1970 (4) TMI 55 - HC - Income Tax

Tax Exemptions Upheld for Assessee-Company

The court held that the amounts received by the assessee-company were exempt from tax as capital receipts. The excess realizations over Rs. 225 per ton ... Assessee is a public limited company, limited by shares. It derives income from several sources including certain business operations which are carried out in India and abroad - foreign govt. paid compensation to the assessee in the shape of timber - whether the timber received would be a capital asset and the profit made by the assessee on the sale of such timber is a revenue receipt Issues Involved:1. Whether the amounts received by the assessee-company were exempt from tax as being receipts of a capital nature.2. Whether certain amounts were liable to tax under the second proviso to section 10(2)(vii) of the Income-tax Act.3. Whether the excess realizations over Rs. 225 per ton for logs received in respect of depreciable assets, stores, and livestock were liable to tax under the Act.Detailed Analysis:Issue 1: Exemption from Tax as Capital ReceiptsAssessment Year 1950-51:- Question: Whether Rs. 65,52,153 or any part thereof was exempt from tax as being a receipt of a capital nature.- Analysis: The court examined the nature of the forest leases, determining them to be capital assets. The 28,847 tons of logs delivered to the assessee-company were found to be in lieu of the residuary rights under clause 27 of the forest leases. The court held that these logs were of the nature of capital receipt in the hands of the assessee-company, thus exempting the amount from tax.- Conclusion: The amount of Rs. 65,52,153 was exempt from tax as being a receipt of a capital nature.Assessment Year 1951-52:- Question: Whether Rs. 5,18,896 or any part thereof was exempt from tax as being a receipt of a capital nature.- Analysis: Similar to the previous year, the court found that the logs delivered were in lieu of the residuary rights under the forest leases, making them capital receipts.- Conclusion: The amount of Rs. 5,18,896 was exempt from tax as being a receipt of a capital nature.Assessment Year 1953-54:- Question: Whether Rs. 5,58,188 or any part thereof was exempt from tax as being a receipt of a capital nature.- Analysis: The court held that the timber taken over by the Government was towards the residuary rights and assets lying within the area taken over. The amount awarded in the decree was in lieu of these rights, making it a capital receipt.- Conclusion: The amount of Rs. 5,58,188 was exempt from tax as being a receipt of a capital nature.Issue 2: Liability to Tax under Section 10(2)(vii)Assessment Year 1950-51:- Question: Whether Rs. 1,41,156 was liable to tax under the second proviso to section 10(2)(vii) and whether there was any evidence that the conditions of the application of that proviso were all satisfied.- Analysis: The court found that the agreement dated June 10, 1949, did not involve any transaction of sale between the assessee and the Union of Burma, as no money was paid as price for the assets delivered. Therefore, the provisions of section 10(2)(vii) were not applicable.- Conclusion: The amount of Rs. 1,41,156 was not liable to tax under the second proviso to section 10(2)(vii).Issue 3: Taxability of Excess Realizations over Rs. 225 per TonAssessment Year 1950-51:- Question: Whether the amounts of Rs. 5,250, Rs. 1,025, and Rs. 25,705, being the excess realizations over Rs. 225 per ton for logs received in respect of depreciable assets, stores, and livestock, respectively, were liable to tax under the Act.- Analysis: The court held that the logs received were not on revenue account but were capital receipts. The logs were not mixed with the stock-in-trade and were held separately in a specific account.- Conclusion: The amounts were not liable to tax under the Act.Assessment Year 1951-52:- Question: Whether the amounts of Rs. 44,407, Rs. 8,639, and Rs. 2,16,929, being the excess realizations over Rs. 225 per ton for logs received in respect of depreciable assets, stores, and livestock, respectively, were liable to tax under the Act.- Analysis: Similar to the previous year, the court found that these logs were capital receipts and not on revenue account.- Conclusion: The amounts were not liable to tax under the Act.Assessment Year 1953-54:- Question: Whether Rs. 9,493, being the amount of compensation received for stores acquired by the Burmese Government, was liable to tax under the Act.- Analysis: No arguments were advanced regarding this small amount, and it was accepted as liable to tax.- Conclusion: The amount of Rs. 9,493 was liable to tax under the Act.Final Judgments:Assessment Year 1950-51:- Question No. 2: Affirmative. Entire amount.- Question No. 3: Negative.- Question No. 4: Negative.Assessment Year 1951-52:- Question No. 2: Affirmative. Entire amount.- Question No. 3: Negative.Assessment Year 1953-54:- Question No. 1: Affirmative.- Question No. 2: Affirmative.Costs: Revenue will pay costs.