1962 (9) TMI 49 - SC - Income Tax

Court upholds liability for cess under Bengal Cess Act, 1880. Mining profits determinable for manufacturing.

The court dismissed the appeals, holding that the appellants were liable to the cess under sections 5 and 6 of the Bengal Cess Act, 1880. The court ... Whether the three appellants could be said to have derived 'annual net profits from the mines' when the ore mined by them is not sold as such but is utilised for the production of finished products which the appellants sell? Whether a person could in law be said to derive 'profit' from a mine when when the ore extracted is not sold him as such but is utilised by him for the purpose of manufacturing a finished product which he sells? Whether when a sale or a commercial transaction which might result in a profit takes place not of the commodity itself but of something into which it is transformed, 'a profit' could be said to accrue by reason of the acquisition of the basic commodity? Held that:- Appeal dismissed. It is the function of the relevant assessing authorities to determine the annual profits in case of dispute and, besides, there is a residuary provision contained in section 76 of the Act under which in cases where the Collector is unable to ascertain the annual net profits he may determine it on the basis of 6 per cent. It is for these reasons that unable to accede to the submission that the charging provisions should be rejected as inane because of the want of an express machinery for determining the basis of apportionment in cases where the ore is sold not as ore but is converted into other products which are the subject of sale. Issues Involved:1. Validity of the imposition of cess under sections 5 and 6 of the Bengal Cess Act, 1880.2. Interpretation of 'annual net profits from mines' under section 6 of the Act.3. Whether the utilization of mined ore for manufacturing finished products constitutes deriving 'annual net profits from the mines.'4. Applicability of the principle that no one can make a profit out of himself.5. Scope of disintegrating profits from integrated business activities.6. Adequacy of statutory provisions and machinery for assessing profits from mining operations.Issue-wise Detailed Analysis:1. Validity of the imposition of cess under sections 5 and 6 of the Bengal Cess Act, 1880:The appeals questioned the validity of the cess imposed under sections 5 and 6 of the Bengal Cess Act, 1880. Section 5 states that all immovable property is liable to local cess, and section 6 specifies that the cess is assessed on the annual value of lands and the annual net profits from mines and other immovable property. The court examined whether the appellants, who mined ore but did not sell it as such, were liable to the cess.2. Interpretation of 'annual net profits from mines' under section 6 of the Act:The main contention was whether the appellants could be said to have derived 'annual net profits from the mines' when the ore mined was not sold but used for manufacturing finished products. The court analyzed sections 5 and 6, along with related provisions, to determine if profits could be deemed to accrue from mining operations when the ore is utilized for further manufacturing.3. Whether the utilization of mined ore for manufacturing finished products constitutes deriving 'annual net profits from the mines':The court considered whether profits could be said to accrue from mining operations when the ore is used for manufacturing finished products. The argument was that no profit arises unless the ore is sold. The court rejected this, stating that the profit from mining operations is embedded in the final profit realized from the sale of finished products. The court held that the sale of the end product, which includes the mined ore, results in a profit attributable to the mining operations.4. Applicability of the principle that no one can make a profit out of himself:The appellants argued that no profit could arise from the mining operations because the ore was not sold but used in manufacturing, invoking the principle that no one can make a profit out of himself. The court examined this principle and concluded that it did not apply in this context. The court noted that while the mined ore was not sold, it was converted into a product that was sold, resulting in a profit.5. Scope of disintegrating profits from integrated business activities:The court addressed whether profits from integrated activities, such as mining and manufacturing, could be disintegrated to ascertain the profit from mining alone. The court held that it is possible to disintegrate the profits from different activities and that the profit from mining operations could be determined as part of the total profit from the sale of finished products.6. Adequacy of statutory provisions and machinery for assessing profits from mining operations:The appellants argued that the Act lacked specific machinery for assessing profits in cases where the ore is not sold but used in manufacturing. The court rejected this argument, stating that the relevant authorities could determine the annual profits through appropriate inquiries. The court noted that section 76 of the Act provided a residuary provision for determining profits when the usual methods were not feasible.Conclusion:The court dismissed the appeals, holding that the appellants were liable to the cess under sections 5 and 6 of the Bengal Cess Act, 1880. The court concluded that profits from mining operations could be determined even when the ore is used for manufacturing finished products, and the lack of specific machinery in the Act did not invalidate the imposition of the cess. The appeals were dismissed with costs.