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TMI Blog1967 (6) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... not liable at all to the levy of cesses, because it did not sell any ore and could not, as such, be said to have made any profit from the mines, within the meaning of section 6 of the Cess Act, 1880. The objection did not appeal to the Cess Deputy Collector. The assessee appealed against the order of the Cess Deputy Collector, levying cesses, before the Deputy Commissioner. The appeal failed except to the extent that the Deputy Commissioner remanded the matter to the Cess Deputy Collector for a proper estimation of the annual profit, which had not been correctly made. The order of the Deputy Commissioner was affirmed in revision. by the Commissioner at Ranchi (Chhota Nagpur Division). There was a further revision petition made before the Board of Revenue, which shared the same fate. Thereafter, the assessee moved the High Court at Patna against the order of the Board of Revenue, under article 226 of the Constitution, praying for the quashing of the order levying cess. The High Court rejected the writ petition. The matter was ultimately taken before the Supreme Court by the assessee. At the time the reference to this court was made, the matter was pending before the Supreme Court. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll or trade or deal in ores ; the assessee only raised the ores from its mines and transmitted the same entirely to its manufactories for manufacture of finished goods. In the opinion of the Judicial Member, to hold that the company made a profit by raising and transmitting the ores from its mines to its factories would be a negation of the well-established principle that no one can make a profit out of oneself. Further, according to the Judicial Member, the words " profits and gains of business ", in section 10(4), must be construed as having the same sense in which those identical words have been used in section 10(1), that is to say, in the sense of such profits and gains of business as are assessable to tax. The Judicial Member was of the opinion that the iron and manganese ores, raised by the assessee, had never been assessed to income-tax. The fact that the cess authorities cared to levy cess on the annual net profits from mines and quarries, under section 6 of the Cess Act, was, in the opinion of the Judicial Member, inconsequential in the context of section 10 of the Indian Income-tax Act, which must be interpreted on its own terms. On the aforesaid line of reasoning, the J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtainment if proper costing records are maintained. It is not, therefore, notional at all. Only in the absence of separate accounting the profits on the mining operations have called for a sort of estimate for cess purposes. That the cess is based on such mining profits cannot be seriously disputed. It is consequently only a proportion thereof and so comes within the prohibition in section 10(4)." In accordance with the opinion of the majority, the Tribunal overruled the claim of the assessee, under section 10(2)(xv), for deduction of the amount of cesses paid in the computation of its income. In these circumstances the assessee obtained a reference to this court on the following question of law : " Whether, on the facts of the present case, the amounts of Rs. 59,222 and Rs. 1,62,540 paid by the assessee as cess to Government of Bihar are permissible allowances in the computation of the income of the assessee from business for the respective assessment years 1958-59 and 1959-60 ? On the prayer of the learned counsel for the assessee, this reference was placed for hearing immediately after Income-tax Reference No. 18 of 1963 (Commissioner of Income-tax v. West Bengal Mining Co.), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business arrived at on an average basis does not make the profits and gains a total stranger to actualities or make them notional." We need not repeat further the reasons which weighed with us, in the case of West Bengal Mining Co., in holding that cesses under the Cess Act of 1880 and the Bengal (Rural) Primary Education Act, 1930, fell within the prohibition as in section 10(4) of the Indian Income-tax, Act, being cesses levied on profits and gains of a business or otherwise on the basis of such profits or gains. We adopt the same reasonings as in the case of West Bengal Mining Company in coming to the same conclusion in this reference as well. It must be said in fairness that Mr. Sukumar Mitra, learned counsel for the assessee, did not rely so much on the arguments advanced in West Bengal Mining Company's case and repelled by our judgment in that case, in this reference. He submitted that, in order to attract the provisions of section 10(4), which reads--- " nothing in clause (ix) or clause (xv) of sub-section (2) shall be deemed to authorise the allowance of any sum paid on account of any cess, rate or tax levied on profits or gains of any business, profession or vocation or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acting the ore. A sale of the ore, it was contended, is thus an essential ingredient or a sine qua non for the emergence of a profit on which alone the cess is levied. In the case of assessees, like the appellants before the Supreme Court, the business of winning the ore and of converting the ore won into finished products, it was contended, should not by any means be conceived as made up of two distinct businesses conducted by them but only as a single integrated undertaking for the production of steel and steel products. Unless it could be postulated, firstly, that the business of winning the ore was a separate business from that of converting the ore won into steel, and, secondly, it could be notionally treated that the ore extracted was being sold by the first business to the second, it would not be possible to conceive of any profit being derived from the working of the mine. It was submitted that there was no factual basis for the first postulate, viz., that there were two separate businesses, and, secondly, even assuming that it were possible to separate the two activities, in the course of which goods produced in one business were consumed in the other, still no " profit " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial, then the sale of the finished product can in law yield no ' profit ' from the working of the mine ..... When analysed it is found that the profit is the aggregate or the resultant of the profits from different lines of activity. If arithmetically the total represents the resultant aggregation of different items of activity we fail to see how it could be said that the profit from each item which results in that total is a notional and not an actual or real profit. In the interest of clarity, we should add that the principle would be the same when the sale of the end product yields no profit, but results in a loss, only in such a case, the relevant component, viz., the disintegrated profit or loss resulting from the mining operation would diminish the loss if that were a profit, or add to the loss if that were also a loss. No doubt, there was a further contention urged that you cannot dissect the final profit in order to ascertain its components, but it is quite a different one from that now under consideration and we shall deal with it in its proper place. But what we are now concerned to point out is that if it is capable of dismemberment or disintegration into its components ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of West Bengal Mining Company that cess is assessed on such profits on an objective basis, we have further to hold that the type of cess with which we are concerned must fall within the prohibition of section 10(4), being cess levied on profits and gains of business. The question of onus, if any, upon the revenue is not very material, because profit arises in law from mining operations, when mined ores are utilised in the manufacture of goods which the assessee sells for profit. The first branch of the argument of Mr. Mitra must, therefore, fail. Mr. Mitra next contended that cess should have been allowed as deduction, under sub-section (1) of section 10, even if section 10(4) debarred the application of section 10(2)(ix) thereto. In support of this argument he relied upon the following observations by the Supreme Court in Badridas Daga v. Commissioner of Income-tax : " The result is that when a claim is made for a deduction for which there is no specific provision in section 10(2), whether it is admissible or not will depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out of the carrying on of the business an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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