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TMI Blog1975 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company as a result of the said sale, and in directing accordingly the exclusion of Rs. 4,21,023 and Rs. 52,778 out of the assessee's total income?" The assessee is a company and carries on business, inter alia, in mica mining. The assessment year is 1958-59. The previous year ends on December 31, 1957. Rs. 7,19,726 was shown by the assessee as its total income, but the tax officer has determined it at Rs. 30,42,624 by including two sums of money mentioned in the above questions as business profits arising out of the sale of those assets. The relevant facts found by the tax officer are as follows: (i) The assessee was promoted by Ram Kumar Agarwala, a partner of M/s. Ram Kumar Agarwala and Bros., Elbridge Watson, the resident Director of Chrestian Mining Co. Ltd., David Mitchel, a senior partner of Lovelock and Lewis, a reputed firm of accountants, and Rowen Hedge, the senior partner of M/s. Orr, Dignam Co., a well-known firm of solicitors; (ii) M/s. Ram Kumar Agarwala Bros. assisted several parties in promoting companies and earned brokerage which was taxed in their hands; (iii) Ram Kumar Agarwala and Watson also promoted several companies with the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding of mining areas by any single person. Originally, this provision did not govern the leases granted before October 25, 1949. But under clause 15 of the Mineral Concessions Development Rules, 1956, it was further provided that all the mining leases granted beyond that date would be brought into conformity with the new provisions. In 1956, therefore, for the first time a ceiling was imposed on the maximum holding of the assessee's mining rights far in excess of 10 sq. miles and it thought it necessary and expedient to float some 100 per cent. subsidiary companies and to transfer the excess mining areas to them. The real intention, therefore, was only to save the company from the clutches of the law without losing control over the capital assets in question. The profit earned, therefore, should not be held as a taxable revenue item" The tax officer, however, overruled the above contention in the following terms: "Now, revaluing the assets, parcelling the mining areas in suitable sizes, floating new companies and selling the assets to them at a price even higher than the revalued cost, it will be noticed, are all operations, characteristic of ordinary trading in the line of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer has gone on to discuss a lot of materials which has hardly any bearing on the point in issue before us. The company was formed on 13th May, 1946, and the Income-tax Officer has relied on clause 3(6) of the memorandum of association which is as under: 'to purchase, take on lease or in exchange, hire or otherwise acquire and to let out, hire and trade with any movable and immovable property and any rights or PRIVILEGES which the company may think necessary or convenient for the purpose of its business and in particular any lease, buildings, works, quarries, minerals, easements, machinery, plant, stock-in-trade, boats, vessels and rolling stock.' It is submitted by the learned counsel that this was merely an empowering object and as a matter of fact the company had no transactions of this nature, i.e., dealing in mining rights ever since its inception right up to the previous year. Even the circumstances of the sale were brought about by the exigencies of change in the mining laws. There was also a circumstance that the transfer of assets was to a 100 per dent. subsidiary of the assessee-company. As regards the plant and machinery it was further stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al), no profit was earned by the assessee-company as a result of this transfer. We, accordingly, direct that the two sums of Rs. 4,21,023 and Rs. 52,778 be left out of assessment." The submissions of Mr. Sen, the learned counsel for the revenue, before us are follows: It has been admitted by the counsel for the assessee before the Tribunal that the sale of the plant and machinery was completed on January 4, 1957; there is no material on the record to support the submission of the counsel before the Tribunal that the assessee has made over possession of the plant and machinery before the previous year ; therefore, the conclusion reached by the Tribunal that these plants and machinery were sold before the previous year is erroneous in law ; the Tribunal has accepted the facts found by the tax officer but has brushed them aside by saying that they have hardly any bearing on the issues before it without giving any reason whatsoever ; the Tribunal has thereby misdirected itself in law, for it has failed to take into consideration the essential and relevant facts found by the tax officer in order to determine whether these transactions are trading transactions or are ventures in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the tax officer, and that apart, the Tribunal has misdirected itself in law by ignoring those essential and relevant facts and the materials on the record in arriving at its conclusion. Clause (iii) of the purchaser's covenant in the deed of sale dated January 4, 1957, is in the following terms: "The purchaser-company shall on and from the date of these presents and until payment of the said sum of rupees five lakhs ninety thousand in terms of paragraph 2 hereinabove pay to the vendor-company interest thereon or on such part thereof as shall remain unpaid for the time being at the rate of four and a half percent. per annum, such interest to be paid on the thirty-first day of December each year for the year immediately preceding the first of such." The above clause, the facts found by the tax officer and the materials on the record, in our opinion, conclusively show that these transactions are out and out business transactions and in any event are ventures in the nature of trade. There is also no substance in the Tribunal's conclusion based upon the circumstances under which these 100 per cent. subsidiaries were brought into existence by the assessee, because, (i) the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X
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