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TMI Blog1967 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... are other than the said area of 4,722 acres was withdrawn on the 30th October, 1945. Three parties were interested in the claims for compensation for the acquisition. They were, (1) Bhoticas, (2) the assessee, and (3) Mr. E. C. Knuckey. The Bhoticas were the proprietors of the entire Mahal and were the owners of 8 annas share in the mining rights therein. Mr. Knuckey was the Mukaridar of 16 annas of the said property and was the owner of 8 annas in the mining rights in the said property. The assessee was the lessee. The assessee was Messrs. Chrestian Mining Company Ltd. now in liquidation and represented by the official liquidator. During the pendency of the compensation proceedings, Chrestian Mica Industries Ltd. acquised the shares of the Bhoticas and of Mr. Knuckey. An award was made by the arbitrator appointed for the purpose. There was an appeal to the High Court at Patna from the award of the arbitrators. This appeal was ultimately compromised. One term of the compromise was that mica mining lease was to be granted to the appellant, namely, the assessee, and Chrestian Mica Industries Ltd. in respect of the acquired portion for a period of 20 years. On the 28th May, 1953, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er cent. of the net profits earned by the Chrestian Mica Industries Limited from any or all mica mining operation carried on by it in the specified area, by way of royalty during the currency of lease mentioned therein and in renewal thereof. He also finds that in the agreement of the 28th May, 1933, a sum of Rs. 3,85,000 was to be given as compensation to the assessee-company apart from the benefit of the aforesaid 50 per cent of the net profits by way of royalty. Then by the agreement dated the 29th June, 1955, he finds that even this benefit of royalty was purported to be transferred for consideration of Rs. 5 lakhs. From the Income-tax Officer's reading of the documents and the history of the case it appeared to him that this was a business transaction carried on in the normal course of making profits. The assessee appealed to the Appellate Assistant Commissioner who reversed the judgment and order of the Income-tax Officer. He came to the conclusion that the amount received by the assessee was not for termination of any agency agreement but for the assignment of his rights under an agreement and was a capital receipt and not liable to be included in the taxable income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. It was not a case of outright sale and therefore cannot be regarded as capital receipt under any circumstances. The facts before us are entirely different. In answering the question raised on this reference it is desirable to keep in view certain major principles well established in this connection. Some of these principles are stated in the judgment of Lord Atkin in the Privy Council in Liquidator, Rhodesia Metals Limited (In Liquidation) v. Commissioner of Taxes, where the question was almost the same as here. It was contended in that case that there was a sale of the whole undertaking by the liquidator in the performance of his duties in winding-up the company. It was a lump sale and therefore one particular ground could not be picked out of the items included in the lump sale treating the sale of the mining claim as the separate sale. In the ordinary way the sale by the liquidator of the whole undertaking of the company is a capital transaction unless there are special circumstances attached to the transaction. It was accepted by both sides there that in order that any receipt should be a taxable receipt it must be one arising in the course of carrying on a trade or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to carry on business after liquidation, the decision in Wilson Box (Foreign Rights) Ltd. (in liquidations) v. Brice may be cited. There in July, 1933, the appellent-company, acquired certain foreign patent rights. Subsequently, the shareholders of the company agreed to sell all shares to two individuals for pound 50,000 payable in installments. The purchasers paid sums amounting to pound 13,500, but then refused to complete. An action for specific performance ultimately settled in November, 1934, on terms that, (1) the agreement for the shares was cancelled. (2) the appellant-company was put into liquidation, and (3) the liquidator sold to the said purchasers part of the foreign patent rights for pound 20,000, the amount of pound 13,500, already paid being treated as part of the purchase price. On appeal against an assessment for the year 1934-35 for the sum of 20,000, made upon the appellant-company in the name of the liquidator, it was contended, (a) that the company did not carry on any trade of dealing in patent rights, and (b) alternatively, that the sum of pound 6,500 only fell to be treated as a trading receipt of the company. The Special Commissioners held that the trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordinary course of his duty as liquidator to realise and get in the assets of the company." Incidentally, it may be mentioned that this is a case of voluntary liquidation which is also the case before us. At the other extreme we shall notice another authority which will show that in an appropriate case the liquidator can be held to carry on a trade or business. That is the decision of Baker v. Cook (H. M. Inspector of Taxes). Thereby two agreements dated 9th July, 1928, the appellate-company acquired the assets of two other companies, of which one made and distributed cinema films and the other distributed such films, and, thereafter, carried on business in succession to those companies. In 1931, the appellant-company went into liquidation and the liquidator sold to two newly formed companies its plant, stock, etc., but retained the benefit of contracts made or to be made for exhibiting films on hand at the date of the liquidation. After the liquidation, the liquidator produced no new films and by himself entered into no new contracts for the distribution of films. But the new companies carried out the existing contracts, paying 90 per cent. of the proceeds to the liquidator, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r himself an adequate income for his life, conveyed the greater portion of his estate to his son-in-law's mother who owned the remaining seven annas in the estate. The consideration for such transfer was, (i) the payment of the assessee's debts amounting to Rs. 10,26,937 ; (ii) a cash payment of Rs. 4,75,073, and (iii) an annual payment of Rs. 2,40,000 to the assessee for his life. There the Patna High Court held that the amount of Rs. 2,40,000 thus received by the assessee annually was income and not a receipt of a capital sum in installments and was therefore assessable to income-tax and super-tax. The Privy Council confirmed the decision of the Patna High Court and dismissed the appeal. Annuity means periodical benefit or income. The present sale of the mining lease or mining rights in the case before us is an outright assignment with no reservation of any benefit to the liquidator and it produced no income in the shape or in the manner of an annuity or any periodical return. The doctrine of annuity, therefore, has no application to the problem raised in the question before us in this reference. It will not be inappropriate to conclude our discussion on this subject by a refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(b) of the Companies Act provides that the liquidator in a winding-up by the court shall have power with the sanction of the court to carry on the business of the company, so far as may be necessary for the beneficial winding up of the company. The law, therefore, is clear that the liquidator can carry on the business of the company but its limitation is strict and such carrying on of the business of the company by the liquidator can only be " so far as may be necessary for the beneficial winding-up of the company." Therefore, in appropriate cases even under the Indian Companies Act it is possible for the liquidator to carry on business of the company in so far as it is necessary for the beneficial winding-up of the company and in that event business receipt will be a trading receipt or a revenue receipt and not a capital receipt. But then sub-clause (c) of section 457(1) of the Companies Act also describes the other power of the liquidator with the sanction of the court to sell the immovable and movale property and actionable claims of the company by public auction or private contract, with power to transfer the whole thereof to any person or body corporate, or to sell the same ..... 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