1970 (5) TMI 1 - SC - Income Tax

Purchase of the right to collect arrears of rent and royalty cannot be considered as an income - sums receivable by the assessee as arrears of royalty and rent are not assessable as the income of the assessee

Summary

Issues:
1. Whether arrears of royalty and rent are assessable as income for specific assessment years.
2. Whether surplus from the sale of property is assessable as income for a particular assessment year.

Analysis:
Issue 1:
The case involved the assessment of arrears of royalty and rent as income for the assessee for specific assessment years. The assessee, a public limited company, acquired proprietary rights in lands rich in coal and fireclay, along with the right to collect arrears of rent and royalty from lessees. The Income-tax Officer initially assessed these arrears as the assessee's income, but the High Court disagreed. The Supreme Court concurred with the High Court, stating that the purchase of the right to collect arrears cannot be considered income. The Court emphasized that the assessee acquired these rights after incorporation and did not have the right to collect arrears as the property owner. Therefore, the Court ruled in favor of the assessee on this issue.

Issue 2:
The second issue revolved around the surplus derived from the sale of properties purchased by the assessee. The Tribunal had concluded that the sale was part of a trading adventure, making the profit taxable. However, the High Court disagreed, and the Supreme Court upheld the High Court's decision. The Court highlighted that the primary facts, including the financial situation of the assessee, the nature of the properties purchased, and the timing of the sale, did not conclusively prove that the transaction was a trading adventure. The Court emphasized that the mere ability to sell property for profit does not establish a business transaction. Therefore, the Court ruled in favor of the assessee on this issue as well.

In conclusion, the Supreme Court dismissed the appeals, upholding the High Court's decisions on both issues. The Court clarified that the purchase of rights to collect arrears of rent and royalty does not constitute income and that the sale of properties did not qualify as a trading adventure, thereby ruling in favor of the assessee on both counts.