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1965 Supreme(SC) 278
SUPREME COURT OF INDIA
K. SUBBA RAO, J.C. SHAH AND S.M. SIKRI, JJ.
Chhatrasinhji Kesarisinhji Thakore, Appellant
Versus
The Commissioner of Income tax, Bombay City II, Respondent.
Civil Appeals Nos. 148 and 149 of 1964.
Advocates appeared
Mr. Bishan Narain, Senior Advocate, (M/s J. B. Dadachanji, O. C. Mathur and Ravinder Narain, Advocates of M/s. J. B. Dadachanji and Co., with him), for Appellant; Mr. A. V. Viswantha Sastri, Senior Advocate, (M/s. R. Ganapathi Iyer, R. H. Dhebar and R. N. Sachthey, Advocates, with him) for Respondent.
A.V.VISHWANATHA SASTRI, B.N.SACHTHEY, BISHAN NARAIN, CO., J.B.DADACHAN, O.C.MATHUR, R.Ganapathy Iyer, R.H.Dhebar, Ravindra Narayan
Amounts paid by a lessee to a lessor under a covenant to pay all taxes, rates, assessments and impositions of a public nature, including local fund cess, are income in the hands of the lessor and are liable to tax.
Headnote:
INCOME TAX - Mining lease - Local fund cess - Whether amounts paid by lessee to lessor under covenant to pay all taxes, rates, assessments and impositions of a public nature, including local fund cess, are income in the hands of the lessor - Held, yes.
Fact of the Case:
The appellant granted a mining lease to the Shivrajpur Syndicate Ltd. The lease agreement contained a covenant by the lessee to pay all taxes, rates, assessments and impositions of a public nature, including local fund cess. The lessee paid to the appellant certain amounts as local fund cess, which exceeded the amount of cess payable by the appellant to the Government. The Income-tax Officer included these amounts in the appellant's income for the purpose of assessment of income-tax.
Finding of the Court:
The High Court held that the amounts paid by the lessee to the appellant as local fund cess were income in the hands of the appellant and were liable to tax.
Issues: Whether the amounts paid by the lessee to the appellant as local fund cess were income in the hands of the appellant and were liable to tax.
Ratio Decidendi: The Supreme Court held that the amounts paid by the lessee to the appellant as local fund cess were income in the hands of the appellant and were liable to tax. The Court held that the amounts had the quality which was, if not identical, closely similar to rents and royalty, which were taxable under the Income-tax Act. The Court also held that the appellant was not an agent of the Government for recovering local fund cess, and that the Income-tax Officer had jurisdiction to determine the quantum of the amount which was payable by the appellant as local fund cess.
Final Decision: The appeal was dismissed.
Judgement
SHAH, J. : On December 11, 1947, the appellant granted to the Shivrajpur Syndicate Ltd. rights for mining manganese ore from lands in two villages Shivrajpur and Bhat. The following are the material terms of the indenture of lease :
"* * * in consideration of the rents and royalties covenants and agreements by and in these presents and in the Schedule hereunder written, reserved and contained and on the part of the Lessee to be paid, observed and performed, the Lessor hereby grants and demises unto the Lessee All Those the mines, beds, veins, and seams of Manganese Ore * * situate lying and being in and under the land * *.
* * * to Hold the premises * * granted and demised unto the Lessee for the term of twelve years which shall be deemed to have commenced from the first day of December One thousand nine hundred and forty-five. * * *.
yielding and paying therefore unto the Lessor the several rents and royalties mentioned in Part V of the Schedule at the respective times herein specified subject to the provisions contained in Part VI of the said Schedule."
In Parts II, III and IV of the Schedule liberties, powers, privileges, restrictions and conditions enjoyed by the lessee were set out. By Part V the Syndicate agreed to pay annually Rs. 2,629/8/8 as rent and royalty at the rate of 8 per cent of the sale value of all manganese ore. By Cl. 1 of Part VII it was agreed that :
"The lessee shall pay the rents and royalty reserved by this lease at the time and in the manner provided in Parts V and VI and shall also pay and discharge all taxes, rates, assessments and impositions whatsoever being in the nature of public demands which shall from time to time be charged, assessed or imposed upon or in respect of the mines or works of the lessee or any part thereof by authority of the Government of India or the Government of Bombay or otherwise except demands for land revenue * * *"
2. The appellant received from the Syndicate, beside rents and royalty, Rs. 16,309 in the year ending July 31, 1951 and Rs. 39,515 in the year ending July 31, 1952, being 3/16th of the amount of rent and royalty payable to the appellant in accordance with the terms of Part V of the lease. The Syndicate described this payment as "Local Fund Cess." The Income-tax Officer. Ward "B , Panch Mahals, brought these two amounts to tax in the assessment year 1952-53 and 1953-54. In appeal to the Appellant Assistant Commissioner of Income-tax, Baroda Range, it was maintained by the appellant that the two sums were not taxable, because they represented Local Fund Cess collected by him on behalf of the Government of Bombay or the Local Board, Panch Mahals, and in any event because they were receipts "of a casual and non-recurring nature." The Appellant Assistant Commissioner upheld those contentions of the appellant and directed that the said sums be excluded from the total income of the appellant.
3. In the view of the Income-tax Appellant Tribunal, the appellant received the two sums from the Syndicate under Cl. 1 of Part VII of the lease agreement and not as Local Fund Cess on behalf of the Government of Bombay or of the Local Board, Panch Mahals, and the amounts were not receipts "of a casual and non-recurring nature". The Tribunal submitted a consolidate statement of the case under S. 66(2) of the Income-tax Act in respect of the two years of assessment and submitted the following questions for the opinion of the High Court of Bombay :
"(i) Whether the sum of Rs. 16,309/ Rs. 39,515 received by the assessee from the Syndicate is income for the purpose of the Indian Income-tax Act, 1922 ?
(ii) If the answer to the above question is in the affirmative, whether the income-receipt is exempt under S. 4 (3)(vii) of the Act by reason of its being of a casual and non-recurring nature ?"
In compliance with an order of the High Court, the Tribunal submitted a supplementary statement of the case observing that the lands in question which were "alienated villages" between August
