1943 (5) TMI 8 - HC - Income Tax

Tax Court Affirms Royalties from Coal Mines as Income; Rejects Capital Receipt Argument

RAJA BAHADUR KAMAKSHYA NARAIN SINGH OF RAMGARH Versus COMMISSIONER OF INCOME-TAX, BIHAR AND ORISSA

The High Court at Patna affirmed the assessment of income-tax on royalties from coal mines, holding them as 'income from other sources' under the ... - Issues Involved:1. Whether royalty on mines being capital revenue should not have been excluded in computing the total income determined for income-taxRs.2. What should be the principle on which the cost of management in the collection of royalties is to be determined when there is a combined management covering both the zamindari collection of agricultural income and royalties of minesRs.Issue-wise Detailed Analysis:1. Whether royalty on mines being capital revenue should not have been excluded in computing the total income determined for income-taxRs.The High Court at Patna addressed a reference under Section 66 of the Income-tax Act, 1922, regarding the assessment of income-tax on the appellant for the year 1937-38. The primary question was whether royalties from coal mines should be considered capital revenue and thus excluded from the total income for income-tax purposes. The appellant contended that royalties were capital receipts, representing the price of coal, and hence not assessable to income-tax. The Income-tax Officer included the royalties in the income, which was upheld by the Assistant Commissioner and the Commissioner of Income-tax.The High Court, referring to the mining leases, noted that the royalties were annual income and not capital installments of a purchase price. The court held that royalties received by the assessee were 'income from other sources' within the meaning of Section 6(vi) and 12(1) of the Act and were rightly assessed to income-tax. The court emphasized that the Indian Income-tax Act, 1922, though different from the English Income Tax Acts, still necessitated the inclusion of such royalties as income. The royalties were not regarded as 'profits or gains' of a business but as income from 'other sources.'The appellant's argument that coal was a capital asset and royalties were capital receipts was rejected. The court observed that the royalties were periodical payments for the continuous enjoyment of benefits under the leases, and thus constituted income. The court cited various authorities, including Coltness Iron Co. v. Black, to support the view that mining royalties are income despite the wasting nature of the property. The court concluded that the royalties were clearly income and not capital, and the appeal was dismissed.2. What should be the principle on which the cost of management in the collection of royalties is to be determined when there is a combined management covering both the zamindari collection of agricultural income and royalties of minesRs.The Commissioner of Income-tax and the High Court concurred that the second question raised no question of law and should not be answered by the High Court. No argument was addressed by the assessee to the High Court on this matter, and hence, no further reference to that question was made in the judgment.Conclusion:The High Court affirmed the assessment of income-tax on the royalties received by the appellant, holding that such royalties were 'income' within the meaning of the Income-tax Act, 1922. The appeal was dismissed with costs. The judgment aligns with the prevailing judicial opinion in Indian courts, as evidenced by decisions such as Manindra Chandra Nandi v. Secretary of State and Shiva Prasad Singh v. Emperor. The court's decision underscores that royalties from mining leases are taxable as income, irrespective of the wasting nature of the property.