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TMI Blog1966 (2) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... rty of the company whether immovable or movable including all and every description of apparatus or appliances, etc., and to sell, exchange and in any other manner deal with or dispose of the undertaking of the company or any part thereof. After its formation the company in the course of its activities obtained from the Government of West Bengal settlements of virgin lands. Some of these lands were agricultural and some were non-agricultural and were comprised in what were known as Meena Khan and Canning Divisions respectively. The lands acquired by the company were leased out to various tenants receiving a salami or premium at the time of settlement or resettlement in addition to the annual lease rent. On payment of the full salami money, the possession of the land was given over to the tenant and a pattah or kabulayat giving mokarari mirashi rights in the land was thereafter, at the convenience of the tenants, prepared, signed and registered . When the tenants, to whom the lands were given in settlement, defaulted in the payment of rent, suits were filed against them for the recovery of the defaulted rent and in execution of the decree so obtained their mokarari mirashi rights in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal, accordingly, has submitted the statement of the case referring the said question to us. Now, in Sindhurani's case, on which the Tribunal relied, the Supreme Court had to consider the question whether the salami receipts received by the zamindars for the settlement of agricultural land at the time of granting the lease could be regarded as agricultural income within the meaning of the Assam Agricultural Income-tax Act. Salami in that case was charged and taken from the tenant before making a settlement of the holding and it was also charged whenever a fresh settlement was made, whether it was a piece of virgin land or of an auction-purchase holding. "Agricultural income" as defined in the Agricultural Income-tax Act was any rent or revenue derived from land, which was used for agricultural purposes. The question before their Lordships was whether the salami receipts were rent or revenue derived from agricultural land so as to constitute agricultural income within the meaning of the Act. It was held in that case that where salami is in the form of a lump sum non-recurring payment made by a prospective tenant to the landlord as a consideration for the settlement of agricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been borne in mind by the Appellate Tribunal when it held that the case was covered by the decision of the Supreme Court in Sindhurani's case. The learned counsel points out that the case of an incorporated company receiving salami receipts, in circumstances which are more or less similar to the present case, has been considered by the Supreme Court in Karanpura Development Co. v. Commissioner of Income-tax. According to the learned counsel the case of the present assessee is governed by the said decision of the Supreme Court and not by its earlier decision in Sindhurani's case as held by the Appellate Tribunal. He has argued that, in view of the Supreme Court decision in Karanpura Development Co.'s case, the salami receipts received by the assessee in the present case in respect of all the three classes is its income from business and not a capital receipt. At any rate, says the learned counsel, so far as the third class of the said receipts is concerned, viz., the salami realised on cash basis by settlement of lands taken over from the defaulting tenants, there is no distinction whatsoever in the present case and the case decided by the Supreme Court in Karanpura Development C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the sub-lessees the assessee-company charged salami at the rate of Rs. 400 per standard bigha and also royalties at higher rates. It was in the course of these activities that the assessee-company realised an amount of Rs. 19 lakhs and odd as salami in the first account year and Rs. 3,96,000 in the second account year. The assessee's contention before the income-tax authorities was that the excess amount received by way of increased salami was a capital amount and could neither be included in the assessable income for the purposes of income-tax nor in the profits for purposes of business profits tax. The income-tax authorities as well as the Appellate Tribunal and the High Court had negatived the said claim of the assessee, holding that in acquiring the head leases and in granting the sub-leases, the assessee-company was carrying on business within the memorandum of association and the increased salami received from the sub-lessees represented profits of that business liable to be included in the assessable income for income-tax purposes and in the profits for purposes of business profits tax. Before the Supreme Court the contentions raised on behalf of the assessee were that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period by charging a higher rate of salami. Their Lordships, therefore, pointed out that in order to ascertain the nature and character of the payment in the hands of the assessee, what had to be found out was whether the assessee-company was merely realising the property which it had acquired or was doing business in the nature of trading operations. With regard to the second contention raised on behalf of the assessee that there was no distinction between an individual owning properties and selling them on the one hand and a company owning mining leases and issuing sub-leases on the other, their Lordships pointed out that it would depend upon the objects with which the company was formed and whether the object of the company was to develop the area and grant sub-leases with an eye to making profit and what its activity was in relation to its object. If the activities of the company consist of letting out premises and collection of rents, the receipts may not amount to income from business, as in the case of an individual proprietor indulging in the same activities. But where the letting and sub-letting is part of a trading operation, the position will be different and the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its income from business and chargeable as such under the provisions of the Indian Income-tax Act. Now, the question before us is whether the case of the assessee is governed by this decision of the Supreme Court. In the present case the Tribunal has found that the assessee is not a dealer in tenancy rights, nor its activity is in the nature of trading in tenancy rights. Mr. Kolah, the learned counsel for the assessee, has contended that on this finding of the Tribunal the decision in Karanpura Development Co.'s case can have no application to the present case and the salami receipts received by the assessee must be taken to be payments received by it in the course of dealing with the land itself. Consequently, he has argued there is no distinction between this case and the case in Sindhurani Chaudhurani v. Board of Agricultural Income-tax, as held by the Tribunal. Mr. Kolahs argument is that the finding of the Tribunal that the assessee is not dealing in tenancy rights and its activities are not of a trading nature is not challenged by the department by a question being asked in that connection and since on that conclusion the case would be completely governed by Sindhurani's c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to these objects as found by the income-tax authorities are that the company obtained from the Government of West Bengal settlement of virgin lands. After acquiring these lands the assessee settled them on tenants by inviting tenders or by putting up the lands to auction amongst bidders, and settling the land upon the bidder who agreed to pay the highest salami which was a single non-recurring payment made at the time of the settlement. On acceptance of the highest bid the settlement was signed by the party with whom the settlement was agreed to be made and after he had paid the whole amount of the salami, possession of the land was given to him and a patta or kabulayat giving mokrari mirashi rights was thereafter prepared, signed and registered. In the case of these lands so settled, the assessee-company went on collecting the annual rents. In case there were defaults in the payment of rent by the settled tenants, suits were filed against them for the arrears of rent and in the execution of the said decrees their tenancy rights were brought for sale. At these auctions, which were court auctions, the assessee-company took part in the bidding and when it was the highest bidder it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness nature. As has been observed by the Supreme Court in Kishan Prasad Co. Ltd. v. Commissioner of Income-tax, the circumstance whether a transaction is or is not within the competence of the company's power has no bearing on the nature of the transaction or on the question whether the profits arising therefrom are capital accretion or revenue income. The consideration of the objects of formation of the company would no doubt be relevant for the purpose of understanding the real nature of certain given activities of the company. But they are not conclusive of the same. What must, therefore, be found is whether on the activities actually indulged in by the assessee-company and the manner in which they have been carried on, they are activities of a business or trading nature, and the amounts received by it are in the course of and arising out of the said business activities. We have set out the activities of the assessee relating to the acquired lands and we find no distinction whatsoever between these activities of the assessee and the activities of a land owner dealing in the land itself and collecting rents and profits. In the case of the first two classes, i.e., in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchaser of tenancy rights which were put up for sale and had thereafter disposed of these tenancy rights, Mr. Joshi might have been right in saying that that activity of the assessee was in the nature of dealing in tenancy rights. In the present case, however, the purchase of the tenancy rights at the auction sale is only with a view to obtain possession of its own property back which it had parted under the earlier settlement, so as to be able to grant a fresh lease thereof to a new tenant. This activity, in our opinion, again is not different from the activity that would be followed by an individual landed proprietor similarly placed. In our opinion, therefore, on the facts and circumstances of the case, the Tribunal was right in its conclusion that the assessee was not a dealer in tenancy rights, holding the tenancy rights as its stock-in-trade, and the salami receipts received by it in respect of all the three classes is not its income from business chargeable as such under the Indian Income-tax Act. In the result, therefore, we answer the question referred to us in the negative. The Commissioner will pay the costs of the assessee. Question answered in the negative. - - ..... 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