HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax, Bihar & Orissa
Civil Appeal No. 1732 of 1967
[1972] 1 SCR 36 ·
Indian Income-tax Act, 1922: section 66(1)
Holding and result. The Revenue failed to discharge its onus to show that the 30-year mining-lease premium was disguised advance royalty; the appeal was allowed and the referred question answered for the assessee.
Sources & disclosures includedDownload original judgment / order
Two-judge bench; judgment delivered by A. N. Grover, J. · K. S. Hegde, J. · A. N. Grover, J.
Assessment years: 1944-45
01 · Facts of the case
The assessee granted a one-year prospecting lease in 1941 and, in 1944, a thirty-year mining lease over 171.03 acres to the same company. The later lease required a substantial salami/premium and a slightly lower per-ton royalty. For assessment year 1944-45, the Income-tax Officer treated Rs.2,20,000 as advance royalty and therefore income. The first appellate authority treated it as capital, but the Tribunal restored the assessment and the Patna High Court treated only Rs.20,000 as capital.
Source: Primary judgment: lease terms and assessment history
02 · Discussion by the Hon’ble Court
The Court distinguished the price for parting with the lessor’s interest from periodic payments for continuing enjoyment: the former is ordinarily premium or salami on capital account, while the latter is rent or royalty on revenue account. Labels are not conclusive, but the Revenue bears the onus of proving that an apparent premium is disguised income. Comparing the one-year prospecting lease with the thirty-year mining lease did not supply that proof. A longer lease could rationally command a higher premium and lower royalty, and the later estimate of mineral reserves did not show what the parties knew in 1944.
Source: Primary judgment: capital/revenue test and evidentiary analysis
03 · Judicial decision
The Tribunal and High Court lacked sufficient material to treat any portion of the premium as capitalised royalty. The Revenue had not examined the assessee or representative about the differing lease terms, had not established comparable mineral quantities under other leases, and had not otherwise discharged its onus.
04 · Outcome / in whose favour
Appeal allowed. The High Court’s order was set aside, the referred question was answered in favour of the assessee and against the Revenue, and the assessee received costs in the Supreme Court and High Court.
05 · AKHB REVIEW POINT
AKHB analysis: classify a lease receipt from the rights actually transferred, the duration, the payment structure and the evidence of the parties’ knowledge—not from the word “salami” or the amount alone. A Revenue case that the premium is advance royalty needs transaction-specific proof and valid comparables. This historical result should not be projected onto the 1961 Act or a later mineral-rights transaction without separate statutory and later-treatment research.
Source & verification
Download original judgment / order · Open cited source rendition
Complete eight-page SCR report read in page-preserving text and every page image inspected. The first physical page begins after the preceding case disposition; the target runs from SCR 36 through the disposition at SCR 43.
- Exact catalogue SHA-256 and eight-page count verified; all pages were read and visually inspected.
- The report prints the 1944 salami as Rs.2,25,600 in the lease terms but later describes Rs.2,20,000 as the amount treated as income after Rs.5,000 was separated; the note preserves the judgment’s figures without silent reconciliation.
- The Court did not hold that every amount labelled salami is capital; it placed the evidentiary onus on the Revenue and examined the transaction circumstances.
Statutory scope
Indian Income-tax Act, 1922, section 66(1), as applied to assessment year 1944-45. The judgment does not establish the treatment of mining premiums under the Income-tax Act, 1961 or later capital-gains provisions.
Later treatment
Source checked 2026-10-12. No comprehensive later-treatment or present-law clearance is represented. The decision construes the capital/revenue character of a 1944 mining-lease premium under the historical 1922 Act reference; later statutory treatment of mineral receipts and capital gains was not verified.
Page references identify the supplied PDF; paragraph references identify the judgment unless stated otherwise.
Related reviewed notes
AI disclosure & professional disclaimer
This AKHB research note was prepared with AI assistance from the identified primary report and has not been represented as independently human-reviewed.
General legal and tax research only; not legal or tax advice. Verify the complete judgment, governing statutory version and subsequent judicial treatment before reliance. The AKHB REVIEW POINT is editorial analysis, not the Court's holding, and no current-law clearance is claimed.