HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Durga Das Khanna v. Commissioner of Income-tax, Calcutta
Civil Appeal No. 873 of 1966
[1969] 3 SCR 462 ·
Indian Income-tax Act, 1922 (capital-versus-revenue receipt in assessment year 1947-48) · Transfer of Property Act, 1882: section 105 (premium and rent distinction discussed)
Sources & disclosures includedDownload original judgment / order
3-judge bench; unanimous judgment delivered by A. N. Grover, J. · J. C. Shah, J. · V. Ramaswami, J. · A. N. Grover, J.
Assessment years: 1947-48
01 · Facts of the case
Durga Das Khanna leased premises at 157 Upper Circular Road, Calcutta for 99 years at Rs.750 per month, spent Rs.35,000 altering them for a cinema and then lacked funds to complete it. By a 23 February 1946 sublease for 30 years, Nani Gopal Dutt, Makhan Lal Dutt and Shiv Kumar Khanna agreed to pay Rs.55,200 towards completing the cinema to their requirements and to pay Rs.2,100 monthly rent from 1 June 1946. The lessees entered possession after completion. For assessment year 1947-48 the Income-tax Officer, first appellate authority, Tribunal and Calcutta High Court treated the lump sum as advance rent and taxable income, while the assessee maintained that it was a capital receipt or salami (SCR pp.463-465; PDF pp.2-4).
Source: Primary judgment: facts
02 · Discussion by the Hon’ble Court
The lease contained no term treating the construction contribution as rent, adjusting it against rent or requiring repayment. The commercial arrangement was that the lessees wanted a completed cinema and supplied a lump sum because the lessor lacked sufficient completion funds. The Tribunal and High Court had no evidentiary foundation for assuming that the true rent was Rs.2,250 rather than the agreed Rs.2,100 per month (SCR pp.465-466; PDF pp.4-5). A premium's character is fact-specific, but prima facie salami is not income and Revenue must establish facts making it revenue. Here rent commenced later than the lease, possession followed completion, the payment was single and non-recurring, and the agreed rent was not shown to be ridiculously low. Those features made the Rs.55,200 a capital payment (SCR pp.466-467; PDF pp.5-6).
Source: Primary judgment: discussion
03 · Judicial decision
The Court held that the referred question should have been answered in the negative and for the assessee: the Rs.55,200 was capital, not advance rent or a taxable revenue receipt. It discharged the High Court's answer and allowed the appeal with costs in both courts (SCR p.467; PDF p.6).
Source: Primary judgment: decision
04 · Outcome / in whose favour
In favour of Durga Das Khanna/the assessee. The one-time cinema-construction contribution was held to be a capital receipt on the proved lease terms and circumstances (SCR pp.466-467; PDF pp.5-6).
Source: Primary judgment: outcome
05 · AKHB REVIEW POINT
AKHB analysis: for a lease-related lump sum, test the document and cash flow rather than the label. Record whether it is adjustable against periodic rent, repayable, recurring, linked to a transfer of an enduring leasehold advantage, or economically substitutes for suppressed rent; also verify possession and construction chronology and comparative rental evidence. Re-run that analysis under the governing current statute and accounting framework because this 1947-48 decision supplies no present-law clearance (based on SCR pp.465-467; PDF pp.4-6).
Source: Primary judgment: reviewPoint
Source & verification
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Statutory scope
The judgment concerns assessment year 1947-48 under the Indian Income-tax Act, 1922 and applies a fact-specific distinction between a lease premium or salami and recurring rent. It does not determine the treatment of a modern lease incentive, deposit, contribution or transfer under later income-tax, indirect-tax or accounting rules. No current-law or later-treatment clearance was undertaken.
Later treatment
Source checked 2026-10-11. Later judicial treatment and current statutory applicability have not been comprehensively checked; no current-law or citator clearance is represented.
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