Ukhara Estate Zamindaries (Pvt.) Ltd.
Vs. Commissioner of Income-Tax, West Bengal, Calcutta [1979] INSC 188 (19
September 1979)
TULZAPURKAR, V.D.
TULZAPURKAR, V.D.
BHAGWATI, P.N.
PATHAK, R.S.
CITATION: 1980 AIR 340 1980 SCR (1) 711 1980
SCC (1) 540
ACT:
Income Tax Act, 1961-Assessee incorporated to
take over certain zamindari properties-Gave sub-leases and received salami-Also
received compensation for kind acquired-Amounts received whether income or
capital-Tests for deciding whether a receipt is income or capital.
HEADNOTE:
The assessee was incorporated for the purpose
of taking over of certain zamindari properties. By an indenture the assessee
took a lease of extensive zamindari properties for a term of 999 years and also
took an assignment OF moveables. In consideration of the lease and assignment,
fully paid shares worth Rs. 4.08 lakhs were issued in the new company to the
lessors. The quit rent receivable by the lessors was a nominal amount of Rs.
100 per annum. Clause (3) (a) of the Memorandum of Association showed that the
assessee was primarily incorporated for the purpose of taking over the assets
of the lessor's family, while cl. (b) empowered the assessee to purchase, take
on lease or otherwise acquire and to traffic in land and generally deal in or
traffic by way of sub-lease with land and house property. The assessee
thereafter started giving out on sub- lease various parcels of land to colliery
companies for various terms of long duration.
Rejecting the assessee's contention that the
total amount of salami premia and compensation received by the assessee in
three assessment years were of a capital nature, the Income Tax officer treated
the amounts as income from business and taxed them. The Appellate Assistant
Commissioner as well as the Appellate Tribunal held in favour of the assessee
on the ground that She transactions of granting sub-leases were by way of
management of the property by the assessee and receipts on account of salami
premia and compensation on acquisition of land were of capital nature not
liable to be taxed as income.
On reference the High Court was of the view
that the assessee could not be regarded as a purely family concern incorporated
for the preservation and management of the family assets but was a trading
concern which dealt with the lease hold rights in the lands as trading assets
by using them to earn income and, therefore, salami, premia and compensation
were trading receipts.
Allowing the appeal,
HELD: 1. Having regard to the nature of the
various transactions it is clear that the receipts on account of salami etc.,
must be regarded as receipts of a capital nature. Similarly the amounts of
compensation received by the assessee for compulsory acquisitions of portions
of land partake the character of capital receipt in as much as compulsory
acquisition could not be said to be a voluntary transaction, and compensation
received would be a substitute for the capital asset lost by the assessee.
[722D] 712
2. Ownership of property and leasing it out
may be done as part of a business or it may be done as land owner.
Whether it is the one or the other must
necessarily depend upon the object with which the act is done. Where a company
is formed with the specific object of acquiring properties not with the view to
leasing them as property but to selling them or turning them to account even by
way of leasing them out as an integral part of its business, it can be said
that the company has treated them as trader and not as land owner. In deciding
whether a company dealt with its properties as owner one must see not to the
form which it gave to the transactions but to the substance of the matter.
[717 H]
3. On the other hand incidental sale of
uneconomic or inconvenient plots of land could not convert what was essentially
an investment into a business transaction in real estate. The purposes or
objects for which a limited company was incorporated has no decisive bearing on
the question whether the income is of capital nature or a revenue receipt. The
circumstance that a single plot of land was acquired and was thereafter sold as
a whole or in plots is not decisive either. Nor is profit motive in entering
into a transaction decisive. The question whether in purchasing and selling
land the tax payer entered into a business activity has to be determined in the
light of the facts and circumstances of each case. [719 C-D] P.K.N. Company v.
Commissioner of Income Tax, 60 R 65.
Karapura Development Co. Ltd. v. Commissioner
of Income-Tax, West Bengal. 44 I.T.R. 622, discussed.
In the instant case the High Court had
erroneously treated the assessee as a trading concern qua its lease-hold
interest in the zamindari estate without actually examining the real nature and
object of the transactions of sub-leases entered into by the assessee with
several colliery companies. In coming to this conclusion the High Court was
influenced by three factors: (a) existence of power in the memorandum of
association enabling the company to indulge in trafficking in land by way of
sub-leases of land; (b) declaration of dividend at a high rate and (c) creation
of reserve fund by the assessee pursuant to certain articles of association.
The special features of declaration of dividend and creation of a reserve fund
are not features peculiar to a trading concern because a non-trading
incorporated entity like an investment company can declare dividends and create
a reserve fund. These special features are not decisive of the question whether
the incorporated entity is a trading concern or not. What is of importance is
how it has dealt with its assets or properties.
4. The assessee, which had been incorporated
for the purpose of preservation and management of the family estate of the
lessors had dealt with Its leasehold interest as a land owner and not as a trader.
This was clear from the Memorandum and Articles of Association and the draft
agreement in accordance with which the indenture was executed. Nominal rent of
Rs. 100 p.a. and the assignment of moveables in favour of the assessee also
point to the same conclusion. Secondly, since its inception the assessee had
not taken lease of any other property from anyone else.
Thirdly, the transaction of granting
subleases of coal- bearing and other lands were by way of management of the
estate as land owner. Fourthly, though the memorandum of association authorised
the assessee to do business in collieries it did not work any colliery of its
own not did it do any business as miners or coal dealers. [720 F-H] 713
CIVIL APPELLATE JURISDICTION: Civil Appeal
Nos. 13-15 of 1973.
Appeals by Special Leave from the Judgment
and order dated 12th/13th August, 1970 of the Calcutta High Court in Income-Tax
Reference No 69/66 P. Burman, Subrata Ghosh and S. Ghosh for the Appellant.
B.B. Ahuja and Miss A. Subhashini for the Respondent.
The Judgment of the Court was delivered by
TULZAPURKAR, J.-These appeals by special leave involve a common question
regarding the taxibility of certain amounts received by the appellant company
(hereinafter referred to as "the assessee ') during the three accounting
years, namely, 1359 B.S., 1360 B.S. and 1361 B.S. relevant to the assessment
years 1953-54. 1954-55 and 1955-56 and the question is whether those amounts
represented business income or receipts of a capital nature ? The facts giving
rise to the question may briefly be stated: The assessee was incorporated on
July 3, 1920 for the purpose of taking over the Zamindari properties pertaining
the Ukhara Estate which belonged to Rai Pullin Behari Singha Bahadur and the
late Gosta Behari Lal Singha.
Therefore, on incorporation, by an Indenture
dated July 5, 1920 the assessee took a lease of the extensive Zamindari
pertaining to the said Estate for a term of 999 years and also took an
assignment of movables, including Government promissory notes and jewellery
belonging to the members of the lessor's family and the arrears of rents and
cesses, debts, decrees, etc. due by the tenants of the said Estate, the
properties passing to the assessee being specified in the schedule appended
thereto. The consideration for the said lease and assignment was fixed at Rs.
4,08,000/- which was paid and satisfied by the assessee by allotting and
issuing its 4,080 fully paid up shares to the lessors. The quit rent receivable
by the lessors for the lessors Rs.
100/- per annum and the assessee also
undertook to pay the revenue and cesses payable to the superior landlords in
respect of the Zamindari. Clause 3 of the Memorandum of Association set out the
various objects for which the assessee was formed and though sub-cl. (a)
thereof showed that the assessee was primarily incorporated for the purpose of
taking over the assets of the lessors family upon the terms and conditions set
forth in the Draft Agreement referred to in Article 3 of the Articles of
Association, sub-cl. (b) of cl. 3 of the Memorandum empowered the assessee
"to purchase, take on lease or otherwise acquire and to traffic in land,
house and other property ....,...
and generally to deal in or traffic by way of
sub-lease, exchange or otherwise with land and house property..... " The
Estate taken on lease comprised substantial 714 coal bearing lands and mines
which the assessee started giving on sub-lease in various parcels to well-known
colliery companies for various terms of long duration.
During the three accounting years in question
the assessee granted several sub-leases for which it received salami and premia
and there were also acquisitions of the portions of the Estate by the Land
Acquisition Collector for which it received compensation. The total amount of
salami, premia and the compensation received by the assessee in the three
accounting years were respectively Rs. 22,197/-, 188,417/- and 73,327/- and the
question arose whether these receipts were business income or receipts of a
capital nature. The Income-tax officer rejected the contention of the assessee
that the receipts were of a capital nature aud he included the said amounts in
the total income of the assessee in each year as its business income holding
that the assessee carried on business in leasehold rights and real property.
On appeal by the assessee, however, the
Appellate Assistant Commissioner reversed the finding of the Income Tax officer
and excluded the amounts in question from the total income of the assessee
following the decision of the Tribunal rendered on June 7, 1960, in the
assessee's case for the earlier assessment year 1946-47, 1947-48 and 1948-49.
The matter was carried by the Income-tax Officer in further appeals to the
Tribunal, but the Tribunal by its common order dated June 29, 1963 dismissed
the departmental appeals holding that the receipts were of a capital nature not
liable to be included in the taxable income of the assessee. In coming to that
conclusion the Tribunal mainly relied upon cl. 3 (a) of the Memorandum of
Association, Article 3 of the Articles of. Association and the terms and
conditions set forth in the Draft Agreement (in accordance with which the
Indenture dated July 5, 1920 was executed) which showed that the assessee had
been primarily incorporated for the purpose of the conservation and management
of the Family Estate of the lessors, that, in fact, the assessee was not
carrying on the business of taking leases and granting sub-leases inasmuch as
it had not taken on lease any other property from anyone else since 1920 upto
date and that the transactions of granting sub- leases of long duration to
various colliery companies were by way of management of real property by the
assessee as owner of lease-hold interest and as such the receipts on account of
salami, premia and compensation were of a capital nature. The Tribunal relied
upon and applied the ratio of the decision of the Madras High Court in P. K. N.
Company v. Commissioner of Income Tax which has since been confirmed by this
Court in 60 I.T.R. 65.
715 At the instance of the Revenue the
Tribunal referred to the High Court for his opinion the following questions:
"Whether on the facts and in the
circumstances of the case, the Tribunal was justified in excluding the sums of
Rs. 22,197/-, Rs. 1,88,417/- and Rs. 73,327/- from the total income of the
assessee for the years 1953-54, 1954 55 and 1955-56 ?" The High Court
answered the question in favour of the Revenue by holding that the receipts
were not of a capital nature and were includible in the total income of the
assessee as its business income. The High Court took the view that the assessee
could not be regarded as a purely family concern incorporated for the
preservation and management of the family assets for maintenance of the
lessor's family especially as no provision had been made in its Memorandum of
Association or Articles of Association conferring any right or share on new
members that may be born in the coparcenery, it being admitted that Ukhara
Zamindars constituted a Mitakshara Joint Family. Relying upon the several
objects set out in the Memorandum of Association, particularly the one
indicated in cl. 3(b) (which permitted trafficking by way of sub-leases) and
further relying on what it called two special features of the assessee, namely,
declaration of dividend and creation of reserve fund by it, the High Court held
the assessee to be a trading concern and that it had dealt with its lease- hold
rights in the lands as trading assets by using them to earn income? rent,
royalty, salami, premia, etc. and, therefore, the receipts by way of salami or
premia were trading receipts and profits thereform were business income.
In other words, the High Court held that the
assessee as a trading concern had dealt with its lease-hold interest in Zamindari
property not as an owner but as a trader and, therefore, the receipts in
question were includible in the total income of the assessee as business
income. The High Court relied upon the decision of this Court in Karnapura
Development Co. ltd. v. Commissioner of Income-Tax, West Bengal. It is this
view of the High Court that has been challenged before us by the counsel for
the assessee in these appeals.
In support of the appeals counsel for the
assessee raised two or three contentions. In the first place he contended that
the High court was in error in coming to the conclusion that the assessee was a
trading concern and that it had dealt with its leasehold interest in the
Zamindari property as a trading asset by using the same to earn income, rent,
royalty, salami, premia, etc. He pointed out that in 716 coming to that
conclusion the High Court had wrongly allowed itself to be considerably
influenced by the three factors:
(a) existence of several objects set out in
cl. 3 of its Memorandum of Association, (b) declaration of dividend by it and
(c) creation of reserve fund by it, as according to him none of these factors
would show that the assessee had actually dealt with its leasehold interest in
the Zamindari property as a trader. Secondly, he contended that the real
question was whether after incorporation and after acquiring the lease of the
Zamindari Estate, which included substantial coal bearing lands and mines, the
assessee had dealt with its leasehold interest as a landowner or not and he
urged that the manner in which the assessee granted sub- leases of the lands in
different parcels to various well- known colliery companies for various terms
of long duration extending over 900 years clearly showed that such transactions
of granting sub-leases were transactions in the nature of management of the
estate as owner of the land and, therefore, the receipts by way of salami,
premia and compensation will have to be regarded as receipts of a capital
nature and in that behalf he placed reliance upon cl. 3(a) of the Memorandum,
Article 3 of Articles of Association and the terms and conditions of the Draft
Agreement in accordance with which the Indenture dated July 5, 1920 was
executed, which showed that the assessee had been primarily incorporated for
the purpose of preservation and management of the family Estate of the lessors.
He also pointed out that admittedly it was not the business of the assessee to
run collieries nor did it in fact run any colliery on its own but it merely
granted sub-leases of various parcels of land to colliery companies which were
transactions by way of management of the family Estate in fulfillment of the
primary object for which it was incorporated. In support of his contentions he
relied upon this Court's decision in P. K. N. Co's case (supra).
On the other hand, counsel for the Revenue
pressed for our acceptance the view taken by the High Court. In particular, he
invited our attention to cl. 3(b) of the Memorandum of Association which
conferred power on the assessee not merely to purchase, take on lease or
otherwise acquire and to traffic in land, house and other property but also
"generally to deal in or traffic by way of sub-lease, exchange or
otherwise with land and house property etc." and urged that the several
transactions of granting subleases of coal bearing lands and mines to various
colliery companies on payment of rent, royalty, salami and premia must be
regarded as business transactions entered into in pursuance of its trading
object and, therefore, the High Court was right in coming to the conclusion
that the assessee had dealt with its rights in leasehold land as stock-in-trade
or trading assets and the receipts by way of salami, premia or compensation
were its business income. For the reasons which we shall indicate presently it
is impossible to accept the High Court's view in the matter and we have to
uphold the conclusion reached by the Appellate Tribunal.
The legal principle or the test which should
govern the question of the type that has arisen in these appeals has been
clearly enunciated by this Court in Karnapura Development Co. Ltd. case
(supra). The assessee in that case was a company formed with the object, inter
alia, of acquiring and disposing of underground coal mining rights in certain
coal fields. The Memorandum of Association of the company enumerated other
objects, such as coal raising, but the assessee restricted its activities to
acquiring coal mining leases over large areas, developing them as coal fields
and then sub-leasing them to collieries and other companies. The leases were
acquired for a term of 999 years and were sublet for the balance of the term of
the respective leases minus two days. The company never worked the coal fields
with a view to raising coal, nor did it acquire or sell coal raised by the
sub-lessees. As against a salami of Rs. 40/- per bigha which the assessee had
paid, it realised from the sub-lessees Rs. 400/- per bigha as salami.
In addition, the assessee charged certain
royalties at rates higher than those it had agreed to pay under the head
leases. The company admitted that the income from the royalties was taxable.
The question was whether the amounts received by the assessee as salami for
granting the sub- leases constituted trading receipts in its hands and the profit
therefrom was assessable to tax under the Indian Income-Tax Act, 1922. Having
regard to the objects for which the company was formed as well as the nature of
operations which the company indulged in, this Court held that the transactions
of acquiring leases and turning them to account by way of sub-leases were in
the nature of trading activity within the objects of the company and not
enjoyment of property as land owner and the amounts received by way of salami
were trading receipts and the profits therefrom were liable to income-tax.
Observing that the dividing line between the two types of operations was
difficult to. find and after referring to a number of decisions both English
and Indian, this Court at page 377 of the report enunciated the principle in
the following words:
"Ownership of property and leasing it
out may be done as a part of business, or it may be done as land owner. Whether
it is the one or the other must necessarily depend upon the object with which
the act is done. It is not that no company can own property and enjoy it 718 as
property, whether by itself or by giving the use of it to another on rent.
Where this happens, the appropriate head to apply is "income from
property" (section 9), even though the company may be doing extensive business
otherwise. But a company formed with the specific object of acquiring
properties not with the view to leasing them as property but to selling them or
turning them tc account even by way of leasing them out as an integral part of
his business cannot be said to treat them as land owner but as trader. The
cases which have been cited in this case both for and against the assessee
company must be applied with this distinction properly borne in mills. In
deciding whether a company dealt with its properties as owner, one must see not
to the form which it gave to the transactions but to the substance of the
matter " The other decision of this Court in P. K. N. Cos case (supra) is
equally important, for, certain aspects and their significance in determining the
question in the instant case have been clarified. In that case the partners of
a firm, known as 'P.K.N.' formed a private company and transferred to it all
their assets and properties consisting of 3000 acres of rubber and coconut
plantations besides vacant sites and houses. The membership of the company was
restricted to the members of PKN firm and in consideration of the transfer of
all the assets and properties of the aggregate value of 16,50,000 dollars to
the company, the partners, of the firm were allotted shares of the face value
of 6,60,000 dollars, the balance remaining outstanding as a debt due to the
firm.
Limitations on the admission of the members
to the company and other attendant features indicates an intention of
conserving the properties of the members of the firm The Memorandum of
Association of the company specified, inter alia the following objects: (i) to
purchase or acquire and to sell, turn to account, dispose of and deal with
property and rights of any kind, and (ii) to sell, manage, develop or dispose
of or otherwise deal with any part of the properties, rights and privileges of
the company. Large amounts of money were spent on cultivation and development
of rubber and coconut plantations and substantial income was derived therefrom
but certain uneconomical and inconvenient plots were sold by the company in
1940 and 1941. Between the years 1942 and 1945, when Malaya was under Japanese
occupation, some further plots of land were sold.
Thereafter, in 1948, 1949 and 1950, lands
were sold from time to time at profit. As a result of these disposals, the
total holding of the company was reduced to about 2,000 acres of rubber
estates. some houses and the 719 Lee estate. The question was whether the
profits realised by the company during the accounting year relevant to the
assessment year 1951-52 from the sale of the properties to the tune of 1,41,326
Malayan dollars could be brought to tax ? on these facts this Court Id that the
primary object of the company was to take over the sets of the firm, to carry
on the business of planters and to earn profits by the sale of rubber: the
acquisition of the estates was not for the purposes of carrying on business in
real estate. This Court further held that the incidental sale of uneconomical
or inconvenient plots of land could not convert what was essentially an
investment into a business transaction in real estate. The amount of 1,41,326
Malayan dollars being capital accretion was not chargeable as income. Such
conclusion was reached notwithstanding that the Memorandum of Association of
the company conferred power on it to sell or turn to account, dispose of or
deal with the properties and rights of all kinds. This Court clarified the
significance of three aspects thus: (a) the purposes or object for which a
limited company was incorporated had no decisive bearing on the question at
issue, (b) the circumstance that a single plot of land was acquired and was
thereafter sold as a whole or in plots was not decisive and (c) nor was profit
motive in entering into a transaction decisive, but the question whether in
purchasing and selling land the tax-payer entered upon a business activity had
to be determined in the light of the facts and circumstances.
In the instant case also the main question
that arises for determination is whether, after acquiring leasehold interest in
Zamindari Estate in granting the several sub- leases of coal bearing lands and
mines and receiving the salami and premia and in receiving compensation for
compulsory acquisition of its lands the assessee dealt with its leasehold
interest in the lands as a land owner or carried on business with it treating
it as its stock-in- trade or trading asset ? It is obvious that if the case
falls within the former category the receipts by way of salami, premia and
compensation will be capital receipts but if it falls within the latter the
receipts will be trading receipts and profits therefrom business income. Having
regard to the ratio of the decision in Karanpura Development Co's. case (supra)
it is clear that for deciding that question regard must be had to the real
nature and object or purpose of the transactions entered into by the assessee
over the years. Before we proceed to examine the nature and object or purpose
of the transactions we would like to point out how and where the High Court has
gone wrong in answering the issue against the assessee. In the first place the
High Court has erroneously treated the assessee as a trading concern qua its
leasehold interest in the Zamindari/estate without actually examining the real
nature and object of the transac- 720 tions of sub-leases entered into by the
assessee with several colliery companies. Secondly, in arriving at that
conclusion the High Court has been greatly influenced by three factors (a) existence
of the power in its Memorandum of Association enabling the assessee to indulge
in trafficking in land by way of sub-leases of the land, (b) declaration of
dividend at a high rate of 25% by the assessee for the relevant years and (iii)
creation of reserve fund by the assessee pursuant to certain Articles of
Association and the High Court has given such undue weight to these factors
that it was almost regarded them as decisive factors. P.K.N. Co's case (supra)
has clearly laid down that the existence of the power in the Memorandum of
Association to traffic in sub-leases of lands though relevant would clearly be
not decisive. In our view, declaration of dividends and creation of a reserve
fund are not features peculiar to a trading concern, for, it is equally
conceivable that a non-trading incorporated entity like an investment company
can declare dividends and may also create a reserve fund and, therefore, these
so-called 'special features' are not decisive of the question whether the
incorporated entity is a trading concern or not. In deciding that question what
is of importance is how it has dealt with its assets or properties, whether as
a land owner or a trader treating the assets or properties as its stock-
in-trade and it is the manner of dealing with its assets, the real nature of
the operations pertaining to them and the object with which such operations are
done that assume importance. This aspect has not been properly considered by
the High Court.
Looking at the issue from the aforesaid angle
there are several facts and circumstances emerging from the record which
clearly show that the assessee has been dealing with its leasehold interest in
Zamindari property as a land-owner and not as a trader. In the first, place, as
has been rightly found by the Tribunal, the assessee was primarily incorporated
for the purpose of preservation and management of the family estate of the
lessors. This is clear from cl.
3 (a) of the Memorandum of Association,
Article 3 of the Articles of Association and the terms and conditions set forth
in the Draft Agreement in accordance with which the Indenture dated July S,
1920 was executed. That this was the primary object also becomes clear from the
facts that a nominal quit rent of Rs. 100/- per year was payable by the assessee
to the lessors for the lease of the Zamindari Estate obtained by it for 999
years and that alongwith the lease the assessee also obtained an assignment of
moveables including Government promissory notes and jewellery belonging to the
members of the lessors' family; assignment of Government promissory notes and
jewellery could only be for preservation and better management. The High 721
Court felt what militated against the concept of the assessee being purely a
family concern incorporated for the purpose of preservation and management of
family assets for the maintenance of lessors' family was that no provision has
been made in its Memorandum of Association and Articles of Association
conferring any right or share on new members that may be born in the Mitakshara
Joint Family of the lessors but it is difficult to appreciate this view. On the
other hand, allotment of shares of the assessee to a few members of the
lessors' family and absence of a provision conferring any right or interest in
the shares on the new arrivals in the family would be more conducive to
preservation and proper management of the family assets.
Secondly, admittedly since 1920 up to date
the assessee had not taken lease of any other property from anyone else except
the lease of the Zamindari Estate under the Indenture dated July S, 1920, a
pointer to the fact that the assessee did not indulge in any business of
acquiring other lands.
Thirdly,-and this is vital-the manner in
which the assessee dealt with the leasehold interest in Zamindari Estate
obtained under the Indenture dated July 5, 1920, over the years clearly shows
that the transactions of granting sub-leases of coal bearing lands and mines
ere by way of management of the Estate as land-owner. The Tribunal in its
earlier order dated June 7, 1960 for the assessment years 1946-47, 1947-48 and
1948-49 a copy of which had been made a part or the record of the case, has
brought out certain relevant facts in that behalf. The Tribunal has pointed out
that during the first 11 years of its incorporation the assessee did not grant
any sub-lease of land to anyone. In 1339 B.S. the assessee received a sum of
Rs. 7,500/- on account of salami or premia from Burrakur Coal Co. Ltd., a party
who was already a lessee under the predecessors of the assessee in respect of
coal mining right in mouza Bankola;
in 1340 B.S. there was another lease granted
to the said coal company where the premium was 2,893-7-0. Thereafter for
several years there was no lease granted to anybody. In 1349 B.S. another lease
was granted to the same Burrakur Coal., the premium being Rs. 2268-12-0. In
1350 B.S. there was no lease granted to anybody. Then between 1351 B.S. and
1354 B.S. several sub-leases of different parcels of coal bearing lands and
mines were granted by the assessee to well-known companies for varying terms of
long duration extending over 900 years for which the assessee received salami
and premium but the fact that such sub-leases were for long duration extending
to over 900 years dearly shows that the same parcel of land had been dealt with
only once for granting the sub-leases. In the three accounting years relet to
the assessment years in question in the instant case also sub 722 leases had
been granted of different parcels for long duration of over 900 years. Such
manner of dealing with lease hold interest by the assessee over the years
clearly shows that these transaction of granting sub-leases were in the nature
of acts done in the management of the Estate. The object in granting such
sub-leases was not to deal with the lease-hold interest as a stock-in-trade or
trading asset.
The dealings cannot be regarded as business
transactions in real property.
Fourthly, though the Memorandum of
Association empowered the assessee to do business in collieries, admittedly it
did not in fact run or work any colliery on its own nor did any business as
miners or coal dealers or coke manufacturers, mica dealers, etc.
Having regard to the above facts it seems to
us clear that the receipts on account of salami, and premia received by the
assessee during the accounting years in question, must be regarded as receipts
of a capital nature. So far as the amounts of compensation received by the
assessee for compulsory acquisition or portions of land are concerned, the same
would obviously partake the character of capital receipt inasmuch as compulsory
acquisition could not be said to be a voluntary transaction or a voluntary deal
entered into by the assessee with the Land Acquisition Collector and the
compensation would be a substitute for the capital asset lost by the assessee.
In our view, therefore, the High Court had
erred in answering the question in favour of the Revenue and the Tribunal's
view that the receipts in question were receipts of a capital nature and.
therefore, not includible in total income of the assessee, was correct.
In the results the appeals are allowed and
the Revenue will pay the costs of the appeals to the assessee.
P.B.R. Appeal allowed.
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