DURGA DAS KHANNA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(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 :

(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.