TaxTMI 
TaxTMI 
1979 (9) TMI 5
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.... of the extensive zamindari pertaining to the said estate for a term of 999 years, and also took an assignment of movables, including Government promissory notes and jewellery belonging to the members of the lessor's family and the arrears of rents and cesses, debts, decrees, etc., due by the tenants of the said estate, the properties passing to the assessee being specified in the schedule appended thereto. The consideration for the said lease and assignment was fixed at Rs. 4,08,000 which was paid and satisfied by the assessee by allotting and issuing its 4,080 fully paid-up shares to the lessors. The quit rent receivable by the lessors for the lease was Rs. 100 per annum and the assessee also undertook to pay the revenue and cesses payable to the superior landlords in respect of the zamindari. Clause 3 of the memorandum of association set out the various objects for which the assessee was formed and though sub-cl. (a) thereof showed that the assessee was primarily incorporated for the purpose of taking over the assets of the lessors' family upon the terms and conditions set forth in the draft agreement referred to in art. 3 of the articles of association. Sub-clause (b) of cl. 3 ....
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....much as it had not taken on lease any other property from any one else since 1920 up to date and that the transactions of granting sub-leases of long duration to various colliery companies were by way of management of real property by the assessee as owner of leasehold interest and as such the receipts on account of salami, premia and compensation were of a capital nature. The Tribunal relied upon and applied the ratio of the decision of the Madras High Court in P. K. N. Co. Ltd. v. CIT [1963] 47 ITR 195, which has since been confirmed by this court in CIT v. P.K.N. Co. Ltd [1966] 60 ITR 65. At the instance of the revenue, the Tribunal referred to the High Court for its opinion the following question : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in excluding the sums of Rs. 22,197, Rs. 1,88,417 and Rs. 73,327 from the total income of the assessee for the years 1953-54, 1954-55 and 1955-56 ? " The High Court answered the question in favour of the revenue by holding that the receipts were not of a capital nature and were includible in the total income of the assessee as its business income. The High Court took the view that the as....
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....ri property as a trader. Secondly, he contended that the real question was whether after incorporation and after acquiring the lease of the zamindari estate, which included substantial coal-bearing lands and mines, the assessee had dealt with its leasehold interest as a land-owner or not and he urged that the manner in which the assessee granted sub-leases of the lands in different parcels to various well-known colliery companies for various terms of long duration extending over 900 years clearly showed that such transactions of granting sub-leases were transactions in the nature of management of the estate as owner of the land and, therefore, the receipts by way of salami, premia and compensation will have to be regarded as receipts of a capital nature and in that behalf he placed reliance upon cl. 3(a) of the memorandum, art. 3 of the articles of association and the terms and conditions of the draft agreement in accordance with which the indenture dated July 5, 1920, was executed, which showed that the assessee had been primarily incorporated for the purpose of preservation and management of the family estate of the lessors. He also pointed out that admittedly it was not the busi....
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....ith a view to raising coal, nor did it acquire or sell coal raised by the sub-lessees. As against a salami of Rs. 40 per bigha which the assessee had paid, it realised from the sub-lessees Rs. 400 per bigha as salami. In addition, the assessee charged certain royalties at rates higher than those it had agreed to pay under the head leases. The company admitted that the income from the royalties was taxable. The question was whether the amounts received by the assessee as salami for granting the sub-leases constituted trading receipts in its hands and the profit therefrom was assessable to tax under the Indian I.T. Act, 1922. Having regard to the objects for which the company was formed as well as the nature of the operations which the company indulged in, this court held that the transactions of acquiring leases and turning them to account by way of sub-leases were in the nature of trading activity within the objects of the company and not enjoyment of property as land-owner and the amounts received by way of salami were trading receipts and the profit therefrom were liable to income-tax. Observing that the dividing line between the two types of operations was difficult to find and ....
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....perty and rights of any kind, and (ii) to sell, manage, develop or dispose of or otherwise deal with any part of the properties, rights and privileges of the company. Large amounts of money were spent on cultivation and development of rubber and coconut plantations and substantial income was derived therefrom but certain uneconomical and inconvenient plots were sold by the company in 1940 and 1941. Between the years 1942 and 1945, when Malaya was under Japanese occupation, some further plots of land were sold. Thereafter, in 1948, 1949 and 1950, lands were sold from time to time at profit. As a result of these disposals, the total holding of the company was reduced to about 2,000 acres of rubber estates, some houses and the Lee estate. The question was whether the profits realised by the company during the accounting year relevant to the assessment year 1951-52 from the sale of the properties to the tune of 1,41,326 Malayan dollars could be brought to tax. On these facts, this court held that the primary object of the company was to take over the assets of the firm, to carry on the business of planters and to earn profits by the sale of rubber; the acquisition of the estates was no....
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.... its leasehold interest in the zamindari estate without actually examining the real nature and object of the transactions of sub-leases entered into by the assessee with several colliery companies. Secondly, in arriving at that conclusion, the High Court has been greatly influenced by three factors, (a) existence of the power in its memorandum of association enabling the assessee to indulge in trafficking in land by way of sub-leases of the land, (b) declaration of dividend at a high rate of 25% by the assessee for the relevant years, and (c) creation of reserve fund by the assessee pursuant to certain articles of association and the High Court has given such undue weight to these factors that it almost regarded them as decisive factors. P. K. N. Co.'s case [1966] 60 ITR 65 (SC) has clearly laid down that the existence of the power in the memorandum of association to traffic in sub-leases of lands though relevant would clearly be not decisive. In our view, declaration of dividends and creation of a reserve fund are not features peculiar to a trading concern, for, it is equally conceivable that a non-trading incorporated entity like an investment company can declare dividends and ma....
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....ision conferring any right or interest in the shares on the new arrivals in the family would be more conducive to preservation and proper management of the family assets. Secondly, admittedly since 1920 up to date the assessee had not taken lease of any other property from any one else except the lease of the zamindari estate under the indenture dated July 5, 1920, a pointer to the fact that the assessee did not indulge in any business of acquiring other lands. Thirdly--and this is vital--the manner in which the assessee dealt with the leasehold interest in zamindari estate obtained under the indenture dated July 5, 1920, over the years clearly shows that the transactions of granting sub-leases of coal-bearing lands and mines were by way of management of the estate as landowner. The Tribunal in its earlier order dated June 7, 1960, for the assessment years 1946-47,1947-48 and 1948-49, a copy of which had been made a part of the record of the case, has brought out certain relevant facts in that behalf. The Tribunal has pointed out that during the first 11 years of its incorporation the assessee did not grant any sub-lease of any land to any one. In 1339 B.S. the assessee recei....