby the assessee during the  year  of
\n\t      account is revenue or capital receipt”.\n<\/p><\/blockquote>\n
\t      813<\/span><\/p>\n
\t\t  The  High Court held that the said sum  of
\n\t      Rs.  11,250\/- received by the assessee  during
\n\t      the year of account was a capital receipt\t and
\n\t      answered\t the  question\taccordingly.  On   a
\n\t      certificate  issued  by the High\tCourt,\tthis
\n\t      appeal  has been filed by the Revenue  in\t his
\n\t      Court.\n<\/p><\/blockquote>\n
\t\t  The  short  question that arises  in\tthis
\n\t      appeal  is  whether the  amount  described  as
\n\t      premium in the lease deed is really rent\tand,
\n\t      therefore,  a revenue receipt. Before we\tlook
\n\t      at  the  lease deed it will be  convenient  to
\n\t      notice  briefly  the  law\t pertaining  to\t the
\n\t      concept of premium, which is also described as
\n\t      salami.\n<\/p><\/blockquote>\n
\t\t  The  distinction between premium and\trent
\n\t      was  brought out by the Judicial Committee  in
\n\t      Raja   Bahadur   Kamakshya   Narain  Singh  of
\n\t      Ramgarh v. Commissioner of Income-tax, Bihar &
\n\t      Orissa<\/a> (1) thus:<\/p><\/blockquote>\n
\t\t  “It (salami) is a single payment made\t for
\n\t      the acquisition of the right of the lessee  to
\n\t      enjoy  the  benefits granted to  them  by\t the
\n\t      lease.  That  general right  may\tproperly  be
\n\t      regarded\tas  a capital asset, and  the  money
\n\t      paid to purchase it may properly be held to be
\n\t      a\t  payment  on  capital\taccount.   But\t the
\n\t      royalties are’ on a different footing
\n    It is true that in that case the leases were granted for
\n999  years; but, though it was one of the circumstances,  it
\nwas not a decisive factor ,in the Judicial Committee  coming
\nto the conclusion  that the salami paid under the leases was
\na  capital  asset.  This Court in Member for  the  Board  of
\nAgriculture Income-tax, Assam v. Sindhurani Chaudhurani<\/a>\t (2)
\ndefined “salami” as follows:\n<\/p>\n
\t\t  “The indicia of salami are (1) its  single
\n\t      non-recurring character and (2) payment  prior
\n\t      to  the  creation of the tenancy.\t It  is\t the
\n\t      consideration paid by the tenant for being let
\n\t      into  possession and can be neither  rent\t nor
\n\t      revenue but is a capital receipt in the  hands
\n\t      of the landlord.”\n<\/p><\/blockquote>\n
It  is\ttrue  that in that case the payment was\t paid  in  a
\nsingle\tlump  sum, but that was not a conclusive  test,\t for
\nsalami\tcan be paid in a single payment or  by\tinstalments.
\nThe real test is whether the said amount paid in a lump\t sum
\nor  in instalments is the consideration paid by\t the  tenant
\nfor   being  let  into\tpossession.  This  Court  again\t  in
\nChintamani Saran Nath Sah Deo v. Commissioner of Income-tax,
\nBihar  & Orissa<\/a>(1) considered all the relevant decisions  on
\nthe  subject  in  the context of  licences  granted  to\t the
\nassessee to
\n(1) [1943] 11 I.T.R. 513, 519.\n<\/p>\n
(2) [1957] 32 I.T.R. 169.\n<\/p>\n
814<\/span><\/p>\n
prospect  for  bauxite\tin some cases for 6  months  and  in
\nothers for a year or two and observed:\n<\/p>\n
    “The definition of salami was a general one, in that  it
\nwas  a\tconsideration paid by a tenant for  being  let\tinto
\npossession for the purpose of creating a new tenancy.”
\nApplying  that test this Court held in that case that  under
\nthe said licences there was a grant of a right to a  portion
\nof  the\t capital of the licensor in the shape of  a  general
\nright to the capital asset.\n<\/p>\n
    In view of these three decisions it is not necessary  to
\nmultiply citations.\n<\/p>\n
    Under s. 105 of the Transfer of Property Act, a lease of
\nimmovable  property  is a transfer of a right to  enjoy\t the
\nproperty  made for a certain time, express or implied or  in
\nperpetuity, in consideration of a price paid or promised, or
\nof  money, a share of crops, service or any other  thing  of
\nvalue, to be rendered periodically or on specified occasions
\nto  the\t transferor  by\t the  transferee,  who\taccepts\t the
\ntransfer  on  such  terms.  The\t transferor  is\t called\t the
\nlessor,\t the transferee is called the lessee, the  price  is
\ncalled\tthe premium, and the money, share service  or  other
\nthing  to be so rendered is called the rent.   The  section,
\ntherefore,  brings out the distinction between a price\tpaid
\nfor a transfer of a right to enjoy the property and the rent
\nto be paid periodically to the lessor. When the interest  of
\nthe  lessor  is parted with for a price, the price  paid  is
\npremium or salami.  But the periodical payments made for the
\ncontinuous enjoyment of the benefits under the lease are  in
\nthe nature of rent.   The former is a capital income and the
\nlatter a revenue receipt.  There may be circumstances  where
\nthe   parties\tmay  camouflage\t    the\t  real\t nature\t  of
\ntransaction by using clever phraseology.  In some cases, the
\nso-called premium is in fact advance rent and in others rent
\nis deferred price.  It is not the form but the substance  of
\nthe transaction that matters.  The nomenclature used may not
\nbe  decisive  or conclusive but it helps the  Court,  having
\nregard\t to  the  other\t circumstances,\t to  ascertain\t the
\nintention of the parties.\n<\/p>\n
    Bearing  the said principles in mind let  us  scrutinize
\nthe  lease deed dated March 31, 1950.  Under  that  document
\ninterest  in two large tea estates comprising 320 acres\t and
\n305 acres respectively under tea, along with the  bungalows,
\nfactory\t buildings, houses, godowns, cooly lines  and  other
\nerections  and structures, was parted by the lessor  to\t the
\nlessee for a period of 10 years; and during that period\t the
\nlessee\tcould  enjoy  the said tea  estates  in\t the  manner
\nprescribed in the document.  Under the document,  therefore,
\nthere  was a transfer of substantive interest of the  lessor
\nin the estates to the lessee and a conferment of a right  on
\nthe  lessee to use the said estates by exploiting the  same.
\nUnder cl. 4 of the lease deed for the transfer of the  right
\na premium of Rs. 2,25,000\/- had to be
\n815<\/span>
\npaid to the lessor and for using the estates the lessee\t had
\nto  pay. an annual rent of Rs. 54,000\/-.  Both\tthe  premium
\nand  the  rent\twere payable in instalments  in\t the  manner
\nprovided  in  the document.  The  parties  were\t businessmen
\npresumably well-versed in the working of tea estates.\tThey
\nmust be assumed to have known the difference between the two
\nexpressions  “premium” and “rent”; and they  had  designedly
\nused   those  two  expressions\tto  connote  two   different
\npayments.   The annual rent fixed was a considerable sum  of
\nRs.  54,000\/-  and the premium, when spread over  10  years,
\nwould work out to Rs. 22,500\/- a year.\tThere is no  reason,
\ntherefore, to assume that the parties camouflaged their real
\nintention  and\tfixed  a part of the rent in  the  shape  of
\npremium.  The mere fact that the premium was made payable in
\ninstalments  cannot obviously be decisive of  the  question,
\nfor  that might have been to accommodate the lessee. Nor  is
\ncl. 8 of the lease deed, on which strong reliance is  placed
\nby  the\t learned counsel for the Revenue, a pointer  to\t the
\ncontrary. It reads:\n<\/p>\n
\t\t “(1)  If any of the  aforesaid\t instalments
\n\t      towards  the  premium  or\t annual\t rent  shall
\n\t      remain  unpaid for two months  after  becoming
\n\t      payable (whether formally demanded or not)  or
\n\t      if the lessee shall make default in payment to
\n\t      the  Lessor any other sum or any part  thereof
\n\t      in due dates or in observing or performing any
\n\t      of  the covenants, conditions or\tstipulations
\n\t      hereinbefore contained and on the part of\t the
\n\t      Lessee  to be paid, observed and performed  or
\n\t      if  the Lessee’s firm is dissolved except\t for
\n\t      reconstruction  or if any of the\tpartners  of
\n\t      the  Lessee is adjudicated insolvent then\t and
\n\t      in  any such cases it shall be lawful for\t the
\n\t      Lessor  immediately  or at any time  or  times
\n\t      thereafter  upon the demised Tea\tEStates\t and
\n\t      premises\tor any part thereof in the  name  of
\n\t      the  whole  to re-enter  and   thereupon\tthis
\n\t      demise shall absolutely determine but  without
\n\t      prejudice\t to  the  rights of  the  Lessor  to
\n\t      damages  or  compensation in  respect  of\t any
\n\t      breach  of Lessee covenants  herein  contained
\n\t      and  all other rights and\t remedies  including
\n\t      the  right  to  recover  the  balance  of\t the
\n\t      instalment  unpaid premium or rent payable  in
\n\t      that particular year.”\n<\/p><\/blockquote>\n
The argument is that in the case of default contemplated  in
\nthis  clause it shall be lawful for the lessor\tto  re-enter
\nand in that event in terms of cl. 8 he will be entitled only
\nto  recover the balance of the instalment of unpaid  premium
\nand   not   the\t entire\t balance  of   the   premium.\tThis
\nconstruction,  though  it appears to be plausible  at  first
\nsight,\treally\tignores\t the main terms of  the\t lease.\t The
\ndefault\t clause is pressed into service to destroy the\tmain
\nterm of the lease.  Under el. 1 of the lease deed the sum of
\nRs. 2,25,000\/- is the consideration by way of premium to  be
\npaid  by the lessee to the lessor. Under cl. 4\tthereof\t the
\nsaid entire premium has to be
\n816<\/span>
\npaid  in instalments; under cl. 8 the lessor has the  option
\nto  terminate  the lease and re-enter the  premises  in\t the
\ncircumstances mentioned therein without prejudice to all his
\nrights under the document.  One of his rights is to  recover
\nthe premium in instalments. The fact that one of the  rights
\nsaved is his right to recover the balance of the  instalment
\nof  unpaid  premium cannot possibly deprive him of  all\t his
\n_other\trights\twhich are also expressly  saved\t thereunder.
\nThe  drafting  of the clause is not artistic and  is  rather
\nconfused; but in the context of the other clauses it  cannot
\nbe so construed as to override. or come into conflict  with,
\nthe main terms of the lease deed.\n<\/p>\n
    Thirdly, it was contended that the income the lessor was
\ngetting\t under\tthe  lease  after  1950,  i.e.,\t after\t the
\nexecution  of  the  lease  deed,  viz.,\t the  total  of\t the
\ninstalments  of\t premium and rent, was not higher  than\t the
\nprofits\t he  was getting before the lease and  that  was  an
\nindication  that  what\twas rent really was  split  up\tinto
\npremium\t and rent for ulterior purposes.  This\targument  is
\nbased  upon the following data collected from the  published
\naccounts of the assessee-company:<\/p>\n
\nYear ended\t Profit\t  Deprecia-   Net\t     Divided\n\t\t\t  tion\t     Profit\t  (tax free)\n       (1)\t (2)\t   (3)\t       (4)\t     (5)\n\t\t\t    Rs.\t     Rs.      Rs.\t %\n31st March 1947\t   ......   60,186   8,665    51,521\t 9\n31st March 1948\t   ......   33,118   7,872    23,246\t 9\n31st March 1949\t   ......   31,581   7,475    24,106\t 6\n31st March 1950\t ......\t    47,734   17,868   29,866\t12\n31st March 1951\t   ......   71,888   17,726   54,162\t 6\n31st March 1952\t   ......   33,213   15,527   17,686\t 6\n31st March 1953\t   ......   69,550   15,410   54,140\t 6\n<\/pre>\n
    In the accounts of the year to 31st March 1952 there are
\nthe following three items of expenditure:–\n<\/p>\n
\t\t\t\t\t\t   Rs.<\/p>\n
     Transit charges\t ………\t\t 10,605
\n     Legal Expenses  ………\t\t\t 7,518
\n     Gratuity to Managing Director  ……\t 10,000\n<\/p><\/blockquote>\n
\t\t\t\t\t     ————–<\/p><\/blockquote>\n
\t\t\t\t\t\t 28,123
\nBefore\tcomparing  the figures given for  the  two  periods,
\ni.e.,\tthe  period  before  March  1950  and\tthe   period
\nthereafter, it is necessary to add back the said three items
\nof expenditure totalling
\n817<\/span>
\nRs.  28,123\/- to the net profit of the year ended with\t31st
\nMarch,\t1952; if they were added, instead of  Rs.  17,585\/-,
\nthe profit would be Rs. 45,809\/-. A comparative study of the
\nsaid figures discloses a higher return in the second  period
\nthan  during the earlier period. But an attempt is  made  to
\nshow  that  the figures of the later  period  include  other
\nitems  and  if\tthey are deducted the net  profit  would  be
\ncomparable with that in the earlier period, but there is  no
\nagreed\tdata for this attempt and it is not possible on\t the
\nmaterial placed before us to scrutinize the figures. In\t the
\nabsence\t of  the  relevant material it is  not\tpossible  to
\naccept the argument built upon the said figures.
\n    The\t result is that there is no material  placed  before
\nus,  either  direct  or\t circumstantial,  to  displace\t the
\ndescription  given in the lease deed to the said amounts  as
\npremium\t and to hold that they are not in fact\tpremium\t but
\nonly  rent.   Indeed,  the  circumstances  mentioned   supra
\nconfirm the said description.\n<\/p>\n
    In\tthe result we hold that the High Court has  given  a
\ncorrect\t answer\t to  the question submitted  to\t it  by\t the
\nIncome-tax Appellate Tribunal. The appeal is dismissed\twith
\ncosts.\n<\/p>\n
Appeal dismissed.\n<\/p>\n
818<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Commissioner Of Income-Tax, … vs The Panbari Tea Co. Ltd on 19 April, 1965 Equivalent citations: 1965 AIR 1871, 1965 SCR (3) 811 Author: K Subbarao Bench: Subbarao, K. PETITIONER: COMMISSIONER OF INCOME-TAX, ASSAM ETC. Vs. RESPONDENT: THE PANBARI TEA CO. LTD. DATE OF JUDGMENT: 19\/04\/1965 BENCH: SUBBARAO, K. BENCH: SUBBARAO, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-112545","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nCommissioner Of Income-Tax, ... vs The Panbari Tea Co. 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