1. The assessees are a limited company (Gooptu Estate Limited) who in 1922 took a lease for 50 years from the representatives of one Ram Chunder Gooptu of certain properties which included the premises known as 100 dive Street, Calcutta. This lease was subject to a building lease previously granted in June 1920, by the executors of the will of the said Ram Chunder Gooptu, whereby the premises 100 Clive Street were demised for 50 years to the Tata Industrial Bank Limited on a monthly rental of Rs. 5,000. The Tata Industrial Bank Limited had paid a premium or salami of 1 lakh of rupees and by the terms of the lease had undertaken to demolish the building then standing on the demised premises and to erect thereon a new office building in accordance with conditions to be approved by the lessors. In August 1923 the Tata Industrial Bank Limited having expended a large amount of money upon the erection of the new building, went into voluntary liquidation for the purpose of a scheme of amalgamation with the Central Bank Limited. Thereupon the assessees, Gooptu Estate Limited, taking advantage of a forfeiture clause in the lease of 1920 which gave power to the lessors to re-enter if the Tata Industrial Bank Limited should go into liquidation, claimed to determine the lease and demand immediate possession. The Central Bank of India Limited, faced with this claim, compromised with the assessees who waived the forfeiture and agreed to a transfer of the lease to the Central Bank Limited in consideration of a lump sum payment of Rs. 1,00,000 and a further monthly payment of Rs. 750 during the residue of the lease. The sum of 1 lakh was paid by the Central Bank Limited to the assessees on 21st December 1923. Income Tax authorities for the year of assessment 1927-1928 have claimed to treat this sum as part of the assessable income of the assessees and the Commissioner of Income-Tax, Bengal, has at their request referred to this Court the following questions of law:
(1) Whether the sum of Rs. 1.00,000, having bean received in consideration of the waiver of their rights in connexion with a breach of the lessee of a vital condition of the lease, is in the circumstances a casual gain or a non-recurring income within the meaning of Section 4, Sub-section 3, Clause 7, Income-Tax Act.
(2) Whether the said sum Rs. 1,00,000 was a salami, and whether even assuming that it was a salami, it is an assessable income within the meaning of the Income-tax Act or is a capital or capital and casual non-recurring receipt as held in the case, Shiva Prasad Singh v. Emperor A.I.R. 1924 Pat. 679.
(3) Whether the income derived accrued and received in the year 1923 can in the circumstances, viz., the transfer of the amount from one account to another to suit the convenience of accountancy be treated as assessable income in the year 1927-28.
2. I propose to consider the second question first. The assessment order dated 30th November 1927 has been included in the paper book and from this as well as from the case stated, it appears that the assessment was made under Section 12 of the Act under the head 'other source.' The assessment order shows that the assessment being under Section 12, and not under the head business,' the Income-tax authorities have refused to permit the assessee to take credit for any sum on account of depreciation of the buildings etc. which are part of their capital assets.
3. In a case of this character much may depend upon the particular head of charge under which the assessees are being brought, and the question before us is not to be decided under Section 9, 10 or 11 of the Act. Where the assessee is the owner of property consisting of any buildings or land, appurtenant thereto, the statute charges him upon the basis of a notional income the amount of which is computed by finding the bona fide annual value and making the deductions therefrom which are allowed by Section 9. As the assessees in this case have only a limited interest, namely, the interest of a lessee for fifty years the Income-tax authorities may well be right in regarding Section 9 as inapplicable to the case. Again, if in the view taken by the Commissioner the circumstances are not such that the assessees can be regarded as carrying on a business in house property a view which has not been questioned before us and which must clearly be accepted, it is obvious the assessees cannot be made liable upon principles which are applicable only to persons carrying on business.
4. If we were dealing with this case under Section 10 of the Act, and upon a finding that the letting out of property upon lease for salami and for rent, the forfeiting of lease where possible and the exaction of fresh salami and increased rent wore all acts done in the carrying on or carrying out of a business in house property it might well be correct to have that the sum now in question was earned as part of the profits of the business, and was assessable accordingly to tax: Commissioner of Taxes v. Melbourne Trust Limited  A.C. 1001, In re Spanish Prospecting Co.  1 Ch. 92, Assets Co. Limited v. Forbes  3 T.C. 542. On the other hand on that view the assessee would be entitled to the allowance in respect of depreciation on buildings, machinery, plant or furniture prescribed by Clause (vi), Sub-section 2, Section 10.
5. From this, standpoint 'profits' as Lord Moulton observed in In re Spanish Prospecting Co.  1 Ch. 92, implies a comparison between the state of 'a business as two specific dates usually separated by an interval of a year, and if the company was to be regarded as dealing in house property by letting it out for premium and rent in the course and for the purposes of its business, the money value of the extent to which at the end of a year it had bettered its position by such means would be assessable as profit. If its position was bettered by other means, from causes not directly connected with the business of the company, the enhanced value though realised is not part of the profits of the business Californian case  5 T.C. 159, Tehran case  5 T.C. 658. Everything depends upon what the business is.
6. If, however, the assessee is not carrying on a business the matter must be examined, from another angle. The absence of any provision in Section 12 of the Act for an allowance of depreciation on fixed capital is an indication of the difference. It points to the fact that under this head the income can prima facie be ascertained without a valuation of all assets at two different dates and by means of a computation of receipts and expenditure into which the rise or fall of capital values does not enter. If the expenditure required to obtain the income from the capital asset is negligible the case is the simple case of a man in receipt of a clear revenue therefrom, If some considerable expenditure is necessary before the annual return can be obtained then the history of the year will be stated in the form of a 'Trading' or 'Revenue' account or account of the receipts and expenditure during the year. It is essential when accounting on this basis to exclude from either side of the account matters which in substance represent only a rise or fall in the value of the asset from which revenue is derived as distinct from the net revenue itself or which represent only a change in the form of the investment, whether the change be a change into money or into some other form of property.
7. Now cases of salami or 'premium upon a lease may present considerable difficulty in maintaining the distinction between capital and revenue accounts. In Raja Shiva Prasad's case A.I.R. 1924 Pat. 679, Dawson-Miller, C.J. discussed the question in the case of a holder of an impartible Raj who possessed zemindari properties. The case before us is the case of a company and apparently of a company which possesses a good many leasehold properties. But under Section 12 of the Act and upon the facts stated in the case I do not see how a different result can be arrived at from that which would have been correct had the lease of 100 Olive Street been the sole capital asset of an individual. Section 12 covers many different types of income but even if it be assumed that such matters would affect the question, the case stated contains no findings as to the character or constitution of the company, the purpose for which it was formed, the extent of its operations or the particular character of the transaction by which the representatives of Ram Chandra Gooptu deceased with the assent of the beneficiaries under his will have demised his properties to Gooptu Estate Ltd. We know indeed that the assessee company is not said to be carrying on a business and it may be, for ought we know, that it has been formed merely to 'provide convenient machinery for management or as a scheme by which the testator's estate can be administered and in the end distributed to the best advantage.
8. Looking at the assessees therefore simply as owning leasehold property from which they derive a revenue, we find as regards 100 Clive Street, that they are charged and chargeable under Section 12 with the whole of the rent notwithstanding that it is derived from a wasting asset. They have a lease for 50 years from 1922 and the property is sublet for 50 years from 1921. In 1923 when the Tata Industrial Bank incurred a forfeiture of their lease the assessees instead of being interested merely as reversioners entitled to the rent reserved during the currency of the lease become at one stroke entitled to immediate possession of the property as it then stood. Then investment or capital asset had advanced suddenly in value and they were free to deal with it as they liked, subject only to the covenants in their own lease. Had they sold it no part of the purchase price could have been regarded as revenue. Had they sold a half share in it the same would still hold. What then did they do? By a bargain with the Central Bank they contrived to the extent of Rs. 1,00,000 to realize the enhanced value at once and the rest of the enhancement in value of their asset they converted into a right to an additional monthly sum of Rs. 750. The finding by the Commissioner is that the Rs. 1,00,000 was in the nature of a salami or premium' and he adds:
paid in consideration of the Central Bank being allowed to replace the original lessee.
9. These last words are not very lucid because the sum was not exacted as a term of mere assent to an assignment but by reason of the claim that the lessee had incurred a forfeiture and in consideration that the forfeiture was waived. The sum in question is certainly to be regarded as a salami or premium and that in the ordinary sense. It was demanded and paid in respect of resettlement of this property not for a year or even for a few years only but for the remaining 48 years out of the 49 years which exhausted the assessees' leasehold interest. I do not say that salami can never be income under Section 12 but it would in my opinion be highly unreasonable to treat any part of this salami as income. The very logic by which the Act has excluded from the account any allowance for depreciation of this wasting asset excludes this item also. Neither has place in a revenue account, if the account be strictly limited to its immediate purpose.
10. In my opinion the second question referred to us should be answered in favour of the assesses. In this view the other questions do not arise and need not be discussed.
11. The assessees must have their costs of the reference.
C.C. Ghose, J.
12. I agree.
13. I agree.