Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, WEST BENGAL II
Vs.
RESPONDENT:
RAJASTHAN MINES LTD., CALCUTTA
DATE OF JUDGMENT:
05/05/1970
BENCH:
HEGDE, K.S.
BENCH:
HEGDE, K.S.
SHAH, J.C.
GROVER, A.N.
CITATION:
1970 AIR 1560 1971 SCR (1) 517
1970 SCC (2) 158
CITATOR INFO :
RF 1973 SC2330 (12)
RF 1986 SC1691 (12)
ACT:
Indian Income-tax Act, (11 of 1922)-Assessee purchases
proprietary rights with arrears of rent and royalty-Whether
receipt of the arrears taxable-Assessee sells-Profit if
taxable-finding of Tribunal, if open to review by High
Court.
HEADNOTE:
The assessee-company purchased the proprietory interests in
lands rich in coal and fireclay. The deeds assigned to the
assessee the vendors right to receive arrears of rent and
royalty in pursuance of the agreement between the vendors
and third parties. Later the assesses sold its right since
it could not win the mines for want of finances. The
Income-tax Officerassessed the entire arrears of rent, and
royalty to tax in the assessee’s hands as revenue receipts.
He also assessed the profit of the sale to tax as a business
transaction. The Appellate Assistant Commissioner, and the
Tribunal agreed with the orders. The Tribunal found that
the assessee was heavily indebted to the vendor but there
was no evidence that the payment of the amount was pressed
for; the memorandum of association of the assessee empowered
it to acquire, sell and dispose of and deal with mines and
mining properties; as a major part of the land purchased by
the assessee was in possession of other mining companies, it
was pot possible for the assessee to undertake any large
scale and profitable mining operations; the assessee sold
the lands purchased by it for a profit; and the properties
purchased were sold very soon after they were purchased.
But the High Court differed from these conclusions. Dis-
missing the appeals, this Court
HELD : (i) The purchase of the right to collect arrears of
rent and royalty could not be considered as an income. It
was true that the assessee purchased the lessors’ right from
the vendor in pursuance of the agreements entered into by
the vendor with third parties whose rights had been acquired
by the assessee. The assessee company had been incorporated
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on Jan. 23, 1947. Therefore, it could not have got any
right in the property prior to the conveyance in its favour
on Dec. 22, 1947. As per the terms of the conveyance, the
assessee becomes entitled to the arrears of rent and royalty
as a purchaser of those rights. It had no right to collect
these arrears of rent and royalty as the owner of the
property. It may be that in determining the price payable
under the conveyance, the arrears of rent and royalty were
not taken into consideration. But that did not change the
nature of the right acquired by the assessee. [520 D]
(ii)The findings of the Tribunal did not afford any basis to
it to come to the conclusion that the purchases made by the
assessee and the subsequent sale were in the nature of a
trading adventure. The circumstances that the memorandum of
association of the assessee permitted the assessee to
acquire and sell and dispose of and deal with. mining
properties was an inconclusive one. It was not shown that
the assessee had acquired or sold any other property. The
fact that the assessee sold property purchased by it for
profit was not decisive in finding out whether the sale was
effected in the course of the business of the assessee.
From the Tact
518
that the assessee could not undertake large scale and
profitable mining in the area which was in its possession,
no inference may be drawn that lands were acquired with a
view to sell later on nor the circumstance that the
properties were sold very soon after they were purchased
affords any basis for the conclusion that the sale in
question was effected in the course of the business. [52 B]
(iii)If the finding of fact is based on an inference from
the primary evidentiary facts proved in the case, its
correctness or validity is open to challenge in reference
proceedings within narrow limits. It is open, to the
parties to challenge a conclusion of fact drawn by the
tribunal on the ground that it is not supported by any legal
evidence or that the impugned conclusion drawn from the
relevant facts is not rationally possible. If such a plea
is established, the Court has to consider whether the con-
clusion in question is not perverse and should not,
therefore, be set aside. On the facts of this case, the
High Court was justified in examining the correctness of the
inference drawn by the Tribunal on the basis of the primary
facts found by that Tribunal. [521 E]
G. Venkataswami Naidu and Co. v. Commissioner of Income-
tax, 35 I.T.R 594; followed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1627 and
1628 of 1968.
Appeals from the judgment and order dated January 19, 1965
of the Calcutta High Court in Income-tax Reference No. 240
of 1961.
S. Mitra, G. C. Sharma, R. N. Sachthey and D. B. Sharma,
for the appellant (in both the appeals).
The respondent did not appear.
The Judgment of the Court was delivered by
Hegde, J. This appeal by certificate arises from the
decision of the Calcutta High Court rendered in a reference
made to it by the Income Tax Appellate Tribunal, ’B’ Bench,
Calcutta under S. 66(1) of the Indian Income-tax Act, 1922
(which will hereinafter be referred to as the ’Act’).
Alongwith its statement of case, the tribunal submitted two
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questions to the High Court for its opinion. They are :
"(1) Whether on the facts and in the
circumstances of the case, the sums of Rs.
2,55,733/- and Rs. 3,00,332/- receivable by
the assessee as arrears of royalty and rent
were assessable as the income of the assessee
for the assessment years 1948-49 and 1950-51
respectively ? and
(2)Whether on the facts and circumstances
of the case the sum of Rs. 2,80,000/- being
the surplus derived by the assessee on sale of
property was assessable as the income of the
assessee for the assessment year 1950-51
519
The facts set out in the statement of the case, in brief,
are a,-, follows :
The assessee M/s. Rajasthan Mines Ltd. is a public limited
Company incorporated on January 23, 1947. The Raja of Ram-
garh was the landlord of the North and South Karanpura
fields covering about 312 villages. Those, tracts of lands
were rich in coal and fireclay. M/s. Karanpura Development
Co. Ltd., held coal mining licence in about 14 of those
villages. It also held fire,clay leases in about 8 villages
and leases of other minerals in portions of two villages.
That Company had also a prospecting licence for the coal in
the said fields with the option to take further coat mining
leases. The leases were also held by three other parties
namely South Karanpura Development Ltd., Janab Mohammad
Kamruddin and Jagadish Prasad ghagat in respect of other
parcels of land, in these fields. By an indenture dated
December 22, 1947 (registered on the 26th of February,
1948), in pursuance, of agreements dated September 20, 194$
and August 7, 1947, the assessee acquired from the Raja of
Ramgarh proprietory intetest in all those leased out lands,
more fully specified in the schedule appended to the said
indenture. By the said indenture, the Raja of Ramgarh also
transferred and assigned to the assessee his right to
receive the arrears of rent and royalty from the lessees
with effect from September 1, 1946. The consideration paid
by the assessee for the acquisition of the proprietory
rights with the right to realise and recover the arrears of
rent and royalties was Rs. 5 lacs.
For the assessment year 1948-49, the Income-tax Officer as-
sessed the entire amount of arrears of rent and royalty
receivable from the said lessees, from September 1, 1946
upto the date of conveyance namely December 22, 1947, as the
assessee income for the previous year ended on the 31 st
March, 1948. The net amount included in the assessment
under that head was Rs. 2,55,733/-.
In the previous year ended on December 31, 1949 relevant for
the assessment year 1950-51, the assessee purchased another
,lot of villages from the Raja of Ramgarh as per the
conveyance dated January 24, 1949, in pursuance of the
agreements already referred to for a consideration of Rs. 2
lacs with all arrears of rent and royalty which on December
31, 1948 amounted to Rs. 3,00,332/-. On August 13, 1949,
the assessee sold away his right, title and interest in the
major portion of the villages acquired under the aforesaid
deeds of conveyance dated December 22, 1947 and January 24,
1949 to Sirka Valley Coal Co. Ltd. and three other parties
for a total sum of Rs. 7,50,000/’-. The Income-tax Officer
treated the entire arrears of rent and royalty amounting to
Rs. 3,00,332/- as revenue receipts of the assessee taxable
during the assessment year 1950-51. He also treated the
520
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-sale of the lands by the assessee as a business transaction
and taxed a sum of Rs. 2,20,000/- as the net profit of the
assessee arising from the sale, which profit was recomputed
by the Appellate Assistant Commissioner at Rs. 2,80,000/-.
The Income-tax Appellate Tribunal agreed with those
conclusions.
The High Court of Calcutta differing from the conclusions
reached by the Income-tax Officer, Appellate Assistant
Commissioner and the Tribunal came to the conclusion that
the sums of Rs. 2,55,733/- and Rs. 3,00,332/- receivable by
the assessee as arrears of royalty and rent were not
assessable as the profits of the assessee for the assessment
year 1948-49 and 1950-51 respectively. It also disagreed
with the conclusions reached by the Income-tax Officer,
Appellate Assistant Commissioner and the Tribunal that
profit made by the assessee by the sale of the properties
purchased from Raja of Ramgarh was assessable as the income
of the assessee for the assessment year 1950-51. Aggrieved
by that order, the Commissioner of Income-tax, West Bengal
has come up in appeal to this Court.
We are in agreement with the High Court that the purchase of
the right to collect arrears of rent and royalty cannot be
considered as an income. It is true that the assessee
purchased the lessor’s right from the Raja of Ramgarh in
pursuance of the agreements ,entered in to by the Raja of
Ramgarh with third parties whose Tights had been acquired by
the assessee. The assessee company bad been incorporated,
as seen earlier, on January 23, 1947. Therefore it could
not have got any right in the property prior to the
conveyance in its favour on December 22, 1947. As per the
terms of the said conveyance, the assessee became entitled
to the arrears of rent and royalty as a purchaser of those
rights. It had no right to collect those arrears of rent
and royalty as the ,owner of the property. It may be that
in determining the price payable under the conveyance, the,
arrears of rent and royalty were not taken into
consideration. But that does not change the nature of the
right acquired by the assessee. Hence we agree with the
High Court that the first question referred to earlier must
be ,answered in favour of the assessee.
Now coming to the second question, according to the
assessee, it purchased the tracts of land in question with a
view to win mines but for want of finance, it was compelled
to sell the same. The primary facts found by the tribunal
are: (1) the assessee was heavily indebted to Raja of
Ramgarh but there was no evidence to show that the Raja was
pressing for the payment of the amount due to him; (2) the
memorandum of association of the assessee gave it power to
acquire, sell and dispose of and deal with mines and mining
properties; (3) as a major part of the land purchased by the
assessee was in the possession of the other mining
Companies, it was not possible for the assessee to undertake
any large scale and
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profitable mining operations; (4) the assessee sold the
lands purchased by it for a profit and (5) the properties
purchased were sold very soon after they were purchased.
The above findings did not afford any basis to the tribunal
to come to the conclusion that the purchases made by the
assessee and the subsequent sale were in the nature of a
trading adventure. The circumstance that the memorandum of
association of the assessee. permitted the assesses to
acquire, and sell and dispose of and (teal with mining
properties is an inconclusive one. It is not shown that
the, assessee had acquired or sold any other property. The
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fact that the assessee sold property purchased by it for
profit is not decisive in finding- out whether the sale was
effected in the course of the business of the assessee.
From the fact that the assessee could not undertake large
scale and profitable mining in the area which was in its
possession, no inference may be drawn that lands were
acquired with a view to sell later on, nor the circumstance
that the properties were sold very soon after they were
purchased affords any basis for the conclusion that the sale
in question was effected in the course of the business. The
primary facts found either individually, or collectively
could not have afforded a basis for arriving at the
conclusion that the transaction in question was an adventure
in trade.
It was urged on behalf of the Revenue, that the finding of
the tribunal that the purchase and sale of lands, were made
in the course of business being a finding of fact, it was
not open to the High Court to interfere with that finding.
But as observed by this Court in G. Venkataswami Naidu and
Co. v. Commissioner of Income-tax(1), if the finding of fact
is based on an inference from the primary evidentiary facts
proved in the case, its correctness or validity is open to
challenge in reference proceedings within narrow limits. It
is open to the parties to challenge a conclusion of fact
drawn by the tribunal on the ground that it is not supported
by any legal evidence or that the impugned conclusion drawn
from the relevant facts is not rationally possible. If such
a plea is established, the court has to consider whether the
conclusion in question is not perverse and should not,
therefore, be set aside. On the facts of this case the High
Court was justified in examining the correctness of the
inference drawn by the Tribunal on the basis of the primary
facts found by that Tribunal.
For the reasons mentioned above, we agree with the High
Court that the second question referred to it for its
opinion must also be answered in favour of the assessee.
In the result these appeals fail and they are dismissed.
Y.P. Appeals
dismissed.
(1) 35 I.T.R. 594.
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