Law: Income Tax Act, 1961

Section: 256(2)

Income-tax----Income or capital---Lease---Premium---Burden of proof---Finding that rent was reasonable---Premium paid for lease was a capital receipt. R & Co. were occupying certain premises through the assessee, because the assessee was its managing agent. The rent paid by R & Co. was very low and nominal. There, was a cessation of the managing agency agreement. Thereupon, the assessee entered into a leave and licence agreement with R & Co. for five years at a monthly rent of Rs. 10,000. The rent per sq. ft. worked out to Rs.2.50 per month. Further, in terms of the said agreement, the assessee firm received Rs.2,00,000 on account of Salami or premium. The Income-tax Officer treated the premium as a revenue receipt. The Tribunal was of the view that there was no finding by the Income-tax officer that the premium received was in the nature of advance rent. It held that the premium constituted a capital receipt. On a reference: Held: that the onus to prove that the rent charged was less than the market rate was on the Income-tax Officer. In this case, the onus had not been discharged. There was also a finding that the rent at Rs.2.50 per sq. ft. per month in 1977, could not be said to be low compared to the generally prevailing rates in Calcutta at the material time. Hence, the Tribunal was justified in holding that the sum of Rs. 2 lakhs received by the assessee was capital receipt. [Tribunal directed to deal with and dispose of the contention as to whether the receipt in question was chargeable to tax as capital gains]. Durga Das Khanna v. CIT (1969) 72 ITR 796 (SC) fol. CIT v. Purnendu Mullick (1979)116 ITR 591 (Cal.) and CIT v. Ratilal Tarachand Mehta (1977) 110 1TR 71(Bom.) ref. JUDGMENT AJIT K. SENGUPTA, J.---In this reference at the instance of the Commissioner of Income-tax under section 256(2) of the Income Tax Act, 1961, the following question of law has been referred to this Court for the assessment year 1977-78: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sum of Rs.2 (two) lakhs received by the assessee was a capital receipt and not chargeable to tax?" The facts of the case,…

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