( 1 ) THIS is a Reference made by the Income-tax Appellate Tribunal, Calcutta Bench, in respect of the assessment of the East India Prospecting Syndicate, Calcutta, to excess profits tax.

( 2 ) THE Syndicate claimed that it was not liable to pay excess profits because it was not carrying on a business within the meaning of Section 2 (5) of the Excess Profits Tax Act, 1940. The Tribunal found that it was carrying on a business but it was requested by the syndicate to state a case for the opinion of this Court. The Tribunal stated a case and formulated the following question for the opinion of this Court. "whether in the facts and circumstances of the case, the assessee can be said to be carrying on a 'business' within the meaning of Section 2 (5) of the Excess Profits Tax Act, so as to bring the income in question within the charge to excess profits tax?"

( 3 ) THE facts of the case giving rise to this dispute can be shortly stated "as follows:

( 4 ) SOMETIME in the year 1919 the Villiers Colliery Company Limited obtained a prospecting licence from the Raja of Talchar in respect of about 8 sq. miles (less 1000 bighas) of land under which there were seams of coal. On August 5, 1920 a partnership was formed which was named the East India Prospecting Syndicate, Calcutta, and this partnership originally consisted of two limited companies and three individuals as partners. Subsequently, one of the individuals died and the partners of the syndicate at all material times consisted of these two limited companies and two individuals.

( 5 ) THE objects for which this partnership was created are set out in the instrument of Partnership. The partnership was formed: (1) to purchase from the Villiers Colliery Company Limited their coal prospecting rights held under that company's prospecting license with regard to the area in question; (2) to take all necessary steps to give effect to the several terms and conditions contained in such license; and (3) to promote a company or companies with limited liability for the purposes of acquiring at a profit to this syndicate all or any of the properties including the benefit of the prospecting license.

( 6 ) IT was provided that the consideration for the sale or disposal of any of the rights or interests of the syndicate should be utilised and employed, first, in paying all debts and liabilities of the syndicate; secondly, in repaying any capital contributed by the members in respect of their shares; and thirdly, the surplus should be divided among the members in proportion to their respective shares.

( 7 ) IN pursuance of this deed the syndicate acquired the prospecting license from the Villiers Colliery Company Limited for a consideration of Rs. 10,00,000. Rs. 4,00,000/- was paid in cash and the Villiers Colliery Company Limited were given a share in the syndicate to the value of Rs. 8,00,000/- in discharge of the balance of the purchase price.

( 8 ) IN April 22, 1921, the syndicate entered into an agreement with the Raja of Talchar for a mining lease in respect of about 5000 acres of this coal bearing land for a term of thirty years with an option to renew.

( 9 ) THIS mining lease gave the syndicate the usual powers given by a mining lease and subjected them to the usual liabilities. They were given power and liberty to enter upon the lands and to search for, win, work and raise and carry away the minerals thereunder. The syndicate were under a liability to pay certain dead rents and royalties the royalty being at the rate of two annas per ton. The syndicate were also to pay rent in respect of surface lands occupied by them for the purposes of mining.

( 10 ) THE syndicate then promoted a company known as the Talchar Coalfield Limited and agreed with that company to sublet to it this mining property. A sub-lease was executed on September 26, 1924, which was to have effect from December 1, 1921 in consideration of Rs. 20,00,000/- which was to be paid and satisfied as to Rs. 15