K.K. Desai, J.
1. The assessee-respondent-company obtained a lease of a piece of land admeasuring 4,903 sq. yds. for 999 years in 1943. On a portion of the land the assessee-company constructed for its business of dye works certain structures.
2. der an indenture of lease dated April 30, 1952, the assessee-company leased out a portion of 439 sq. yds. of the above land for a period of five years to the Caddel Weaving Mills Co. Ltd., on the terms and conditions contained in the said indenture of lease. The consideration for the lease mentioned in clause 1 of the operative part is 'the expenses to be incurred by the tenants in the erection of a factory and of the rent and covenants hereinafter mentioned'. Under clause 2, the tenant-weaving mill agreed to pay and discharge all existing and future rates and taxed in respect of the demised land. It also agreed to construct at its own cost a building on the demised land in accordance with the plans, elevations, sections and specifications to be approved and signed by the architect of the assessee-company and to the satisfaction of the said architect. The building was to be for a weaving mill and the tenant-weaving mill agreed to expend upon such building the minimum sum of Rs. 50,000. Under sub-clause (g) of clause 2, the tenant-weaving mill agreed to keep the factory building, when completed, and all other buildings erected in good and substantial repair and condition. In connection with this building certain rights were reserved to the assessee-company under sub-caused (j) (k) and (1) of clause (2). Under sub-clause (p) of this clause the tenant-weaving mill agreed to keep the building insured with liberty to the assessee-company in difficult to the incur expenditure for insurance at the cost of the tenant-weaving mill. Sub-clauses (s) of this clause provided that on the determination of the tenancy the tenant-weaving mill had to yield up the above building and the demised land to the assessee-company.
3. Sub-clause (b) of clause 3 provided an option in favour of the tenant-weaving mill for a further lease on the terms contained in the indenture of lease of a further period of five years.
4. Clause 5 provided that, in the event of one Ardeshir Byramji Vakil ceasing to have interest in the tenant-weaving mill, the lease should immediately come to an end, without prejudice to the assessee-company's right to the building constructed by the tenant-weaving mill.
5. The rent agreed to be paid was Rs. 100 per month.
6. The tenant-weaving mill exercised the option and the period of the lease was extended and the lease lasted in the aggregate for ten years. These ten years having expired, in the assessment year 1958-59 and the accounting year ending December 31, 1957, the assessee-company received back the building construction which had been put up by the tenant-weaving mill at the cost of Rs. 1,30,000 on the land demised. In connection with the receipt of this building, the assessee-company made a credit entry in the capital account maintained in the books of accounts for the above assessment year Rs. 70,000. The entry disclosed that this sum represented the original cost of construction of Rs. 1,30,000 less depreciation at the uniform rate of five per cent. for the period of ten years.
7. The case of the assessee-company before the tax authorities was that the building construction acquired by the assessee-company was of the value of Rs. 70,000 and that this sum was no revenue receipt. The Income-tax Officer calculated the value of the building at Rs. 77,870 and held that the assessee-company had acquired in the assessment year the above sum of Rs. 77,870 by way of revenue receipt. This finding was confirmed by the Appellate Assistant Commissioner. The Income-tax Appellate Tribunal, by its order dated July 23, 1962, held in favour of the assessee-company that the acquisition of the building and the value thereof as entered in the books of the assessee-company was not revenue receipt.
8. Under the above circumstances the question referred to us in this reference under section 66(1) of the Indian Income-tax Act, 1922, is :-
'Whether, on the facts and in the circumstances of the case, the amount of Rs. 77,870 is exempt from inclusion in the total income as being a capital receipt ?'
9. The only contentions advanced by Mr. Joshi, for the revenue, in support of its case that the acquisition of the above building and the value thereof being Rs. 77,870 is revenue receipt, are as follows :
10. In clause 1 in the operative part 6 of the lease the expenses to be incurred by the tenant-weaving mill in the erection of the building are mentioned as part of the consideration for the grant of the lease. In that connection provisions are made in the lease creating certain obligations against the tenant-weaving mill. These have already been recited above. Mr. Joshi referred to section 105 of the Transfer of Property Act, which defines 'lease' and, inter alia, provides.
'A lease..... is a transfer of a right to enjoy.... property.... in consideration of a price paid pr promised, or of money,...... or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee,.....'
11. Mr. Joshi contended that the delivering over of the constructed building, which was agreed to be of the minimum value of Rs. 50,000, was the 'other thing of value to be rendered on specified occasions' by the tenant-weaving mill to the assessee-company in this case. He, therefore, contended that the value of the building acquired by the assessee-company upon the expiration of the lease was in the nature of rent or revenue receipt. In his submission the acquisition of the building was not an accretion to the property of the assessee-company; nor was it a positive accretion to the capital as held by the Appellate Tribunal. The acquisition of the building, according to him, was related to the liability of the tenant-weaving mill to tender rent to the assessee-company.
12. We find it extremely difficult to accept this submission made by Mr. Joshi. Prima facie, the business of the assessee-company was to carry on dye works and not to deal in immovable properties. There is no evidence whatsoever rent and not of Rs. 100 per month reserved under the lease was reduced rent and not the ordinary normal rent which only could have been earned by the assessee-company by letting out 439 sq. yds. of the vacant land. Mr. Joshi admitted that it is well-settled that, if any amount was paid by the tenant-weaving mill as and by way of premium for getting the lease in question, the premium receipt by the assessee-company would be capital receipt and capital asset and could be held be revenue receipt.
13. The question is if the above sum of Rs. 77,870 was deferred rent or the price (premium) paid by the tenant-weaving mill in connection with the acquisition of the lease. There is no evidence on record to made a finding in favour of the revenue that the building acquired at the expiration of the term of the lease in the assessment year 1958-59 represented deferred rent. This is so because evidence was not brought on record by the revenue to prove that the rent of Rs. 100 per month agreed to be paid was reduced rent and that in fact a much larger rent represented by the value of the above building divided by 120 months of lease could have been charged by the assessee-company when it granted the lease. In this connection it is important to notice that the lease provided that the tenant-weaving mill need not expend more than Rs. 50,000 in the construction of the building. The tenant-weaving mill did not bother about that minimum agreed amount and expended the sum of Rs. 1,30,000 for the construction of the building. The tenant-weaving mill appears to have agreed to the term of the return of the building for its own purpose and for it sown needs. We are unable, under the facts and circumstances of the case, which have been recited above to make a finding in favour of the revenue that the above sum of Rs. 77,870 or any part thereof was revenue receipt in the hands of the assessee-company.
14. In the result, the findings made by the Appellate Tribunal are correct.
15. The question is answered in the affirmative.
16. The applicant to pay the costs of the respondent.