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1978 Supreme(Cal) 82
High Court Of Calcutta
DIPAK KUMAR SEN, C. K. BANERJEE
ONDAL INVESTMENTS CO.LTD. - Appellant
Versus
COMMISSIONER OF INCOME-TAX - Respondent
I. T. Reference 19 Of 1971
Decided On : 02/06/1978
A claim for compensation based on the alleged user of the assessee's land without consideration by a third party with whom negotiations for a sub-lease were proceeding does not result in the accrual of any right in the assessee to receive the amount of claim.
Headnote:
INCOME TAX - Accrual of income - Claim for compensation - Whether the claim of the assessee for compensation on the basis of minimum royalty resulted in the accrual of any right in the assessee to receive the amount of claim.
Fact of the Case:
The assessee, Ondal Investments Co. Ltd., entered into negotiations with Business Development Ltd. for sub-lease of mineral and mining rights in respect of coal in specified areas of the demised land. Several amounts were received by the assessee from Business Development Ltd. on account of salami for the proposed sub-lease. Due to certain difficulties, the documents for the sub-lease could not be drawn up and executed. The assessee served notice of re-entry on Sonepur Coalfields Ltd. on whose behalf Business Development Ltd. had been negotiating for the sub-lease and purportedly took back possession of the land in question. The assessee recorded its claim in a letter and posted an entry in its books for Rs. 1,47,089.82 debiting Sonepur Coalfields Ltd. with a corresponding credit entry in the suspense account.
Finding of the Court:
The Tribunal held that the assessee's claim was in the nature of a counter-claim which the assessee intended to press if the amounts received by it on account of salami in the proposed sub-lease had to be refunded. The Tribunal further found that the assessee's claim was a claim for compensation based on the alleged user of the assessee's land without consideration by a third party with whom negotiations for a sub-lease were proceeding.
Issues: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in treating the sum of Rs. 1,47,090 or any portion thereof as the income of the assessee? 2. Whether there is any evidence for the Tribunal to come to the conclusion that Sonepur Coalfields Ltd. was in possession of the coal mines and/or seams in the area referred to in the Tribunal's order? 3. Whether, on the facts and in the circumstances of the case, and particularly in the face of the finding that re-entry into possession by the Ondal Coal Company Ltd. took place pursuant to their letter to Sonepur Coalfields Ltd., dated the 20th January, 1960, the Tribunal was justified in law in holding that the assessee was liable to be assessed during the relevant year on the income based upon the minimum royalty contemplated during the negotiations as also one year's interest at the rate of 12 per cent. on the unpaid amount for the earlier years?
Ratio Decidendi: The court held that the assessee's claim for compensation was not a straight claim but was a tentative defence against an anticipated demand for refund. The court further held that the assessee's claim had no contractual basis or foundation and that it was not clear on what basis interest was being claimed by the assessee on this amount. The court also held that the assessee's claim was a claim for compensation based on the alleged user of the assessee's land without consideration by a third party with whom negotiations for a sub-lease were proceeding. The court further held that there was no finding that the intending sub-lessee was clearly at fault because of which the sub-lease could not be effected and that if due to the fault of the assessee the sub-lease failed to be executed then the assessee's claim for compensation loses force.
Final Decision: The court answered the questions raised in the Income-tax Reference No. 10 of 1971 as follows: Question No. 1 is answered in the negative and in favour of the assessee. Question No. 2 is answered in the affirmative and in favour of the revenue. Question No. 3 is answered in the negative and in favour of the assessee. The court held that the questions raised in the Income-tax Reference No. 19 of 1971 did not call for any answer in light of the answers to the questions raised in the Income-tax Reference No. 10 of 1971.
( 1 ) THE Ondal Investments Co. Ltd. , the assessee, has initiated the above reference No. 10 of 1971. The other reference No. 19 of 1971 is at the instance of the CIT, West Bengal-II, Calcutta. In these references this court has directed the Tribunal to draw up a case under Section 256 (2) of the I. T. Act, 1961, and refer the following questions : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in treating the sum of Rs. 1,47,090 or any portion thereof as the income of the assessee ?
( 2 ) WHETHER there is any evidence for the Tribunal to come to the conclusion that Sonepur Coalfields Ltd. was in possession of the coal mines and/or seams in the area referred to in the Tribunal's order ?
( 3 ) WHETHER, on the facts and in the circumstances of the case, and particularly in the face of the finding that re-entry into possession by the Ondal Coal Company Ltd. took place pursuant to their letter to Sonepur Coalfields Ltd. , dated the 20th January, 1960, the Tribunal was justified in law in holding that the assessee was liable to be assessed during the relevant year on the income based upon the minimum royalty contemplated during the negotiations as also one year's interest at the rate of 12 per cent. on the unpaid amount for the earlier years?" Income-tax Reference No. 19 of 1971 :" (a) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that even though entry has been made in the books of account of the assessee for the accounting year 1961, crediting the amount of Rs. 1,47,090 as income from minimum royalty and interest thereon, it cannot be held that the whole of the amount represented assessable income for the year 1961 ? ' (b) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that out of the sum of Rs. 1,47,090 only such sum as related to the accounting year based on the minimum royalty contemplated during negotiation and one year's interest should be brought tinder tax for the year, and not the whole of the sum of Rs. 1,47,090 which had been credited in that year as income of the assessee ? "2. The admitted facts and/or facts found are as follows: The assessee, originally known as the Ondal Coal Co. Ltd. , was the lessee of extensive lands in Mouzas : Sonepur, Nabagram, Hansdia and Jote Khankhan and was entitled to the mining and mineral rights therein,3. During the year 1945-46, the assessee entered into negotiations with one Business Development Ltd. for sub-lease of mineral and mining rights in respect of coal in specified areas of the demised land.
( 4 ) IN the course of such negotiations between 1946 and 1955, several amounts were received by the assessee from the said Business Development Ltd. on account of salami for the proposed sub-lease aggregating Rs. 2,55,625 which was shown in the balance-sheet of the assessee under the head "current liabilities" and described as "property sales suspense".
( 5 ) DUE to certain difficulties the documents for the sub-lease could not be drawn up and executed. In January, 1960, the assessee served notice of re-entry on Sonepur Coalfields Ltd. on whose behalf the said Business Development Ltd. had been negotiating for the sub-lease and purportedly took back possession of the land in question.
( 6 ) THE assessee, thereafter, apprehended that the amount received on account of salami might have to be repaid. As possession of land had been made over, the assessee thought that it could claim from the proposed sublessee some compensation on the basis of minimum royalty up to the date of re-entry. Accordingly, the assessee recorded its claim in a letter and posted an entry in its books for Rs. 1,47,089. 82 debiting Sonepur Coalfields Ltd. with a corresponding credit entry in the suspense account. The debit was shown in the balance-sheet under the sub-head "sundries" against the "current liabilities and provisions".
( 7 ) IN the as
