TMI Blog1985 (8) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... n incorporated company. The assessee runs a sugar mill. In the years in question, the company was under liquidation. The order for compulsory liquidation had been passed at the instance of the shareholders. A financial liquidator was appointed by this court on February 1, 1952. The company remained idle till December 5, 1952. On December 6, 1952, the financial liquidator, with the permission of the High Court, gave the sugar mill on lease to Guraru Co-operative Development and Cane Marketing Union Ltd. (hereinafter referred to as " the CDCM "). The lease was operative till December, 1954. Thereafter, the factory and its machineries were leased out to S. K. G. Sugar Ltd. In 1958, S. K. G. Sugar Ltd. was granted another term lease for 7 years. In terms of the lease of the machineries to Guraru CDCM, the Co-operative Society was to pay Rs. 20,000 or 40 per cent. of the net profit, whichever was higher, to the lessor. In terms of the second lease in favour of S.K.G. Sugar Ltd., the lessee was to pay Rs. 1,50,000 per year to the lessor which lease was, however, terminated prematurely by an order of the High Court and the mills and its property were sold to the Government of Bihar on Oct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as income from " other sources " and not from " business ". The Appellate Assistant Commissioner had also held that since the company had been placed under liquidation, a moratorium had been placed on transfers of shares and, therefore, it was not a company in which the public were substantially interested. The appeal before the Appellate Assistant Commissioner thus failed. In appeal before the Tribunal, the assessee contended that since the company was following the cash system of accountancy and since the factory had been sold to the Govt. of Bihar in 1962, the sums received thereafter during the assessment years in question were not taxable. The decision of N. A. Mody v. S.A.L. Naryan Row [1966] 61 ITR 428 (SC) was pressed into service. The Department, on the other hand, took up the stand that although the company had ceased to do business and although the factory and its assets had been sold in 1962, the amounts received by the company were revenue in nature and were, as such, assessable under the provisions of the Income-tax Act and since the business had ceased, the sums received by the company during the relevant years must be held to be income under the head " Other so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rogate from its essential character of an institution in which the public has substantial interest. The restraint placed by the High Court during the liquidation proceeding on the transfer of shares did not reduce the character of the company as one in which the public were substantially interested. Transferability does not affect the interest of the public. Every shareholder on the books of the company had interest even after the passing of the order of liquidation and, therefore, it would be idle to contend that the company was not one in which the public had substantial interest. The second question referred to us is concluded by the decision of the Supreme Court in Shree Krishna Agency Ltd. v. CIT [1971] 82 ITR 372. That was a case in which a submission similar to the one urged before us was advanced on the footing that articles 3 and 37 of the articles of association empowered the directors to refuse registration. The Supreme Court held that such a power did not derogate from the essential nature of the company in which the public were substantially interested. The ratio of that decision applies with full force to the instant case as well. The order for liquidation and the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , an income had to fall within one or the otherhead. The various heads, according to the majority judgment of the Supreme Court, were mutually exclusive. The submission urged on behalf of the Revenue in that case was that the receipts had to be included in the total income stated in section 4 and as income received by judge for work done as lawyer before elevation did not fall under the exceptions mentioned in section 4, it must be liable to tax and naturally under the residual head. The Supreme Court rejected this stand of the Revenue as ill-founded. The Supreme Court observed as follows (headnote) : " Income which comes under the fourth head, that is, professional income, can be brought to tax only if it can be so done under the rules of computation laid down in section 10. If it cannot be so brought to tax, (it cannot be brought under the residual head 'Income from other sources' and) it will escape taxation even if it be included in the total income under section 4 . ...... The receipts in the present case, as we have shown, can only be computed for chargeability to tax, if at all, under section 10 as income under the fourth head. If they cannot be brought to tax by computati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from other sources ". Section 14 read with section 56 of the 1961 Act has thus brought about a significant change from the 1922 Act. In my view, therefore, the case of N. A. Mody [1966] 61 ITR 428 (SC) cannot govern the present case. The conjoint effect of sections 14 and 56 of the 1961 Act is that although business had been discontinued, it would be deemed to be income from " other sources ". The stand of the Revenue before the Tribunal was that as the assessee had ceased to do business, the sums received by it in the relevant years must be held to be income from other sources and not as income from business. Learned senior standing counsel, however, contended before us that the present case would squarely fall within the ambit of New Savan Sugar and Gur Refining Company Ltd. [1969] 74 ITR 7. I regret, the submission has no substance. The submission is untenable, firstly, for the reason that this stand was not taken before the Tribunal. The contention urged on behalf of the Revenue, therefore, does not arise from the order of the Tribunal. It cannot, therefore, be entertained. If the Revenue had raised such a contention, it would have been open to the assessee to produce the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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