TMI Blog1969 (2) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... the sugar industry in Bihar and the increase of wages of the workers, as well as the levy of a cess of Government and deterioration in the cane crops. In view of this state of affairs, the managing agents apprehended a loss and suggested that the company's affairs should be put on a "less discouraging basis" by accepting the offer of a lease of the company as a running concern from the Standard Refinery Distillery Ltd. At an extraordinary general meeting of the shareholders of the assessee-company held on 5th March, 1946, it was decided to authorise the directors to enter into a lease with the said Standard Refinery Distillery Ltd. By an indenture of 15th March, 1948, the lease was executed to come into effect retrospectively from 1st June, 1945. The term of the lease was originally for 5 years commencing from 1st June, 1945, with an option to the lessee to continue for further five years and thereafter two further options to the lessee, each for five years, on the same terms and conditions, but subject to the payment of higher rates of royalties and also subject to the option on the part of the assessee-company to terminate the lease by a resolution of the shareholders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 12 did not include clauses (via) and (vib) of section 10(2) the claim of additional depreciation and development rebate could not be allowed. At the instance of the assessee the Appellate Tribunal stated a case to the High Court on the following questions of law under section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as " the Act ") : " (1) Whether, on the facts and in the circumstances of the case, the income of the assessee-company was liable to be assessed under section 12 of the Indian Income-tax Act and not under section 10 of the said Act ? (2) Whether, on the facts and in the circumstances of the case, additional depreciation and development rebate can be allowed as a deduction ? " The High Court answered both the questions against the assessee holding that the income was liable to be assessed under section 12 and that no additional depreciation and development rebate could be allowed. Section 10 of the Act stood as follows at the material time : " 10. (1) The tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowing the previous year in which such buildings are erected and such machinery and plant installed and falling within the period commencing on the 1st day of April, 1949, and ending on the 31st day of March, 1959 ; (vib) in respect of machinery or plant being new, which has been installed after the 31st day of March, 1954, and which is wholly used for the purposes of the business carried on by the assessee, a sum by way of development rebate in respect of the year of installation equivalent to twenty-five per cent. of the actual cost of such machinery or plant to the assessee : Provided that no allowance under this clause shall be made unless the particulars prescribed for the purpose of clause (vi) have been furnished by the assessee in respect of such machinery or plant ......." Section 12 was to the following effect : " 12. (1) The tax shall be payable by an assessee under the head 'income from other sources' in respect of income, profits and gains of every kind which may be included in his total income (if not included under any of the preceding heads)... (2) Such income, profits and gains shall be computed after making allowance for any expenditure (not being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h manner as they think fit and proper. Clause 5 : The lessees shall also be entitled to erect, construct and maintain any other machinery as the lessees may think fit and proper. All machinery brought in and erecte d by the lessees would remain the lessees' property and after the termination of the lease the lessees shall be entitled to remove the same provided always that the lessees shall forthwith repair and make good all damage caused to the demised premises by such removal of the lessees' machinery. Clause 7 provides for the payment of royalty. The royalty on sugar was to be computed at the rate of rupees seventy-five per 100 maunds of sugar manufactured for the first five years as well as next five years, then at the rate of rupees eighty-two and annas eight per 100 maunds of sugar manufactured for the third five years and Rs. 90 for the fourth five years. The royalty on molasses was computed at three pies per maund on all molasses sold during each year of the original lease period and any renewals thereof, subject to the payment of a minimum royalty of Rs. 6,500 per annum. Clause 8 : This clause provides that the lessee shall in addition to the royalty reserved be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are of capital nature. On a scrutiny of all the clauses of the indenture of lease, our conclusion is that the intention of the assessee was to part with the entire machinery of the factory and the premises with the obvious purpose of earning rental income. It was not the intention of the assessee to treat the factory and machinery, etc., as a commercial concern during the subsistence of the lease. The primary condition for the application of section 10 of the Act is that the tax is payable by an assessee under the head "profits and gains of business" in respect of business carried on by him. When an assessee does not carry on business at all, section 10 cannot be applicable and the income that he receives cannot bear the character of profits of business. As we have already shown there is no direct nexus between the income of the assessee and the production of the factory. The royalty payable to the assessee was not paid under clause 7 of the indenture of lease for the production in the factory. The production was only a measure of the royalty to be paid and, in any event, the measure of payment had nothing to do with the character of the payment as a receipt from business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with the object of taking over the business of the assessee-firm. This company was director controlled and the directors were N, his three sons, R, G and S, and a brother-in-law of G. The company purchased only the building and leasehold rights from the assessee-firm but took over from it on lease at an annual rent the plant and machinery. The assessee-firm did not thereafter manufacture anything and it had accordingly no further trading or commercial activity. In the circumstances, it was held that letting out of the plant and the machinery by the assessee to the company could not fall within the definition of "business" under section 2(5) and as the assessee-firm had no business during the relevant period to which the Act applied, section 10A could not be invoked by the excess profits tax authorities. It was however pointed out that whether at particular activity amounts to any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture is always a difficult question to answer and no general principle can be laid down which would be applicable to all cases and each case must be decided in the setting and background of its own facts. It is ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , unlike the initial allowance granted under the second paragraph of clause (vi). Clause (vib) was inserted by the Finance Act, 1955. It grants development rebate in respect of machinery and plant provided that the machinery or plant is new and has been installed after the 31st March, 1954 ; and provided further that it is used wholly for the purpose of the assessee's business and the particulars prescribed for the purpose of clause (vi) have been furnished. It is manifest that clauses (via) and (vib) introduce a new scheme and cannot be treated as an integral part of clause (vi) by implication. Apart from this consideration it appears to us that these clauses were not specifically engrafted by Parliament in section 12(3) and section 12(4) while amending section 10(2) of the Act. It is therefore not permissible for the court to read these same clauses by implication in section 12(3) and section 12(4) of the Act. The duty of the court is to interpret the words that Parliament has used, it cannot supply the gap disclosed in an Act or make up the deficiencies. "If", said Lord Brougham, in Guynne v. Burnell, "we depart from the plain and obvious meaning on account of such views (as tho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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