Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1961 Supreme(SC) 302

SUPREME COURT OF INDIA
31st August, 1961
P.B. GAJENDRAGADKAR, K. SUBBA RAO AND M. HIDAYATULLAH, JJ.
Karanpura Development Co. Ltd., Appellants
Versus
Commissioner of Income-tax, West Bengal, Respondent.
Civil Appeals Nos. 376 to 379 of 1960.
Advocates appeared
Mr. S. Mitra, Senior Advocate, (M/s. S. N. Mukherjee and B. N. Ghosh, Advocates, with him), for Appellants; Mr. M. C. Setalvad, Attorney-General for India, (M/s. P. Ganapathy Iyer and P. D. Menon, Advocates, with him), for Respondent.

Advocates:
B.N.GHOSH, M.C.SETALVAD, P.D.MENON, P.GANAPATHY IYER, S.MISHRA, S.N.MUKHERJEE

The nature of the business was trading within the objects of the Company and not enjoyment of property a land owner.

Headnote:
INCOME TAX - Business profits - Whether salami received by assessee company for granting sub-leases was trading receipt in its hands and amount of profit therein is assessable under Indian Income-tax Act - Held, yes.
Fact of the Case:

The assessee Company was incorporated in 1920 with the objects, inter alia, to purchase and acquire underground coal mining and relative rights of and in the Karanpura Coal Fields in the Province of Bihar and Orissa and to sell, dispose of and otherwise deal in all such underground coal mining and relative rights. The assessee Company acquired from time to time diverse coal mining leases over areas aggregating 20,000 standard bighas. The assessee Company developed these coal fields by providing means of communication, etc., and then sub-leased them to collieries and other companies. In the head leaseses which the assessee Company had obtained, the term was 999 years. In the sub-leases the term was the balance of the period minus 2 days. Apart from obtaining head leases, developing the coal fields and sub-leasing its rights, the assessee Company admittedly did not do any business. It never worked the coal fields with a view to raising coal; nor did it acquire or sell coal raised by the sub-lessees. As a condition of the acquisition of the head leases, the assessee Company had paid salami at the rate of Rs. 40 per standard bigha, and had agreed to pay royalty at certain rates. From the sub-lessees, the assessee Company charged salami at the rate of Rs. 400 per standard bigha and royalties at higher rates.
Finding of the Court:

The Tribunal as well as the High Court held that in acquiring the head leases and in granting the sub-leases, the assessee Company, was carrying on a business within its Memorandum of Association and the increased salami received from the sub-lessees represented profits of that business liable to be included in the assessable income for income-tax purposes and in the profits, for purposes of the business profits tax.
Issues: Whether the assessee Company was carrying on a business within its Memorandum of Association and the increased salami received from the sub-lessees represented profits of that business liable to be included in the assessable income for income-tax purposes and in the profits, for purposes of the business profits tax.
Ratio Decidendi: The assessee Company having secured a large tract of coal-bearing land parcelled and developed it into a kind of stock-in-trade to be profitably dealt with. The assessee company extended its business along these lines acquiring fresh fields. In the circumstances the nature of the business was trading within the objects of the Company and not enjoyment of property a land owner. There was also no sale of its fixed capital at a profit.
Final Decision: Appeals dismissed.

Judgment

HIDAYATULLAH, J. : These are four appeals filed by the assessee Company (Karanpura Development Co., Ltd.) in respect of two assessment years, 1949-50 and 1950-51 and two chargeable accounting periods under the Business Profits Tax Act, January 1, 1948 to December 31, 1949. By these appeals, the assessee Company impugns the judgment of the High Court of Calcutta, dated September 18, 1958, answering a common question "whether on the facts and in the circumstances of the case, the sums received as salami by the assessee for granting sub-leases were trading receipts in its hands and the amount of profit therein is assessable under the Indian Income-tax Act" in the affirmative and against the assessee Company. The case was certified to this Court by the High Court under S. 66A(2) of the Income-tax Act and presumably also read with S. 19 of the Business Profits Tax Act.

2. The facts of the case are as follows : In 1915, the Court of Wards representing the proprietor of the Ramgarh Estate granted a prospecting licence to Messrs. Bird & Co., of an area of coal-bearing lands described as the Karanpura Coal Fields. The licence was for 12 years but was renewable for another term of 12 years. The licence reserved to the licensee the right to take coal mining leases of the Karanpura Coal Fields or any part thereof. The licence was transferable. The assessee Company was incorporated in 1920. The objects for which the assessee Company. was formed, inter alia, were :

"(1) to purchase and acquire from the owners or proprietors thereof or other persons interested therein underground coal mining, relative rights of and in the Karanpura Coal Fields in the Province of Bihar and Orissa at such price or prices for such period or periods and generally upon such terms and conditions as the Directors may determine and for that purpose to adopt, enter into and carry into effect all contracts, agreements and other documents and in particular to enter into and carry into effect, with or without modifications either before for after the execution thereof the agreement referred to in Art. 3 of the Company) Article., of Association.

(2) To sell, dispose of and otherwise deal in all such underground coal mining and relative rights upon such terms and conditions as may appear for the benefit of the company.

3. To carry on the trades or businesses of colliery proprietors, coal merchants miners, smelters, engineers limeburners and manufacturers of brick, tile cement lime, coke and other bye-products of coal in all their respective branches.

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(6) To prospect for, crush, win, get quarry, smelt, calcine, refine, dress, amalgamate, manipulate and prepare for market coal, ore, metal, and mineral substances of all kinds, and to carry on any other prospecting, mining or metallurgical operations, which may seem conducive to any of the company s objects and to buy, sell, manufacture, and deal in minerals, plants, machinery implements, conveniences, provisions, and things capable of being used in connection with prospecting, mining or metal lurgical operations or required by workmen or others employed by the company.

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(34) To acquire by purchase, lease, exchange, or otherwise, lands, buildings, and hereditaments of any tenure or description and any estate or interest therein, and any rights over or interest, therein, and any rights over or connected with land, and either to retain the same for the purpose of the company s business or to turn the same to account as may seem expedient.

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(52) To sell, improve, manage, develop, exchange, lease, mortgage, dispose of turn to account, or otherwise deal with all or any part of the property and rights of the company."

3. On May 30, 1921, Messrs. Bird & Co., assigned their right s under the prospecting licence to the assessee Company. The

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