TaxTMI 
TaxTMI 
1962 (9) TMI 49
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....ct all immoveable property situate therein, except as otherwise in section 2(2) provided, shall be liable to the payment of local cess. 6. Cess how to be assessed. - The local cess shall be assessed on the annual value of lands and until provision to the contrary is made by the Central legislature on the annual net profits from mines and quarries, other than notified mines and from tramways, railways and other immoveable property, ascertained respectively as in this Act prescribed; and the rate at which the local cess shall be levied for each year shall : (a) in the case of such annual net profits, be one anna on each rupee of such profits; and (b) in the case of the annual value of lands, be such rate as shall be determined for such year in the manner in this Act prescribed : Provided that the rate at which the local cess shall be levied for any one year on the annual value of lands shall not be less than the rate of one anna and six pies or more than the rate of two annas on each rupee of such annual value." The three companies who are the appellants here own certain mines in Bihar. The Tata Iron & Steel Co. Ltd. - appellants in Civil Appeals Nos. 587 and 588 of 1961 - has t....
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....he rate at which the profit was computed during the succeeding year but it is unnecessary to detail them. Finally we come to the assessment in respect of the year 1954-55 with which the present appeals are concerned. For that year the company was assessed by the Cess Deputy Collector on the basis that if had made a profit of Rs. 4-7-0 per ton of iron ore extracted. The company filed an appeal to the Deputy Commissioner and the ground urged by the company was that it was not at all liable to the levy of cess under the Act become it did not sell any ore as such and could not therefore be treated as having made "any profit from the mines" within the meaning of section 6 of the Act. The Deputy Commissioner rejected this contention but considering that the Cess Deputy Collector had not adopted a proper basis for ascertaining the profits, remanded the case for an enquiry as to the cost of extraction of iron ore and for the calculation of other working expenses. The company then filed a revision application to the Commissioner of the Chhota Nagpur Division raising the same point about its non-liability to cess but when this was rejected, preferred a further revision to the Board of Reven....
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....ment of Bengal and to the levy of a local cess on immoveable property situate therein and to the constitution of local committees for the management of the proceeds of the said local cess, and also to provide for the construction and maintenance of other works of public utility out of the proceeds of the said local cess : It is hereby enacted as follows :..." The Act consists of three Parts of which Part I is concerned with the imposition and application of the cesses and we have already extracted sections 5 and 6 which impose the charge with which these appeals are concerned. Part II deals with the mode of assessment. Chapter V of Part II is headed "Valuation, Assessment and Levy of Cesses on Mines, Railways and other Immoveable Property" and of these those that are material for the point arising for decision and to which we were referred during the course of the argument were sections 72, 72A, 73 to 76 and these run in these terms : "72. Notice to return profits - (1) On the commencement of this Act in any district, and thereafter before the close of each year, the Collector of the district shall cause a notice to be served upon the owner, chief agent, manager or occupier of ev....
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....or though the Collector of the district in which such owner, chief agent, manager or occupier may reside or have his chief place of business and one return for the whole of such property shall suffice. 74. When a property is partly in and partly outside Bengal. - Whenever any property assessable under this Chapter lies partly within and partly outside the territories administered by the LieutenantGovernor of Bengal, the return furnished as required by section 72 shall state the total annual net profit accruing from, and the total annual dispatches of coal and coke despatched from such property, calculated as aforesaid, and also the proportion of such profits and despatches which many reasonably be calculated to accrue in or to be dispatched from the territories administered by the LieutenantGovernor of Bengal. 75. If return not furnished or incorrect, Collector to make valuation. - If such return be not furnished within the period of two months from the date on which such notice was served, or within any extended time allowed by the Collector of the district or if such Collector shall deem that any return made in pursuance of such notice is untrue or incorrect, such Collector sha....
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....A sale of the ore is thus an essential ingredient or a sine qua non for the emergence of a profit on which alone the cess is levied. Where, however, the ore extracted is not sold but is used by the owner in the production of other finished products there is no question of the owner of the ore realising a "profit" from the mine. In the case of an assessee like the appellants the business of winning the ore and of converting the ore won into a finished product is not by any means to be conceived of as made up of two distinct businesses conducted by them but only as a single integrated undertaking for the production of steel and steel products. Unless one could postulate first that the business of winning the ore was a separate business from that of converting the ore won into steel, and, secondly, could notionally treat the won ore as having been sold by the first business to the second, it would not be possible to conceive of any profit being derived from the working of the mine. He submitted that there was no factual basis for the first postulate, viz., that there were two separate businesses and, secondly, even assuming that it were possible to separate the two activities in the c....
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....gether. When once it is conceded, as it must be, that in the case of a mine there is no liability to pay the tax unless the mine were worked and the working produced a "profit", the question would still have to be answered as to whether the mine can be said to produce an "annual net profit" on the basis of which alone the cess could be levied when the ore won is not sold as such but it is converted into a finished product and is sold thereafter. The learned Attorney-General concentrated on the meaning of the expression "profit" occurring in section 6 and the related provisions of the Act."Profit", according to him, arises only when a commodity produced, obtained or acquired is the subject of a commercial transaction of the sale and represents the difference between the expense or cost of production or acquisition and the amount realised on the sale, and the main submission was that as there was no sale by the mineowner of the product of the mine as such, no "profit" could in law be deemed to have accrued to him from the mine. In further elaboration of this point reliance was placed on the fact that what was brought to charge - or rather what was taken to be the taxable event was ....
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....d's [1954] S.C.R. 219.case. runs counter to the decision of the House of Lords in Sharkey v. Wernher vide Commissioner of Income-tax v. Bai Shirinbai K. Kooka [1962] Supp. 3 S.C. R. 391 we are bound to proceed on the basis that on facts similar to those in Kikabhai's [1962] Supp. 3 S.C. R. 391 case the principle applies and negatives the idea of a taxable profit emerging. It is, therefore, necessary to examine precise scope of the decision in Kikabhai's [1962] Supp. 3 S.C. R. 391 case. The case arose under the Indian Income tax Act and the question related to the computation of the income and profits of a bullion merchant. The assessee had, during the accounting year, withdrawn some bullion from his stock-in-trade and transferred it to a trust which he and created. The assessee valued the bullion withdrawn at the price at which he had brought it, so that no profit was shown to have resulted to him by reason of the transfer of this stock-in-trade. This was objected to by the revenue whose contention was that the bullion withdrawn had to be valued at the market price of the commodity on the day of the transfer. This court accepting the contention of the assessee, allowed his appeal ....
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....st of the dressing or the pulverising for the market could be an item of expenditure which would have to be taken into account in ascertaining the profit from the sale of the ore. If one is right so far that profit could result from the sale of the mined ore so dressed up for the market, could there be any logic in the contention which denies the existence of profit from the mined ore when not the dressed ore but some product of the dressed ore is sold. No doubt where the mined ore undergoes some processing before it is marketed, the process being either cleaning or dressing, etc., the processed product might continue to be commercially known as ore. But the question would then arise : "Is it essential for a 'profit' to result from the working of the mine that there should be an identity in a commercial sense between the commodity which is the subject of sale and the commodity which is won from the mine ?" In other words, is it the position that if there is loss of that identity the concept of "a profit" arising from the production of that commodity also disappears ? We find it difficult to appreciate the ratio behind the contention that if the mined ore is processed, and the proce....
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....e of the commodity, there would be a loss on the mining operation notwithstanding that there is a profit realised from the sale of the end product - steel, but these are matters of calculation not relevant at the present stage, for we are endeavouring to ascertain whether there could in law be a profit when the mined ore is converted into steel in the mills of the mining company. It thus factually the profit from the mine or from the mining operation is imbedded in the profit from the sale of the steel is there any principle of law which prevents effect being given to this factual position ? The learned Attorney-General submitted that in such a situation the "profit" is not a real or an actual profit but is one which is merely notional, and that when the Act spoke of a "profit" it meant an actual, real and realised profit and not a merely notional "profit". We find ourselves unable to accept this submission. We start with the premise that by the sale of the end product a real "profit" has been realised. When analysed it is found that profit is the aggregate or resultant of the profits from different lines of activity. If arithmetically that total represents the resultant aggregatio....
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....the finished steel or steel products. What we desire to point out is that this involves no disintegration of the business affording scope for the contention based upon the principle that a person cannot trade with himself, but the one far removed from it, viz., whether when a profit has been made as a conjoint result of different but integrated operations, the profits so desired could be broken up so as to permit the attribution of specific amounts of profit to each or any of the several operation or activities. This takes us to the point as to whether there is anything in law to preclude the disintegration of profits in order to ascertain the profit or loss attributable to each line of activity where the sale of the final end product results in a profit or loss for the entire venture. It was submitted by the learned Attorney-General that there was no general principle of law that profits resulting from a series of integrated activities could be dismembered or disintegrated for ascertaining the profit or loss from each of the several activities from whose total operation an ascertained profit accrued to an individual. The argument was that for the disintegration of profits in such....
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....ses of sale and in order that profit may be earned. The business operation cannot be arbitrarily cut into two portions, but must be regarded as a whole." We are unable to agree that these two passages afford assistance to the contention urged before us by the learned Attorney-General. It is sufficient to take up the second of the above quotations as it typifies the principle - it would be seen that it was directed to pointing out that where the profits arising from the sale of an end product or as the result of an ultimate activity are brought to tax, there is no principle of law by which there could be a disintegration for the purpose of confining the taxable profits to that which resulted from the ultimate activity alone. The assessee in that case grew coffee on his own lands in the State of Mysore and the raw coffee was brought into Mangalore, then in the State of Madras, where it was cured and processed and then sold, and the sale proceeds being received within the "taxable territory." The assessee contended that as he had already received the raw coffee in the Mysore State the value of that product should be excluded in computing the profit made by the sale of the cured coffe....
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....s, in the case of, say, a sugar mill, which grows its own cane, in the absence of any exemption for the income derived from agriculture, i.e., from the production of the cane, the entire profit of the mills from the sale of the sugar would have to be included in the taxable profits under section 10 of the Income-tax Act. But section 4(3)(viii) exempts agricultural income as defined in section 2(1). The result, therefore, is that there is a disintegration of dichotomy of the "incomes, profits or gains" of the business and of agricultural income, so that there has to be an apportionment between the two in order to determine the taxable income of an assessee. It is on account of this situation that section 59(2) of the Income-tax Act provides for rules being made for prescribing the manner in which and the procedure by which incomes derived in part from agriculture and in part from business shall be arrived at. In exercise of the rule-making power thus conferred rule 23 has been framed laying down the principles on which the apportionment should take place whose terms we shall set out merely for illustrating this principle : "23. (1) In the case of income which is partially agricultu....
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....ries was brought to charge for the imposition of the cess under section 6. "Annual value" would, he said, have normally included only the profit derived from land, not the benefit accruing to the owner from his own occupation. In order to include the latter category also, the Act contained a definition of "annual value" which ran : "4. Interpretation clause. - In this Act, unless there be something repugnant in the subject or context : 'Annual value of land, etc.' - 'Annual value of any land, estate or tenure means the total rent which is payable, or if no rent is actually payable would on a reasonable assessment be payable during the year by all the cultivating raiyats of such land, estate, or tenure, or by other persons in the actual use and occupation thereof : Explanation. - For the purposes of the forgoing definition, whatever is lawfully payable or deliverable, or would on a reasonable assessment, be lawfully payable or deliverable, in money or in kind, directly to the Government, (a) by raiyats cultivating land in a Government estate - on account of the use or occupation of the land, or (b) by other persons in the actual use and occupation of land in such an estate, shal....
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.... construction of section 5,6 and 72 that where activities other than mere winning the ore are carried on by an assessee and there is a transaction of sale of the ultimate product and the profit, if any, derived from the working of the mine, is, so to speak, imbedded in the final realisation, a profit may accrue to the assessee from the mining operation which can be disintegrated and ascertained and a tax levied thereon. We are not here concerned with the manner in which this disintegration should take place or the components or items which would have to be taken into account in arriving at "the annual profit" from the mine for the purpose of being brought to tax under section 6 and 72. Those will be the subject-matter of enquiry by the relevant competent authorities by virtue of the order of remand passed by the Board of Revenue in these cases. As we have pointed out earlier, what we are concerned with in these appeals is merely whether there could in law be an annual profit from the mine in cases where the ore produced from the mine is sold not as ore but is utilised as the raw material for the manufacture of other products which are sold. When once it is conceded, as it has to be....