M/S. Bharat Steel Tubes Ltd. vs Commissioner Of Income-Tax
2001 Latest Caselaw 1099 Del

ORDER

Arjit Pasayat, C.J.

1. Pursuant to the direction given by this Court under Section 256(2) of the Income-tax Act, 1961 (in short the Act) following question has been referred for opinion of this Court by the Income-tax Appellate Tribunal, Delhi Bench (in short, the `Tribunal'):-

"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessed was not entitled to the deduction of Rs.21,110/ paid by it as commission for renting office premises on the ground that the said payment was in the nature of capital expenditure?

The dispute relates to assessment year 1070-71.

2. Factual position in a nutshell is as follows:

assessed a public limited company claimed deduction of Rs. 23735/- as commission for renting office premises. Rs. 2625/- was paid for renting office premises at 12-13/F, Connaught Place New Delhi. These premises were caveated on 14.9.1969 and new office premises were taken on the first floor of Allahabad bank Bldg, 17 Parliament Street New Delhi for the renting of which the assessed company claimed to have paid Rs.21110/ to one Shri V.P. Kapai. The Income-tax Officer (in short, ITO)disallowed the entire claim on the ground that it was of capital nature.Appellate Assistant Commissioner (in short, AAC) however, conceded to the assessed's claim observing that acquiring of suitable office premises was certainly in the interest of the assesse company and expenses incurred for renting the premises were in the nature of revenue expenditure incurred for the purpose of the business and were incidental thereto.

Revenue preferred appeal.The Tribunal after hearing the parties was of the view that the claim was not an admissible deduction. Placing reliance on the decision in CIT v Maharjadhira Kameshwar Singh, (1933) 1 ITR 94,it was observed that premium payable at the commencement, or renewal or termination of the lease would ordinarily be a capital expenditure.It however, held that the amount of Rs.2625/- was on account of rent for one year and that was to be allowed as expenditure and the balance of Rs. 21110/ was to be disallowed. A prayer for reference was rejected by the Tribunal. However, it being moved, the question was directed to be referred and consequently reference had been made.

3. We have heard the counsel for revenue. Stand of the Revenue is that the Tribunal was right in its conclusion that the commission by whatever name called was premium or Salami and capital in nature.

4. As was observed by Apex Court in Board of Agricultural Income-tax v. Sindhurani Chaudhurani (1957) 32 ITR 169 and Chintamani Saran Nath Sah Deo v.CIT (1961) 41 ITR 506. Indica of Salami are (i) its simple non-recurring character and (ii) payment prior to creation of tenancy. It is the consideration paid by the tenant for being let into possession and can a be neither rent nor revenue but it is capital receipt in the hands of the landlord.In the former case it was observed that Salami is a payment by a tenant as a price for parting by the landlord with the rights under the lease of a holiday as a consideration for what the ; landlord transfers to the tenant. The board principle relating to term Salami are as follows:

(1) Prima facie salami or premium is not income;it is for the taxing authorities to prove that the facts exist which would make the same as income, if they seek to tax it.

(2) Where the premium represents payment of rent in advance it is income.But if it represents the whole or part of the price of the land or the sale price of the leasehold interest is not income but capital.

(3) Salami to be income should be a periodical monetary return coming in which some sort of regularity or expected regularity from definite sources.

(4) Salami or premium paid at the beginning of a mining lease for a long period ordinarily represents the purchase price of an out and out sale of the property and the sum received is capital and not income but rent or royalty paid periodically is income.The principle is the same whether the premium is for a simple lease of land or for a lease of mineral rights.But royalty payable under the mining lease stands on a different footing from, premium or salami.

(5) When a premium is received merely as an incident in the possession of property(even if leasehold)and there is no finding that the letting out of the property is the business of the assessed, the premium receipt is capital.

(6) Salami or premium paid in advance of rent once for all at the outset the period of tenancy being uncertain and the changes of the resettlement of the same land to some other tenant being remote, is capital.

(7) Premium (salami) is a single payment made for the acquisition by the lessee of the right to enjoy the benefits granted to him by the lease.Money paid to purchase the said general right is a payment on capital account.

(8) Salami is the amount of money which a landlord insists on receiving as condition precedent for parting with the land in favor of the lessee and that it was received by the landlord not because not because of the use of the land, but before the land was put into use by the assessed,.

(9) The question of salami should not be decided on the length of the period of the lease but on the nature of the right conveyed.The characteristics of the payment should be decided without reference to the nature of the lease including the wasting nature of the assets under the lease,

These broad principles were summarized by Calcutta High Court in Promode Ch.Roy Chowdhury v.CIT (1962)46 ITR 1064 Question whether a particular rcecipt like Salami can be regarded as revenue or capital cannot be decided in the abstract and each case has to be decided on its facts.

5. Rent is allowable as deduction under Section 30 of the Act.What is allowable is the rent paid or payable or the period during which the premises are used for the purposes of business.Section 105 of the Transfer of Property Act, 1882(in short, T.P. Act)makes a distinction between rent and premium payable under a lease when the interest of the Lesser is parted with for a price, the price paid is premium or Salami.But the periodical payment made for the continuous enjoyment of the benefits under the lease are in the nature of rent. The former is capital and the letter is a revenue in nature.

The factual position as noted by the Tribunal and referred to be us goes to show that in the instant case payment was of capital nature.Question, therefore, is answered in the affirmative in favor of the revenue and against the assessed.