3 S.C.R.

SUPREME COUR~REPORTS 495

THE CENTRAL TALKIES LTD., KANPUR

DW ARKA PRASAD. (J. L. KAPUR, M. HIDAYATULLAH and J. c. SHAH, JJ.)

Rent Control-Ejectment suit with permission of District Magistrate-Additional District Magistrate, if can grant permission -Persona designata-U. P. (Temporary) Control of Rent and Eviction Act, I947 (U. P. Ill of I947), ss. 2(d) and 3-Code of Criminal Proedure, r898 (V of I898), s. ro.

Section 3 of the U. P. (Temporary) Control of Rent and Eviction Act, 1947, enabled a landlord to file a suit for eviction of the tenant with the permission of the District Magistrate.

Section 2(d) of the Act defined District Magistrate as including an officer authorised by the District Magistrate to perform any , 'O! his functions under the Act. By a notification issued under s. 10(2) of the Code of Criminal Procedure the U. P. Government appointed Mr. Seth to be an Additional District Magistrate "'with all the powers of a Distict Magistrate under the said Code andn'iiaer any, other law for the time being in force." The respondent applied to the District Magistrate for permission to file a suit for ejectment against the appellant. The District. Magistrate transferred the application to Mr. Seth the Additional District Magistrate who granted the permission, The appellants contended that the permission granted was invalid as the District Magistrate mentioned. in s. 3 of the Act was a persona designata and the permission could have been granted only by him or by an officer authorised by him to perform his functions and not by the Additional District Magistrate.

H eU, that the permission granted by the Additional District Magistrate was valid, The notification issued by the Govern. ment invested Mr. Seth with all the powers of the District Magistrate under the Code as well as under any other law includ. ing the Eviction Act 1md he was competent to grant the permission under s. 3. The District Magistrate mentioned ins. 3 was not a tersona designata. A persona designata is a person selected as an mdividual in his private capacity, and not in his capacity as filling a particular character or office.

Kedlw Nath v. A!ool Chand, A.I.R. 1953 All. 62, disapproved.

Partllasaradhi Naidu v. KoteSfllara Rao, (1923) I.L.R. 47 Mad. 369 (F.B.), referred to.

CIVIL

APPELLATE JUBISDICTION: Civil Appeal No. 374 of 1957.

Appeal from the judgment and decree dated September 21, 1955, of the Allahabad High Court in First Appeal No. 251of1954 arisin& out of the judgment

January 16,

Centrat Talkies Ltd., Kanpur v.

Dwarka Prasad

Hidayatullah ].

and decree dated May 24, 1954, of the Civil Judge, Kanpur, in Suit No. 35 of 1949.

A. V. Viswanatha Sastri, G. S. Pathak and Naunit Lal for the appellant.

N. C. Chatterjee, S. N. Andley, J. B. Dadachanji and P. L. Vohra, for the respondent. 196l. January 16. The Judgment of the Court was delivered by HIDAYATULLAH, J.-This is an appeal against the judgment aud decree of the High Court of Allahabad with a certificate granted by the High Court under Art. 133(l)(b) of the Constitution. The High Court, reversing the decision of the trial Court, decreed the present suit for ejectment against the appellants, and also awarded damages to the plaintiff-respondent at the rate of Rs. 593-12-0 per month. The suit was filed by the repondent, Babu Dwarka Prasad, against the appellants, Central Ta.Ikies Ltd., Kanpur, and Lala Ram Narain Garg, the Managing Director of the Company.

The facts, briefly stated, are as follows: Dwarka Prasad was the sole owner of a plot of land No.73/22 (old No .. 73/28) situated in Collectorgunj, Kanpur. In 1933 an agreement of lease was executed by five persons in favour of Lala Rameshwardas, the predecessor-in-title of Babu Dwarka Prasad, by which the five lessees took over on lease a hall and other constructions, which the lessor agreed to build at a cost of Rs. 16,000/- within four months. It was agreed that, if the lessor was required to spend an amount in excess of Rs. 16,000/-, he would be entitled to interest at the rate of 12 annas per cent. per month from the second party till the end of tenancy.

The tenancy was from month to month, and the period of the tenancy was fixed at 5 years in the first instance. This tenancy continued with variations in the amount of rent till the year 1946, and on January 15, 1946, Dwarka Prasad sent a letter to the def Pndants that the period of lease was to expire on February 28, 1946, and th:it

the Central Talkies Ltd. should vacate the premisC's by that date. The defendants did not vacate the

premises, and a suit for ejectment w' 0 1nn "ainst the Central Talkies Ltd.

During the pendency of that suit, the United Provinces (Temporary) Control of Rent and Eviction Act, 1947 (referred to in the judgment as the Eviction Act), came into force, Under s. 3 of the Eviction Act, permission of the District Magistrate was required to file in any Ci vii Court a suit for the eviction of a tenant, except on grounds which were enumerated in the section. Admittedly, that suit was filed on a

ground whlQ.h was not enumerated in the section, and Dwarka Prasad withdrew it. He then applied to the District.Magistrate for permission to eject the Central Talkies Ltd., from the premises, and permission was granted by the Additional District Magistrate (Rural Area) on July 7, 1948. It is not necessary to state the pleas which were taken by the defendants in the newly filed suit, because the only point argued before us was that the suit was incompetent, because permission of the District Magistrate as required by s. 3 had not been obtained.

The Divisional Bench of the High Court held that the suit was competent. The two learned Judges, who heard the appeal, reached the same conclusion, though on slightly different grounds. Raghubar Dayal, J. held that the Additional District Magistrate, who granted permission, was empowered by the Provincial Government under s. 10(2) of the Code of Criminal Procedure to exercise all the powers of a District Magistrate under the Code and all the laws for the time being in force, and the requirements of s. 3 were complied with.

Brij Mohan Lal, J. came to the conclusion that the District Magistrate by transferring the case to the Additional District Magistrate (Rural Area) had authorised him to perform his functions under the Act in this behalf and that the Additional District Magistrate, being thus included in the definition of "Distriet Magistrate" under s. 2(d), was competent to grant the permission. Concurring, therefore, that the suit was instituted .with the permission of the District Magistrate as required by the Eviction Act, the Divisional Bench held that the suit was competent.

Central Talkies

Lti.., Kanpur v.

Dwarka Prasad

Hidayalullah ].

Central Talkies Ltd., If anpur v.

Dwarka Prasad

Hidayatullah ].

It may be pointed out that, at first, the application for permission was made over by the District Magistrate to Mr. Ha.di Hasan, who was also an Additional District Magistrate; but the latter sent the case back to the District Magistrate asking for a transfer, because he had been approached on behalf of the defendants.

The District Magistrate thereafter passed an order on February 11, 1948, to the following effect:

"Transferred to Additional District Magistrate (R.A.) for disposal." The application for permission was disposed of by Mr. Brijpal Singh Seth, Additional District Magistrate (Rural Area.), on July 7, 1948. This Officer, who was

previously a City Magistrate, Kanpur, was appointed an Additional District Magistrate by Notification No. 3400/Il-276-48 dated May 22, 1948. The material portion of this Notification read as follows:

" With effect from the date on which he takes over charge Shri Brijpal Singh Seth, City Magis. trate, Kanpur, is appointed vice Shri Sheo Ramdas Saksena-

(a) under sub-section (2) of section 10 of the Code of Criminal Procedure, 1898 (Act V of 1898), to be an Additional District Magistrate of Kanpur District, with jurisdiction extending over the whole of the said district and with all the powers of a District Magistrate under the said Code and under any other law for the time being in force ... " The appellants contended before us that both the reasons given by the Divisional Bench of the High Court were not valid, and that the suit was not brought in accordance with the Eviction Act. At first, the appellants wished to raise a question as to the invalidity of the notice; but during the course of the arguments, that ground was expressly abandoned.

The oase was thus argued only on the footing that the permission given by Mr. Brijpal Singh Seth did not comply with s. 3 of the Eviction Act.

The material portion of s. 3, as it stood on the rele. vant date, read as follows :

"No suit shall, without the permission of the District Magistrate, be filed in any civil court

against a. tenant for his eviction from a.ny accommodation, except on one or more of the follow- . d " mg groun s ... "District Magistrate" is defined by s. 2(d) of the Act, which reads :

"'District: Magistrate' includes a.n officer authorized by the District Magistrate to perform a.ny of his functions under this Act." The argument of the a. ppellants wa.s that the District Magistrate mentioned in s. 3 wa.s a. persona designata, a.nd that either he or a.n officer authorised by him to perform his functions could grant permission. According to them, in view of the provisions quoted a.hove and in view also of the provisions of s. 1(2) of the Code of Criminal Procedure, no Additional District Magistrate was competent to grant the permission, unless autho rised to do so by the District Magistrate. The order of the District Magistrate by which the case wa.s made over to the Additional District Magistrate (Rural Area) was characterised as a mere transfer and not an authorisation. It was contended that a transfer could only take place to a person possessing jurisdiction, and that jurisdiction under the present Act was confined only to the District Magistrate or an officer authorised by him.

The transfer of the case, it was contended, did not constitute such authorisation. Reliance was placed on the decision of a learned single Judge of the Allahabad High Court reported in Kedar Nath v.

Mool Chand (1) and on the decision of the Nagpur High Court referred to therein, P. K. Tare v. Emperor (').

Section 10 of the Code of Criminal Procedure, at the relevant time, provided as follows:

"10(1). In every district outside the presidency. towns the Provincial Government shall appoint a Magistrate of the first class, who shall be ca.lied the District Magistrate.

(2) The Provincial Government may 11.ppoint any Magistrate of the first class to be an Additional District Magistrate and such Additional District Magistrate shall have all or any of the powers of a. District Magistrate under this Code or under any

(1) A.l.R. 1953 All. 62.

(2) A.l.R. r943 Nag. 260

r96r

Ce1tlral TalkU,

Ltd., Kanpur

Vo Dwarka Pras.4cl

Hidayalull4h j,

r961

Ceniral Talkies Ltd., Kanpur v.

Dwarka Prasad

Hidayatullah ].

other law for the time being in force, as the Provincial Government may direct." The Notification, which was issued about Mr. Brijpal Singh Seth and which has been quoted already, invested him with all the powers of the District Magistrate under the Colle of Criminal Procedure as well as under any other Jaw for the time being in force. He was thus competent to deal with an applica. tion under the Act for permission to file a civil suit without special authorisation from the District Magistrate. Learned counsel for the appellants contended that the definition of "District Magistrate" clearly showed that in addition to the District Magistrate, only an officer specially authorised by him could act under the Eviction Act, and he referred to sub-s. (2) of s. 1 of the Code of Criminal Procedure, which provided:

"It extends to the whole of British India; but, in the absence of any specific provision to the contrary, nothing herein contained shall affect any special or local law now in force, or any special jurisdiction or power conferred, or any special form of procedure prescribed, by any other law for the time being in force ... " The argument was that the special jurisdiction created by the Evict.ion Act was not affected by s. 10(2) of the Code, in view of the provisions of this sub-section.

The argument overlooks the words "in the absence of any specific provision to the contrary ", and because there is in the Code of Criminal Procedure such a provision in s. 10(2), sub-s. (2) of s. 1 is excluded, and an Additional District Magistrate must be regarded as possessing the powers under any other law including the Eviction Act.

The argument that the District l\ifagistrate was a persona designata cannot be accepted. Under the definition of" District Magistrate", the special authorisation by the District Magistrate had the effect of creating officers exercising the powers of a District Magistrate under the Eviction Act.

To that extent, those officers would, on authorisation, be equated to the District Magistrate. A persona designata is " a

person who is pointed out or described as an individual, as opposed to a person ascertained as a member of a class, or as filling a . particular character." (See Osborn's Concise Law Dictionary, 4th Edn., p. 253).

In the words of Schwabe, C.J., in Parthasaradhi Naidu

v. Koteswara Rao ( 1 ), personae designatae are "persons selected to act in their private capacity and not in their . capacity as Judges." The same consideration applies also to a well-known officer like the District Magistrate named by virtue of his office, and whose powers the Additional District Magistrate can also exercise and who can create other officers equal to himself for the purposes of the Eviction Act.

The decision of Sapru, J., in the Allahabad case, with respect, was erroneous.

Reference was made to the definition of " District Magistrate" in the United Provinces (Temporary) Accommodation Requisition Act, 1947, which includes an "Additional District Magistrate". This definition has been made wide for obvious reasons, because under s. 10(2) of the Code of Criminal Procedure, the Additional District Magistrate has to be specially empowered. By including the Additional District :Magistrate in the definition of " District Magistrate ",

power is conferred by the Requisition Act itself whether or not the Provincial Government specially empowers any particular Additional District Magistrate in that behalf. The Eviction Act, on the other hand, gave power to the District Magistrate to authorise offi'cers other than the Additional District Magistrates empowered by the Provincial Government, by defining the term "District Magist, rate" differently.

I In view of the above, it is hardly necessary to go into the reasons given by Brij Mohan Lal, J. ; but even those reasons are, with all due respect, equally valid. By the act of transferring the case tu the Additional District Magistrate, the District Magistrate must be deemed to have authorised him to exercise his powers under s. 3 of the Eviction Act.

However, it is not necessary to rely upon this aspect of the case because, in our opinion, s. 10(2) of the Code of

(I) (1923) l.L.R. 47 Mad. 369. 373 (F.B.).

Cenlt'al Talkies

Ltd., Kanpur v.

Dwarka Prasad

HidayafulJah ].

Cl•lral Talkies

Ltd., Kpnpur

Dwarha Prasad

Hidayatullah ],

January z7.

Criminal Procedure gave ample powers to Mr. Brijpal Singh Seth to accord permission for bringing the suit, a.nd the order of the District Magistrate, even if treated as a. transfer, was valid.

In the result, the appeal fails, and is dismissed with costs.

Appeal dismissed.

NATIONAL CEMENT MINES INDUSTRIES, LTD. v.

COMMISSIONER OF INCOME-TAX,

WEST BENGAL, CALCUTTA. (J. L. KAPUR, M. HrnAYATULLAH and J.C. SHAH, JJ.)

Income-tax-Conveyance with reservation of rights-Category of-Receipts under the conveyance, if income or capital.

The appellants were carrying on the bnsiness of cement and lime manufacture and supply thereof. By a deed dated May 7, 1935, the appellants conveyed to the Associated Cement Ltd. the rights which had vested in them under an earlier conveyance made in their favour by a company known as Karanpura Co.

Under the deed the appellants reserved to themselves the right to receive from the Associated Cement Company a sum equal to thirteen annas in respect of every ton of cement sold by it which shall have been manufactured from the limestone won by it from the lands transferred and comprised in the leases and agreements.

Pursuant to this stipulation in the year_ of account, the appellants received from the Associated Cement Ltd. Rs. 77,820.

The Income-tax Officer included this amount in the total assessable income of the appellants in the assesment year and his order was confirmed l>y the Appellate Assistant Commissioner and by the Income-tax Appellate Tribunal. The contention of the appellants before the High Court in_ a reference under s. 66 of the Indian Income-tax Act that on a proper construction of the deed and on the facts and circumstances of the case the sum of Rs. 77,820 did not represent receipt of a revenue nature in the hands of the appellants and was not assessable as such, was negatived.

Held, that the deed 1iid not incorporate a transaction of either sale or lease. The conveyance was subject to several restrictions and the'appellants retained in part, rights in the land conveyed. The transaction was substantially a transaction for sharing the profits of the commercial activities of the Associated Cement Ltd. and the receipt under cl. I of the deed was of the nature of income and not capital and as such assessable to tax, ·

495

THE CENTRAL TALKIES LTD., KANPUR

DW ARKA PRASAD

L. KAPUR

M. HIDAYATULLAH

c. SHAH, JJ.

Control of Rent and Eviction Act

ss. 2(d) and 3

Section 3

Control of Rent and Eviction Act, 1947

Section 2(d)

s. 10(2)

Code of Criminal Procedure

U. P. Government

Seth

Distict Magistrate under the said Code

s. 3

s. 3

Centrat Talkies Ltd.

Dwarka Prasad

A. V. Viswanatha Sastri

G. S. Pathak

Naunit Lal

N. C. Chatterjee

S. N. Andley

J. B. Dadachanji

P. L. Vohra

HIDAYATULLAH

High Court of Allahabad

Art. 133(l)(b)

Babu Dwarka Prasad

Central Ta.Ikies Ltd.

Kanpur

Lala Ram Narain Garg

Dwarka Prasad

Lala Rameshwardas

January 15, 1946

February 28, 1946

Central Talkies Ltd.

Control of Rent and Eviction Act, 1947

s. 3

July 7, 1948

s. 3

Raghubar Dayal

Additional District Magistrate

s. 10(2)

Code of Criminal Procedure

s. 3

Brij Mohan Lal

s. 2(d)

Dwarka Prasad

Hidayatullah

Ha.di Hasan

February 11, 1948

Brijpal Singh Seth

Brijpal Singh Seth

Sheo Ramdas Saksena-

section 10

Code of Criminal Procedure, 1898

Kanpur District

District Magistrate under the said Code

s. 3

s. 3

s. 2(d)

s. 3

s. 1(2)

Code of Criminal Procedure

Allahabad High Court

Nagpur High Court

Section 10

Code of Criminal Procedure

District Magistrate under this Code

Ceniral Talkies Ltd., Kanpur

s. 1

Code of Criminal Procedure

British India

s. 10(2)

Code of Criminal Procedure

s. 10(2)

s. 1

Osborn

Schwabe

Sapru

Allahabad

Accommodation Requisition Act, 1947

s. 10(2)

Code of Criminal Procedure

s. 3

s. 10(2)

NATIONAL CEMENT MINES INDUSTRIES, LTD

M. HrnAYATULLAH

J.C. SHAH

Associated Cement Ltd.

s. 66

Income-tax Act


Cl•lral Talkies

Ltd., Kpnpur

Dwarha Prasad

Hidayatullah ],

January z7.

SUPREME COURT REPORTS (1961]

Criminal Procedure gave ample powers to Mr. Brijpal Singh Seth to accord permission for bringing the suit, a.nd the order of the District Magistrate, even if treated as a. transfer, was valid.

In the result, the appeal fails, and is dismissed with costs.

Appeal dismissed.

NATIONAL CEMENT MINES INDUSTRIES, LTD. v.

COMMISSIONER OF INCOME-TAX,

WEST BENGAL, CALCUTTA. (J. L. KAPUR, M. HrnAYATULLAH and J.C. SHAH, JJ.)

Income-tax-Conveyance with reservation of rights-Category of-Receipts under the conveyance, if income or capital.

The appellants were carrying on the bnsiness of cement and lime manufacture and supply thereof. By a deed dated May 7, 1935, the appellants conveyed to the Associated Cement Ltd. the rights which had vested in them under an earlier conveyance made in their favour by a company known as Karanpura Co.

Under the deed the appellants reserved to themselves the right to receive from the Associated Cement Company a sum equal to thirteen annas in respect of every ton of cement sold by it which shall have been manufactured from the limestone won by it from the lands transferred and comprised in the leases and agreements.

Pursuant to this stipulation in the year_ of account, the appellants received from the Associated Cement Ltd. Rs. 77,820.

The Income-tax Officer included this amount in the total assessable income of the appellants in the assesment year and his order was confirmed l>y the Appellate Assistant Commissioner and by the Income-tax Appellate Tribunal. The contention of the appellants before the High Court in_ a reference under s. 66 of the Indian Income-tax Act that on a proper construction of the deed and on the facts and circumstances of the case the sum of Rs. 77,820 did not represent receipt of a revenue nature in the hands of the appellants and was not assessable as such, was negatived.

Held, that the deed 1iid not incorporate a transaction of either sale or lease. The conveyance was subject to several restrictions and the'appellants retained in part, rights in the land conveyed. The transaction was substantially a transaction for sharing the profits of the commercial activities of the Associated Cement Ltd. and the receipt under cl. I of the deed was of the nature of income and not capital and as such assessable to tax, ·

Foley v. Fletcher, (1858) 3 H. &N. 769, Secretary of Statein Coullr96r cil of India v. Andrew Scoble, [1903] A.C. 299, Oswald v. KirkcaJdy

Magistrates, [1919] S.C. 147, Commissioners of Inland Revenue v. National Cement Ramsay, (1935) 20 T.C. 79, State of Bihar v. Sir Kameshwar Singh, Mines Industries, [1952] 21 l.T.R. 382, Captain Maharajkumar Gopal Saran v.

Ltd, Commissioner of Income-tax, Bihar & Orissa, [1935] 3 I.T.R 237 v. (P.C.) and Chadwick v. Pearl Life Assurance Co., [1905] 2 K.B. 507, Commissioner of considered and applied.

Income-tax, In assessing the true character of the receipt for the purpose Ww Bengal of the Income-tax Act, inability to ascribe to the transaction a definite category is of little consequence. It is not the nature of the receipt under the general law but in commerce that is material. It is often difficult to distinguish whether an agreement is for payment of a debt by instalments or for making annual payments in the nature of income. The court has, on an appraisal of all the facts, to assess whether a transaction is commercial in character yielding income or is one in consideration of parting with property for repayment of capital in instalments. No single test of universal application can be discovered for solution of the problem. The name which the parties may give to the transaction which is the source of the receipt and the characterization of the receipt by them are of little moment, and the true nature and character of the transaction have to be ascertained from tbe covenants of thecontract in the light of the surrounding circumstances. The decision of the question is however not left to the application of any arbitrary standards. There are certain broad principles which guide the determination of the character of the receipt. The distinction between a capital receipt and revenue receipt though fine is real. The dividing line may be thin, and often at first sight imperceptible.

CIVIL APPELLATE JURISDICTION: Civil Appea1No. 84 of 1958.

Appeal by special leave from the judgment and order dated December 22/23, 1955, of the Calcutta High Court in l.T.R. No. 24 of 1953.

N. 0. Chatterjee, 1). P. Pal and D. N. Mukherjee for -the appellant.

Hardayal Hardy and D. Gupta, for the respondent.

1961. January 17. The Judgment of the Court was delivered by

SHAH, J.-Messrs. National Cement Mines Industries Ltd.-hereinafter referred to as the .appellants-are a public limited company incorporated to "carry on the

Shah ].

'96' business of cement and lime manufacture and also of

Vt . 1 c t limestone supply and for the purposes of such busia ion... emen . , efines Industries, nesses to acquire rights and concess10ns pertaining to

Ltd. limestone, coal and surface lands from the Dewarv. khand Karanpura Mines and Industries Ltd." and iommissioner 01 also to "work mines or quarries and to find, win, get,

Income-tax, - h work, etc. or ot erwise de. al with clay and bauxite." West Bengal Dewarkhand Karanpura Mines and Industries Ltd.

Shah J. -hereinafter called the "Karanpura Company "-had obtained three leases on November 29, 1930, first for mining limestone from Maharaja Pratap Narain Udai

Nath Shah Deo from limestone beds in certain villages in Dewarkhand, second from Maharaj Kumar Naud Kishore Nath Shah Deo of the surface rights necessary to exercise the powers and privileges in respect of the first lease and the third from Maharaj Kumar Raj Kishore Nath Shah Deo of surface rights in respect of Hoyer village. The period in each of the three leases was thirty years. On March 17, 1932, the Karanpura Company conveyed the rights and options under the three leases to the appellants. On September 30, 1934, the appellants acquired the limestone and surface rights in respect of limestone beds in village Umedanda for 95 years from Maharaja Pratap Narain Uday Nath Shah Deo and Maharaj K\1mar Raj Kishore Nath Shah Deo. On the same date, the appellants entered into two agreements, one with Maharaja Pratap Narain Uday Nath Shah Deo which is called the "bauxite option agreement" thereby acquiring the first option to take a lease or leases of any area or areas of bauxite deposits in certain villages, and another from the said M11lrnraja for the first option to take a lease or leases of limestone beds in the Tori Ditrict. By a fonrth agreement also dated September 30, 1934, between the Karanpura Company, Maharaja Pratap Narain Udai Nath Shah Deo acting with the consent of M<1haraj K umars Raj Kishore Nath. Shah Deo and Nand Kishore Nath

Shah Deo, the roy11lties reserved under the original deeds dated November 29, 1930, were reduced and the periods of the leases were extended to 99 years from the date of the original leases,

By deed dated May 7, 1935, the appellants conveyed '96' to Dewarkhand Cement Company Ltd. (which later National Gem••• came to be known as Associated Cement Ltd. and will Mines Industri'5, be referred to hereinafter by that name) the benefits Lid. of the fonr leases and the two agreements for the v. unexpired periods. By this deed, for a present con- Commissioner of I ncomt-tw;, sideration of Rs. 25,000 "for trouble and expenses in west B••&al obtaining the leases and agreements" and for further payment under several covenants which will be Shah J. presently set out, the appellants conveyed the rights vested in them subject to certain reservations. In the year of account June I, 1944, to May 31, 1945, the appellants received from the Associated Cement Ltd. under the first covenant of the deed, Rs. 77,820 being the amount computed at the rate of0-13 As. per ton of cement manufactured from limestone won from the la:.ds and sold by the company. The Income-tax Officer, Companies District I, Calcutta, included this amount in the total assessable income of the appellants in the assessment year 1946-47. This order was confirmed in appeal by the Appellate Assistant Commissioner and by the Income-tax Appellate Tribunal.

At the instance of the appellants, the Tribunal referred the following question with another not material for this appeal to the High Court of Judicature at Calcutta:

" Whether on a proper construction of the Deed of Assignmen.t dated 7th of May, 1935, and on the facts and in the circumstances of this case, the Tribunal was right in holding that the sum of Rs. 77,820 represented a receipt of a revenue nature in the hands of the Applicant and assessable a.s such ?" The following facts were held proved by the Tribunal. The principal objects of incorporation of the appellants were to carry on.the business of manufacturing cement and lime and sale of limestone and the appellants were formed with the object of acquiring the rights and concessions of the Karanpura Company. By their Memorandum of Association, the appellants were authorised to sell or dispose of the undertakings or any part thereof as they thought fit,

1961 and to sell, lease, mortgage, dispose of, turn to

N . 1 account or otherwise deal with all or any part of their ation•C•m•nt t d 'ht d' fth b' t Mibtdusfries, proper y an ng s an m pursuance o ese o JeC s uti. tha rights and concessions of the Karanpura Company v. were a.cquir<Jd and extension of leases and concessions Commission" of were obtained and were transferred to the Associated

Jfteom•-tax, Cement Ltd. The appellants were therefore carrying ii W ISi Bengal h f g on in t e year o account l 44-45 the business for -'

Sllak J. which they were incorporated.

After reciting the prefatory clauses, it was stated , ~ed~: l "WHEREAS it was agreed inter alia that the Purchaser should pay to the Vendor the sum of Rupees twenty five thousand for trouble and expenses in obtaining the leases and agreements dated the thirtieth day of September one thousand nine hundrl'ld and thirty four hereinbefore recited and hereinafter expressed to be hereby transferred and Whereas the Purchaser hath paid to the Vendor the said sum of rupees twenty five thousand as the Vendor doth hereby acknowledge NOW THIS INDENTURE WITNES8ETH that in consideration of the covenants on the part of the Purchaser hereinafter contained the Vendor hereby grants assigns and transfers unto the Purchaser and the Karanpura Company at the request and by the dire.ction of the Vendor hereby grants assigns transfers and confirms unto the Purchaser : ".

The deed then proceeds to set out the description of the various leases and concessions and agreements and the covenants which the Associated Cement Ltd. undertook in favour of the appellants. These covenants are:

(1) That it will pay to the Vendor a sum equal to thirteen annas in respect of every ton of cement sold by it which shall have been manufactured from the limestone won by it from the lands heraby transferred and comprised in the hereinbefore recited leases and agreements.

(2) That it will not sell any Fluxstone won by it from the said lands to the Tata Iron :ind Steel Company Ltd., at a price less than l{upees one and annas

fourteen per ton F. 0. R. the siding nearest to the quarry or place from which it shall be won without the consent of the Vendor.

(3) That it shall pay to the Vendor one-half the profit (if any) which it shall make by selling Fluxstone to the Tata Iron & Steel Company Ltd., or to any other person such profits to be ascertained after deduction from the price received all costs, charges and expenses including the royalty payable to the Maharaja in respect thereof but before deducting overhead charges.

Such accounts to be closed and adjusted on the thirtieth day of June and the t.hirty-first day of December in each and every yeai-.

(4) That it will not grant to the Tata Iron & Steel Company Ltd., the. right to quarry and remove F1uxstone from the lands hereby transferred at a royalty of Jess than ten annas per ton, and will pay to the Vendor one-half of any royalty so charged and received.

(5) That in the event of the payments made under clauses one, three and four above in any one year not amounting to the minimum hereinafter set out the Purchaser shall pay in lieu and in full discharge therefor the following minimum : ·

(a) During the first year to be computed from the first day of January one thousand nine hundred and thirty-five, rupees ten thousand.

(b) During the second year rupees thirty thousand.

(c) During every subsequent year rupees fifty thousand.

Out of the above minimum payment of rupees fifty thousand per year for the purposes of account, the sum of rupees twenty thousand shall be deemed to have been paid in respect of payment under clause three above.

(6) That the Purchaser or the persons deriving title under the Purchaser will at all times from the date hereof duly pay all rents, royalties and payments becoming due under the (four) hereinbefore recited Indenture of Lease (subject as regards the Limestone lease to the modifications effected by the agreement for

jll aUt>nal C1tn1ttl Mnus IMustt'i1s,

Lid.

Commissioner of

Income-ta~.

Wist BmaJ

ohaA ].

I96I

Nati01Jal C1ment Mims 111dustrias.

Lid.

Commissioner of

lnecmu-tax, Wis• Bengal

Slsah ].

reduction of royalty dated the thirtieth day of September one thousand nine hundred and thirty -four hereinabove recited) in respect of the premises agreements options rights or benefits hereby assigned and transferred and observe and perform the covenants agreements stipulations and conditions therein contained and henceforth on the part of the Lessee or grantee to be observed and performed in respect of the aforesaid premises or under the said Bauxite agreement or under the said Tori Option agreement or under the said agreement for reduction of royalty And also will at. all times from the date hereof save harmless and keep indemnified the Vendor its successors and adsigns from and against all proceedings costs claims and expenses on account of any omission to pay the said rent, royalty or payments or any breach of any of the said covenants agreements stipulations and conditions.

(7) That the Purchaser will not work raise remove or use stone or clay in the properties com prised in the leases and agreements hereby transferred to it for making lime.

(8) That the Purchaser shall not by any of its actions or omissions cause leases and agreements, mentioned above and in respect of properties hereby transferred, to be determined, or the rights there- • under, including the right of renewal, to be prejudiced.

(9) That in areas comprised in the leases and agreements hereinabove expressed to be hereby assigned and not containing limestone the Vendor's rights under leases and agreements from the Maharaja of Chota. nagpur ox Maharaj Kumar Nand Kishore Nath Shah Deo other than the leases and agreements above referred to shall not be jeopardised or affected by this Indenture.

(10) That the clay and shales lying within areas, which do not contain Limestone, can be removed and utilised by the Vendor for all purposes except that of cement manufacture.

The deed then proceeded after setting out certain other covenants :

"AND IT IS HEREBY EXPRESSLY AGREED x96x AND DECL~REJ? that if the Limestone within the National c,,.,., areas comprised m the Leases hereby transferred Mines Industrill, available for manufacturing cement is exhausted Ltd. the Purchaser will bo entitled to determine this v.

Indenture on giving to the Vendor six months' Commissio"''' of notice in writing in which case the Purchaser, if so Income-tax, West Bengal required, 'l'.l'ill retre.nsfer the leases and agreements aforesaid." Shah J.

By clauses (1), (3) and (4), the Associated Cement Ltd. undertook to make certain payments to the e.ppelle.nts. By cl. (1) they agreed to pay 0-13 As. for every ton of cement me.nufe.ctured from the limestone - won from the lands and sold ; bye!. (3), the Associated Cement Ltd. agreed to pay he.If the pr-0fits which they me.de by selling Fluxstone to the Te.ta. Iron & Steel Co., or to e.ny other person; and by cl. (4), they a.greed to pay he.If the royalty received from the Te.ta. Iron &

Steel Company for the right to quarry and remove fluxstone from the lands. By clause (5), provision we.a me.de for minimum payment in the event of the aggregate under cls. (1), (3) and (4) not reaching the sums specified therein; Cle.uses (2), (4), (7), (8) and (9l were in the nature of restrictive covenants. By cl. (2), the Associated Cement Ltd. were prohibited from selling any fluxstone won from the lands to the Te.ta. Iron & Steel Company for less than Re. 1-14 As. per ton F. O. R. By cl. (4), e.n obligation not to convey the right to quarry and remove fluxstone for royalty less than 0-10 As .. per ton was imposed.

By cl. (7) the Associated Cement Ltd. undertook not to remove or use or allow any one to raise work, remove or use stone or clay in the lands. By ol. (8), the Associated Cement Ltd. undertook not to do any acts or omissions ca.using the lee.see .and agreements to be determined or the rights thereunder to be prejudiced. By cl. (9), r, ights of other persons under leases and a.greements in lands not containing limestone were not to be affected. By cl. (10), the right of the e.ppelle.nts to utilise cla.y and she.le lying within the a.ree.s not containing limestone except for the purpose of ma.nufa.cnring

oement was retained. There were oerte.in exceptions

to this and the ninth clause whereby the Associated National Cement Cement Ltd. were entitled to excavate, use or remove Mmes Inaust•ies, all kinds of clays in and from the areas within the

Ltd. boundary lines marked in the plan and they were also v. authorised to . make permanent structures and use Commissioner of f J d Incom•-ta>. certam strips o ands. By cl. (6) the Associate West Bengal Cement Ltd. agreed to pay rent stipulated under the

Shah ]. original leases and agreements and also undertook to keep indemnified the appellants from and against all proceedings, costs, claims and expenses on account of any omission to pay the rent royalty or payments or any breaoh of any of the covenants agreements and the leases.

There was also the covenant authorising the Associii.ted Cement Ltd. to terminate the deed in the event of limestone in the land comprised in the leases being exhausted. The appellants undonbtedly did not part with all their rights in favour of the Associated Cement Ltd. by this deed dated May 7, 1935. The consideration under the deed consisted of a fixed component and annual payments flnctnating with the business activity of the Associated Cement Ltd. A fiiced amount of Rs. 25,000 was paid "for trouble and

expense~ in obtaining the leases and agreements " and additional payments were to be ma.de under els. (1),

(3) and (4) subject to the minimum prescribed by cl. (5). lt is difficult to categorise a transaction of this character. It is not a conveyance of all the rights of the appellants nor can it be regarded as a sale even of the rights which were conveyed. Numerous restrictions were imposed by the deed upon the rights of the transferee which were inconsistent in their very nature with the character of a sale, and the covenant authorising termination of the deed in the event of the Jimeatone being exhausted removes all doubt in that behalf. Nor is it a lease: it is not a transfer of a right to enjoy property for a certain time in consider

ation of periodical payments. It also does not evidence a transaction in the nature of & joint venture between the appellants and the ABBocia.ted Cement J, td, Cement was to be manufactured by the ABSOciated ment Ltd, out of limestone to be won from the lands

and in consideration of the rights conveyed, payments at specified rates were agreed to be made out of the price to be obtained by sale of cement, lluxstone and limestone. The appellants had no control over the prod nction of limestone and manufacture of cement, or on the sale of Huxstone and limestone. But in assessing the true character of the receipt for the purpose of the Income-tax Act, inability to ascribe to the transaction a definite category is of little consequence. It is not the nature of the receipt under the general law but in commerce that is material. It is often difficult to distinguish whether an agreement is for payment of a debt by instalments or for making annual payments in the nature of income. The court has, on an appraisal of all the facts, to assess whether a transaction is commercial in character yielding income or is one in consideration of parting with property for repayment of capital in instalments. No single test of universal application can be discovered for solution of the problem. The name which the parties may give to the transaction which is the source of the receipt and the characterization of the receipt by them are of little moment, and the true nature and character of the transaction have to be ascertained from the covenants of the contract in the light of the surrounding circumstances. The decision of the question is however not left to the application of any arbitrary standards. There are certain broad principles which guide the determination of the character of the receipt. The distinction between a capital receipt and revenue receipt though fine is real.

The dividing line may be thin, and often at first sight imperceptible.

Where capital is repaid in instalments, it is not liable to income-tax; for instance when a person sells his property and agrees to receive the price stipulated in instalments, by whatever name such instalments are called, they are not liable to income-tax-see Foley

v. Fletcher('), Secretary of State in Council of India v.

Andrew Scoble('), Oswal.d v. KirkcaWy Magistrates(') and Commissioners of Inland Revenue v. Ramsay(').

(1) (1858) 3 H. & N. 769.

(•) [1903) A.C. •99

(3) [1919) s.c. 147.

(4) (1935) 20 T.C. 79,

z961

.fllational Cement Mines Industries,

Ltd. v.

Commissioner of

Income-ta%, West Bengal

Shah].

512 SUPREME COUR.l' REPORTS [196.1]

i96i But where property is conveyed in consideration of

N . 1 c what in truth is annuity payable for a definite or a atson• ement d fi bl . d h . . .

Mines Industries. e na e peno , t e annmty 1s not payment on cap1-

Ltd. ta! account and is taxable-see State of Bihar v. Sir v.

Kameshwar Singh (1), Captain Maharajkumar Gopal Commissioner of .'!aran v. Commissioner of Income-tax, Bihar and

lmome-tax, Orissa (2), Chadwick v. Pearl Life Assurance Co. (3).

W tst Bengal " "f ..... gain, 1 property is conveyed in consideration of

Shah J. periodical payments, the pa~'ment being a share of profits of a business or profession-( William John) Jones v. Commissioners of Inland Revenue('), or a mineral royalty depending upon the quantity of minerals raised -Raja Bahadur Kamakshya Narain Singh of Ramgarh

v. Commissioner of Income.tax, Bihar and Orissa('), or computed on sales of manufactured articles-Commissioners of Inland Revenue v. 36/49 Holdings, Ltd. ('), or a percentage of gross profits made in the exploitation of a secret process-Delage v. Nugget Polish Go., Ltd.('), is income and taxable.

Counsel for the appellants submitted that the receipt under clause (1) of the terms of the deed dated May 7, 1935, was in the nature of capital payment and relied upon certain decisions in support of that submission.

In Minister of National Revenue v. Catherine Spooner('), decided by the Judicial Committee of the Privy Council in an appeal from the Supreme Court of Canada, the respondent Catherine Spooner had sold her rights, title and interest in land owned by her in freehold to a company in consideration of a certain sum in cash, besides shares of the company, and an agreement to deliver 10% of oil produced from the land on which the company covenanted to carry out drilling and, if oil was found, pumping operations. These were described as royalties. Oil was struck in the lands and the respondent was paid 10 of the gross proceeds of the oil produced in lieu of oil.

The

(1) [1952] 21 l.T.R. 382.

(2) [1935] 3 I.T.R. 237 (P.C.).

(3) [1905] 2 K.B. 507.

(4) (1919) 7 T.C. 310;

(1920] I K.B. 711,

(5) (1943) L.R. 70 I.A. 180.

(6) (1943) 25 T.C. 173.

(7) (1906} 21 Times Law Reports 454

(8) (1933] A.C. 68+.

Supreme Court of Canada held t, hat the sum so received was not an annual profit or gain within the meaning . f f h W T A b . f National Cement o s. 3 o t e Income ar ax ct, ut a receipt o a Mines Indust, ies, capital nature and therefore not chargeable to tax.

Ltd.

According to the Judicial Committee, there was bev. tween the respondent and the company no relation of Commissioner of lessor or lessee : the transaction was one of sale and Income-tax, purchase, and the transaction had t>iken the form West Bengal which it did because of the uncertainty w hcthcr oil would be found by the purchaser. As the value of i he land depended on this contingency, the price, not unnaturally was made to depend in part on the event of oil being struck. The judgment lays down no new principle; it proceeded merely upon interpretation of the (LJCument in the light of the circumstances.

In T,.ustees of Earl Haig v. Commissioners of Inland Revenue (1), the question which fell to be determined was whether a share of the royalties received in consideration of allowing the use of the diaries of the late Earl Haig for writing his biography were, in the hands of the trustees under the will of Earl Haig, capital receipts. That was undoubtedly a case in which payments received by the trustees were dependent upon the professional activities of the author and the proceeds derived from the sales of the biography he wrote.

By the agreement, the author was authorised to extract and publish from the diaries what he thought fit.

The diaries were undoubtedly an asset, and after they were used by the author for publication of the biography, their value as an asset was, if not wholly, largely exhausted and their future value was negligible. The agreement was therefore regarded as conveying an asset in its entirety to the author in consideration of a share in the royalties and the receipt of this share was regarded as receipt of capital. That decision proceeded upon the special character of the agreement and the nature of the asset transferred and did not seek to lay down any general principle.

In Nethersole v. Withers('), N who had acquired under an agreement the exclusive right to dramatise

(1) (1939) n T.C. 725,

(•) (1943) 28 T.C. 501.

Shah].

x96x a novel of Rudyard Kipling received under an agree-

N t .

IC 1 ment with the widow of the author, a third share of a iona 1men . Mines Indusi.ies a lump sum for whwh the sound and film rights were

Ltd. ' granted exclusively to a film company for a period of v. ten years. The film right of a comprehensive charac- Commi.ssioner of ter having been granted by the legal representative

Income-laK, of the author against payment of the sum stipulated, West Bengal the question arose whether the payment received by Shah J.

N was taxable under the Income Tax Act under Case II of Schedule D or under case VI of Schedule D.

It. was held that N having ceased to be the owner of the portion of the copyright she had assigned, the proceeds were not annual profits or gains within the meaning of Schedule D, Case VI. That was a case in which N had wholly sold and disposed of a part of the property and the amount received by her was the price paid in lump and was not in the nature of income. That case also proceeded upon the special character of the transaction.

The case of The Commissioners of Inland Revenue v.

The Marine Steam Turbine Co., Ltd. (1) on which reliance was sought to be placed by counsel for the appellants nAeds no detailed consideration. In that case, a company which was on the facts found not carryi11g on a trade or business was held not assessable to Excess Profits Duty, because the condition of liability was the carrying on of trade or business.

The appellants had however not sold the entirety of the rights acquired by them from the Karenpura

Company. The conveyance was subject to several restrictions and the appellants retained in part rights in the land conveyed. The transaction was substantially a commercial transaction for sharing the profits of the commercial activities of the Associated Cement Ltd. The High Court was therefore right in holding that the transaction dated May 7, 1935, was a commercial transaction and the payment under cl. (1) thereof at the rate of 0-13 as. per ton of cement sold was of the nature of income and not capital.

In that view of the case, the appeal fails and is dismissed with costs.

Appeal, d'8mi8aed.

(1) (1919) 12 T.C. 174; [1920] I K.B. 193.

Hidayatullah

Brijpal Singh Seth

NATIONAL CEMENT MINES INDUSTRIES, LTD

L. KAPUR

C. SHAH, JJ.

May 7, 1935

Associated Cement Ltd.

Income-tax Appellate Tribunal

s. 66

Income-tax Act

Income-tax Act

December 22/23, 1955

Calcutta High Court

P. Pal

D. N. Mukherjee

Hardayal Hardy

D. Gupta

SHAH

November 29, 1930

Maharaja Pratap Narain Udai

Nath Shah Deo

Maharaj Kumar Raj Kishore Nath Shah Deo

March 17, 1932

Karanpura Company

September 30, 1934

Umedanda

Tori Ditrict

Shah Deo

Nand Kishore Nath

Dewarkhand Cement Company Ltd.

Shah

May 31, 1945

Calcutta

7th of May, 1935

Tata Iron :ind Steel Company Ltd.

Tata Iron & Steel Company Ltd.

Chota

nagpur

West Bengal

Te.ta. Iron & Steel Co.

Te.ta. Iron &

Steel Company

Te.ta. Iron & Steel Company

Associated National Cement Cement Ltd.

West Bengal Cement Ltd.

Associii.ted Cement Ltd.

ABBocia.ted Cement J, td, Cement

ABSOciated ment Ltd

Catherine Spooner

Supreme Court of Canada

(1943) L.R. 70 I.A. 180

s. 3

Rudyard Kipling

Schedule D

Schedule D

Schedule D

Karenpura

Company


3 S.C.R.

SUPREME COURT REPORTS 515

MOHAMED NOORULLAH, REPRESENTING THE

ESTATE OF LATE KHAN SAHIB 1961

MOHD. OOMER SAHIB January ;8. v.

THE COMMISSIONER OF INCOME-TAX, MADRAS. (J. L. KAPUR, M. HIDAYATULLAH and J.C. SHAH, JJ.)

lnconte.tax-Assess111ent of an association of persons-Business ca, rried on by M ohaniedan-Continuance by hei1's-Receivers appointed by consent of parties-Asscss111ent on the receivers as income of an association of persons-· Validity-Indian Income-tax Act, r922 (II of I922). S. 3

The business of manufacture and sale ol a particular brand of beedies was carried on by 0, a Mohamedan, who died in 1942 leaving a minor son, the appellant, by his pre-deceased wife, his widow L, and four children by her.

Proceedings were taken first by the appellant and later on by L in connection with the partition of the properties left by 0, including the business, and during the pendency of the proceedings the business was carried on by receivers who had been appointed by the court by consent of parties on May lJ, 1943 The receivers continued the business till November 25, 1946, when during the course of the proceedings the business was put up for sale by auction between the co-heirs and was purchased by the appellant. For the years of assessment, 1944-45 to 1947-48, for which the accounting years were 1943 to 1946, the profits of the business were assessed to income-tax in the hands of the receivers as the income of an association of persons, and the claim of the appellant that the shares of the profits of each of the co-heirs should have been separately taxed was rejected by the income-tax authorities.

The facts showed that the business was inherited by the heirs of 0 and was carried on without break during the accounting years first by Land another and then by the receivers, that the nature of the business was such that it could not be divided up and that all the parties desired that the business should be carried on as one whole with a unity of control.

Held, that on the finding that the business was carried on by the consent of all parties as one unit with unity of control, the co-heirs did form an association of persons within the meaning of s. 3 of the Indian Income-tax Act, 1922, and that the income of the business was assessable as the income of an association of persons ; and the mere fact that a suit was pending at the time for the administration of the estate of the deceased or for the separation of the shares of the co-heirs did not affect the incidence of taxation in the case.

Commissioner of Income-tax, Bombay v. Indira Balkrishna, [1960] 3 S.C.R. 513, followed.

z96z

Mohamed Noor1'llah

Commissioner of

Jn, ome-tax,

.'Madras

Kapu• J.

S. C. Mazumdar, Receiver, Trigunait Brothers' Estate v. Commissioner of Income-tax, (1947) 15 I.T.R. 484, disapproved in so far as it was contrary to the above decision of the Supreme Court.

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 303 to 307 of 1960.

Appeals by special leave from the judgment and order dated May 14, 1957, of the Madras High Court, in Case Referred No. 111of1953.

R. Ganapathy Iyer and G. Gopalakrishnan for the appellant.

K. N. Rajagopal Sastri and D. Gupta, for the respondent.

1961. January 18. The Judgment of the Court was delivered by KAPUR, J.-These appeals are brought by special leave against the judgment and order of the High Court of Madras in an Income-tax reference under s. 66(1) of the Indian Income-tax Act, hereinafter termed the " Act". The question referred was :-

"Whether the income-tax assessment of the business of ' Spade Clover Beedies ' belonging to the estate of the deceased and carried on during the previous years 1943 to 1946 as an association of persons for the assessment years 1944-45 to 1947-48 is valid?!' And this question was decided in the affirmative and therefore against the appellants.

The facts leading to the appeals are that one Khan Sahib Mohamed Oomer Sahib, who was carrying on the business of manufacture and sale of Spade Clover brand BeeG.ies, died on December 17, 1942, leaving a minor son Mohamed Noorullah (the appellant) by his pre-deceased wife, a widow, Luthfunnissa Begum, and four children by her who were all minors at the date of the death of Oomer Sahib. Noorullah through his next friend applied to sue in forma pauperis and duri1tg the pendency of those proceedings two Advocates of the Madras High Court were appointed joint receivers of the properties of the deceased on March 17, 1943.

This appointment was by consent of parties. On

3 S.C.R. SUPREME COURT REPORT!::i 517

May 10, 1943, the widow, Luthfunnissa., filed a suit for partition and also applied for the continua.nee of the joint receivers. Noorulla.h opposed this application but by an order dated May 25, 1943, the receivers were ordered to be continued and they carried on the business as before. In due course a preliminary decree-for partition was passed. The High Court has observed that none of the parties wanted to break the continuity of the business after the death of the father. In the beginning Luthfunnissa and Dawood carried on the business and from the date of their appointment, i.e., May 17, 1943, the joint receivers continued the business till November 25, 1946, when during the course of the proceedings the business was put up for sale by auction between the co-heirs and was purchased by N oorullah.

The years of assessment are 1944-45 to 47-48, the relevant accounting years for which were the calendar years 1943 to 1946. The profits of the business were assessed to tax in the hands of the receivers as the income of an association of persons and the contention of the appellant that the share of the profits of each of the co-heirs should have been separately taxed, was rejected by the Income-tax authorities as well as by the Income-tax Appellate Tribunal. The only question which was raised both befor!J the department as well as before the Tribunal was the assessment to tax of the income of the business. There was no dispute in regard to the income of the properties which was taxed under s. 9(3) of the Act.

The business was inherited by the heirs of Oomer Sahib and was carried on without break during the accounting years first by the widow and Dawood and then jointly by the receivers. The nature of the business was such that it could not be divided up and had to be carrie<!, on as one whole with a unity of QOntrol and all the :farties desired to preserve and did preserve this unity. The opposition by the appellant to the &pplication for receivership filed on behalf of Luthfunnissa., the widow, was only on the ground that the appellant wanted different persons to be appointed and not to the continuance of the business or to the unity

Moliam~4 Noorullah

Commissione' of

Income-lax.,

Madras

Kapur J.

Mohamed Noorullalt v.

Commissioner of Income-tax,

ll'fadras

Aapur ].

SUPRE:\IE COURT REPORTS [1961]

of control. The Income-tax Appellate Tribunal in its order stated :-

"In fact, there was no change in the continuity of the business ana from the date of death of Md. Oomer Sahib up to 24th March, 1943, the busin0ss was carried on by mutual agreement and consent by Luthfunnissa Begum acting on her own behalf and on behalf of her minor children and her minor step-son Md. Xoorullah. There can, therefore, be no gainsaying the fact that immediately after the death of Md. Oomer his estate was inherited and run by combination of individuals who had pooled their resources for the common purpose of earning income." And the High Court has observed :

"The opposition was apparently to the persons to be appointed receivers and not to th.J continuance of the business or to the unitv of control that was necessary. Noorullah himsel(had realised that when he applied earlier for the appointment of receivers to conduct the business among other thiugs. Despite Noorullah's opposition when Luthfunnissa asked for the continuance of receivers in her application No. 1162 of 1943, the existence of the desire of all the co-sharers including Noorullah for the continuance of the business with proper persons to take charge of the business under the orders of court was clear.

That intention was material on which the departmental authorities and the Tribunal which agreed with them could find that the co-sharers did constitute an 'association of persons'." From the finding of the Tribunal it is obvious that the business was such that it was not capable of division, it being the manufacture and sale of "Beedies" of a particular brand and the finding of the Tribunal was that the business was carried on with the consent of the parties. On this finding it has to be decided whether the business was the business of an "association of persons" and its profits are assessable as such ?

The contention of counsel for the appellant was

(1) that on the death of Md. Oomer his estate including the business devolved upon his heirs in specific

shares; and (2) there was no consensus of opinion '96' between the heirs which is shown by the fact that the M•h•',,,, d appellant filed an application to sue in forma pauperis Noorullah and before that application could be decided the widow v. sued for partition and even though receivers were Commission" of appointed objection was taken by the appellant to the Income-tax, Madras appointment of receivers. But these facts do not Kap;:; J. assist the case of the appellant. As has been said above, the business was in the first instance carried on by the widow and Dawood on behalf of the heirs of Oomer and subsequently when the suits were brought none of the parties wanted to break the unity of control of the business nor its continuity and it was of such a nature that it could not be carried on without such consensus and therefore the receivers carried on the business. On these findings the High Court has rightly come to the conclusion that the business was a

business of an association of persons ..

This Court in Commissioner of Income-tax, Bombay

v. Indira Balkrishna (')considered the question as to what an association of persons means.. The test laid down in three cases: In re B. N. Elias & Others('); Commissioner of Income-tax v. Laxmidas Devidas and Another(') and In re Dwarkanath Harischandra Pitale (') was accepted by this Court as correctly laying down the crucial test for determining what is an association of persons and that in each case the conclusion has to be drawn from the circumstances. In the first case the test was laid down as applying to combinations of individuals who were engaged together in some joint enterprise but not constituting a partnership. Such a

combination of persons formed for the promotion of a joint enterprise banded together as if they were " coadventurers" it was held would constitute an asssociation of individuals. In the second case, that is, Commissioner of Income-tax v. Laxmidas Devidas and AMther (3) Beaumont, C. J., at p. 589 laid down the test as follows :-

" In my opinion, the only limit to be imposed on the words 'other association of individuals' is

(1) [1960] 3 S, C.R. 513.

(2) [1935] 3 l.T.R. 408,

(3) [1937] 5 I.T.R. 584.

(4) [1937) 5 !. T.R. 716.

Moliamed Noorullah v.

such as naturally follows from the fact that the words appear in an Act imposing a. tax on income, profits and gains, so that the association must be one which produces income, profits or gains. It Commissioner of lnco1ne-tax, Madras seems to me that an association of two or more persons for acquisition of property which is to be managed for the purpose of producing income, profits or gains falls within the words 'other association of individuals' in s. 3; and un<lr s. 9 of the Act, the Association of individuals is the owner of the property and as such is assessable."

Kapur].

In that case it was also held that the fact that one of the assessees was a minor during the year of the assessment did not affect the question. In In re Dwarkanath H arischandra Pitale (1) the a.ssessees were two brothers who became entitled to certain house properties as tenants in common and held and managed the properties as such and derived profit therefrom. It was held that though the assessees in the first instance did not constitute an association of individuals, they became so when they elected to retain the property and manage it as a joint venture producing income.

The test there laid down was that as soon as there was election to retain the property and manage it R.s a joint venture the persons so electing became an association of individuals. The Rangoon High Court in The Commissioner of Income-tax, Burma v. M.A. Baporia and Others (2) also laid down the same interpretation of the words" association of individuals". That was a case of Mohammedan co-heirs and it was held that by merely inheriting a share of property no person can become a member of an association of individuals unless there is some forbearance or a.ct upon his part to show that his intention and will accompanied the new status, that is, an association of individuals.

One of the co-heirs in that case was appointed an agent to realise the income from the properties left to the co-heirs by their father and mother under Mohammedan Law and that was held to be sufficient to constitute them an association of individuals.

(1) (1937]' l.T.R. 716.

2) [1939] 7 I.T.R. 22,.

I96I It is unnecessary to refer tc>" other cases. Taking the test as laid down by this Court in Indira Balkrishna's case(') it appears to us that the appellant !1:!:7i:~· and other co-heirs were rightly assessed as an associav. tion of persons. No doubt a suit for partition had Commissio...,, of been filed which was preceded by an application madeine....,-tax, Madras by the appellant to sue in forma pauperis, but the suit in reality was for ensuring the proper conduct of the business and not its discontinuance. During the period that the suit was pending and even before that, i.e., after the death of the father the business was carried on by the consent of all parties as one unit as indeed it had to be, becausfl it had to be carried on as one unit with unity of control and therefore the co.heirs did form an association of persons within the meaning of s. 3 of the Act.

Counsel for the appellant relied on S. C. Mazumdar, Receiver, Trigunait Brothers' Estate v. Commissioner of Income-tax('). Thl)ot was a case of persons who formed a joint family being governed by the Mitakshitra School of Hindu Law. A suit for partition was filed and the court appointed a receiver and a preliminary decr<0e was passed but the receiver was continued in regard to certain portion of the property and the income was assessed by the taxing authorities as the income of an association of persons. It was held that the income from property could not be taxed as such because the shares of the parties were definite and ascertainable.

The amount paid by the lessees could not be taxed in a lump sum as being the profits of a business carried on by an association of persons and the assessment was, therefore, made in accordance with the provisions of s. 9(3). It was also held that the assessees were not carrying on a trade or business themselves and there was no association of persons as contemplated by the Act. But that case can be of no assistance in the deci. sion of the matter now before us. The income to be assessed there was not income of any business carried on by or on behalf of the assessees and it was held that letting out property was not a trade or business.

With regard to the income received by the receiver

(1) (1960) 3 S.C.R. 513.

(2) [1947) 15 l.T.R. 484.

Ka/JU•].

1961 who employed contractors to carry on the business of

Mohamed coal-cutting au<l raising it on the pit head; it was held Nooru//ah that that was not the income of an association of v. persons on the ground (1) that the receiver was in co .. ., issio1ur of possession and he employed contractors for coal- 1 .... ....iu, Madras cutting and raising of coal; (2) that the assessees had

Kapur.]. no hand in the business which produced royalty and

(3) that the assessees had disassociated themselves from each other because of this partition suit. In our opinion the case so far as it relates to the carrying vn of the business and in so far as it is contrary to the opinion expressed by this Court in Indira Balkrishna's case('), is not correctly decided. Another case relied upon by the counsel for the appellant was Buldana District Main Cloth Importers' (Jroup, Khamgaon v.

Commissioner of Income-tax, Nagpur (2). In that case a certain group of persons were directed to import cloth in the district and had to work a scheme for the distribution and sale of cloth which had been evolved by the District authorities. That:was held not to be an association of persons. It appears that although they were appointed as a group of importers,. all of them did not participate in that scheme during the entire period. There were changes in the personnel of the group from time to time and there was no com' pulsion to work the scheme. On these facts it w, as held that the group did not agree to carry on the business or share the profits. That case must be taken to have been decided on its own facts and does not in any way affect the meaning of the phrase "asso!Jiation of persons." Counsel also relied on Khan Bahadur i M. Habibur Rahman v. Commissioner of Income-tax,· Bihar & Orissa (') in which a waqf deed was executed by which the assessee dedicated the income with ultimate benefit to the poor and constituted himself the sole mutwali of the trust. The deed provided that the beneficiaries should be benefited concurrently and in the same proportiol:\. It was held thats. 41(1) was inapplicable and the assessee should, therefore,, be taxed on the basis of profits falling to the share of

(2) (1956) 30 I.T.R, 61.

(3) [1945) 13 I.T.R. 189.

38.C.R.

SUPREME COURT RRPORTS 523

each beneficiary and not ou the footing that all the 1¢ 1 beneficiaries constituted an association of persons.

Mohamed Faz! Ali C. J. (as he then was) there observed at NoortUlah p. 194 :- v. ' "It seems to me therefore that the finding of the Commi.s•i""" 01 Tribunal that there were only 24 persons who were 1"'.,,,.....'.'.'.:'._Madras entitled to share the profits in the accounting year Kapur J. and that they were entitled to equal shares therein must be accepted. As it does not seem to have been contended that the assessee had any other relations than those enumerated by the Tribunal who would be entitled to share the profits, it is academic to discuss whether the various categories of persons referred to by the Appellate Assistant Commissioner of Income-tax were included in the term ' family ' or not." On this ground the income. was not assessed as the income of an association of persons and that case was also decided on its own facts.

The question in the present case is as to what income was to be taxed. The income was the income of a business which was carried on as a single business by the consent of all the parties. The mere fa.ct that . a suit was pending at the time for the administration of the estate of the deceased or for the separation of the shares of the co-heirs does not affect the incidence of taxation in this case, because the business was carried on, as said above, as one business with unitary control and by the consent of the parties. The High Court was right in holding that the income was assessable as an income of an association of persons.

The appeals must, therefore, be dismissed with costs.

One hearing fee.

Appeals diBmi&Bed.

MOHAMED NOORULLAH, REPRESENTING THE ESTATE OF LATE KHAN SAHIB MOHD. OOMER SAHIB

THE COMMISSIONER OF INCOME-TAX, MADRAS

L. KAPUR

M. HIDAYATULLAH

C. SHAH, JJ.

Validity-Indian Income-tax Act

S. 3

May lJ, 1943

November 25, 1946

s. 3

Indian Income-tax Act, 1922

[1960] 3 S.C.R. 513

Mohamed Noor1'llah

Supreme Court

R. Ganapathy Iyer

G. Gopalakrishnan

K. N. Rajagopal Sastri

D. Gupta

KAPUR

High Court of Madras

s. 66(1)

Income-tax Act

Khan Sahib Mohamed Oomer Sahib

Mohamed Noorullah

Luthfunnissa Begum

Oomer Sahib. Noorullah

Madras High Court

March 17, 1943

S.C.R. SUPREME COURT REPORT!::i 517

May 10, 1943

Luthfunnissa

Noorulla.h opposed

May 25, 1943

Dawood

May 17, 1943

s. 9(3)

Oomer Sahib

Md. Xoorullah

Md. Oomer

Noorullah

Madras

Oomer

B. N. Elias

Dwarkanath Harischandra Pitale

Beaumont

s. 3

s. 9

Dwarkanath H arischandra Pitale

Rangoon High Court

Indira Balkrishna

s. 3

S. C. Mazumdar

s. 9(3)

(1960) 3 S.C.R. 513

Mohamed Faz! Ali

Kapur