1966 (2) TMI 3 - HC - Income Tax

Company formed for acquiring and cultivating or leasing out lands - held that assessee was not a dealer in tenancy rights - salami receipts or any portion thereof are not business income - so not chargeable under the IT Act.

Summary

Issues Involved:
1. Whether the salami receipts or any portion thereof are business income chargeable under the provisions of the Indian Income-tax Act, 1922.

Issue-Wise Detailed Analysis:

1. Nature of Salami Receipts:
The primary issue was whether the salami receipts received by the assessee-company constituted business income chargeable under the Indian Income-tax Act, 1922. The assessee-company, incorporated in 1870, engaged in various activities, including leasing lands to tenants for salami or premium payments. The salami receipts were categorized into three types: non-agricultural lands (Canning Division), virgin agricultural lands (Meena Khan Division), and lands taken over from defaulting tenants (both divisions).

2. Tribunal's Findings:
The Income-tax Officer and the Appellate Assistant Commissioner initially held that the salami receipts were business income. However, the Income-tax Appellate Tribunal reversed this decision, citing the Supreme Court decision in Member for the Board of Agricultural Income-tax v. Sindhurani Chaudhurani. The Tribunal concluded that the assessee was not trading in tenancy rights and that the salami receipts were capital payments, not revenue.

3. Revenue's Argument:
The revenue's counsel argued that the Tribunal's reliance on Sindhurani's case was misplaced. The counsel contended that the assessee, being an incorporated company, was engaged in business activities, and the salami receipts should be considered business income. The counsel cited the Supreme Court decision in Karanpura Development Co. v. Commissioner of Income-tax, where similar receipts were deemed business income for a company engaged in leasing activities.

4. Supreme Court Precedents:
The court analyzed the Supreme Court decisions in Sindhurani's case and Karanpura Development Co.'s case. In Sindhurani's case, salami receipts were considered capital payments for individual landowners. Conversely, in Karanpura Development Co.'s case, the Supreme Court held that salami receipts received by a company engaged in leasing activities were business income.

5. Assessee's Activities:
The court examined the assessee's activities and objectives. The assessee acquired lands, settled them on tenants, and collected rents. When tenants defaulted, the company purchased the tenancy rights at court auctions and resettled the lands. The court noted that these activities resembled those of a landowner rather than a trader in tenancy rights.

6. Conclusion:
The court concluded that the assessee's activities were not in the nature of trading in tenancy rights. The company acted as a landowner, dealing with its own property and collecting rents. The purchase of tenancy rights at court auctions was aimed at regaining possession of its property, not trading in tenancy rights. Therefore, the salami receipts were not business income but capital receipts.

Judgment:
The court answered the question in the negative, holding that the salami receipts were not business income chargeable under the Indian Income-tax Act, 1922. The Commissioner was directed to pay the costs of the assessee.

Question Answered in the Negative.