TMI Blog1950 (4) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited for its work at Kulti. This supply was being made from the assessee's quarries at Paraghat which he had taken on lease from the Central Provinces Government. These quarries were worked till June, 1931, when they were discontinued as the company stopped taking supplies on account of the closing down of blast furnaces. On 5th January, 1935, there was a fresh agreement to supply dolomite and limestone to the company as it was about to start one blast furnace and intended to start a second one in the near future. The quarries were therefore reopened in March, 1935. In 1936 the Bengal Iron Company, Limited, went into liquidation and on 8the September, 1936, it was amalgamated with the Indian Iron and Steel Company, Limited, and the latter continued to take its supplies from the assessee under the said agreement. 4. In or about May, 1938, the company suddenly stopped taking supplies of dolomite and consequently the dolomite quarry was closed almost immediately thereafter. There was considerable correspondence between the assessee and the company in which the former protested against this breach of agreement complaining that he had been put to a heavy loss as he made capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of railway siding. There were other terms with which we are not directly concerned for the purpose of this reference. It was expected that it would take about 18 months for the completion of the railway siding and commencement of the supplies. It was also agreed that the company would get its supplies from other sources and in the meanwhile pay ₹ 4,000 per month to the assessee till the commencement of his supply but for not more than 18 months, The agreement further provided that the assessee shall not at any time during its subsistence, directly or indirectly, or whether alone or jointly with another or others, undertake or be engaged or interested in any other contract, business or work for raising or working limestone or for managing or working any quarry or mines or in any business of work of a similar nature, within an area of 20 miles from Gangapur save with the previous written permission of the company. 8. This covenant in effect prohibited the assessee from carrying on any other business in limestone. The company was not able to secure the railway siding, with the result that the quarries at Gangapur could not be worked and the agreement dated 9th May, 1940 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Clark [1935] AC 431; 3 ITR Eng. Cas. 17. The facts in Commissioner of Income-tax v. Shaw Wallace and Co. [1932] 59 IA 206 are very similar to the facts here. Shaw Wallace and Co., were agents of various companies and for a number of years they acted and distributing agents of the Burma Oil Company and of the Anglo-Persian Oil Company. These two companies later on combined and decided to make their own arrangements for distribution of their products. Respondents' agencies were terminated. The Burma Oil Company paid 12 lakhs of rupees as full compensation for cessation of the agency and the other company paid ₹ 3,25,000 as compensation for lose of office as agent to the company . The question was whether these receipts were business receipts or capital receipts. In defining 'income' there Lordships observed : - The object of the Indian Act is to tax 'income', a term which it does not define. It is expanded, no doubt, into 'income, profits and gains', but the expansion is more a matter of words than of substance. Income, their Lordships think, in this Act connotes a periodical monetary return 'comping in' with some sort of regularity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supra). In Kamakshya Narain Singh's case (supra), their Lordships were dealing with the contention that royalties were capital receipts. Under the lease payments were to be made to the assessee per ton of coal extracted with a minimum yearly royalty payable even if the per ton royalty was less than this minimum. The minimum royalty was payable even if the lessee did not work the mine and take any coal during the period of lease. The royalty was received every year. Their Lordships observed that : this minimum royalty amounts to a species of annual guarantee; it does not correspond to any coal in fact extracted and taken away; it is simply 'income' flowing from the covenants in the lease. 17. The royalties were held assessable under Section 12 of the Act. In both these cases the definition of 'income' in Shaw Wallace's case [1932] 59 IA 206 was reproduced with approval though in the latter case their Lordships remarked that the picturesque simile of a tree was not quite appropriate in every case. The contention of the non-applicant has thus no force. 18. In Van Den Berghs Ltd. v. Clark [1935] AC 431; 3 ITR Eng. Cas. 17 the facts were that a Dutch comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacturing and dealing in margarine. 20. The Income-tax Act nowhere defines income , profits or gains any more than capital . Section 6 enumerates the heads of income, profits and gains and the succeeding sections prescribe the methods of computing income under each head. Even the definition of. business in Section 2(4) exhibits a fine disregard of logic. We have, therefore, to turn to decided cases in search of light. It is true that each case is found to turn on its own facts; nevertheless, the decisions are useful as illustrations and as affording indications of the kind of considerations which may relevantly be borne in mind in approaching the problem : Van Den Berghs Ltd. v. Clark [1935] AC 431; 3 ITR Eng, Cas. 17. 21. The learned counsel for the Department contended that the assessee was carrying on the business of supply of dolomite and lime stone and the various agreements above referred to, including that dated 9th May, 1940, were some of the several ordinary commercial contracts entered into during the course of his business and they were incidental to the working of the profit-making machine of the assessee and he relied on para. 1 of the plaint in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement dated 9th May, 1940, had gone forward, but he would have made profits not by the existence of the agreement but by spending his labour and capital over working the Gangapur mine which was owned by the company. The framework of his business was the agreement and that agreement was put to an end by the parties in consideration of the solatium granted to the assessee. It was not certain that the assessee would have necessarily made profits. The profits depended on the variations in the cost of labour, depreciation of machinery, buildings etc. If the costs had gone up the estimated profits might have resulted in loss or otherwise. It is therefore not correct to call the disputed sum as the estimated profit for a period of 25 years. As stated in the statement of the case, there is nothing to indicate the basis on which the solatium of ₹ 2,50,000 was fixed . In our opinion it is not pertinent for the decision of the nature of the receipt what measure was used for the purpose of calculating the amount : Glenboig Union Fireclay Co. Ltd. v. Commissioners of Inland Revenue [1922] 12 Tax Cas. 427, 464. We are concerned with the quality of the receipt and there appears to be no d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he period of delay. The assessee contended that it was a capital gain. This contention was negatived on the ground that the assessee's assets, namely, the ship, remained unaltered and the assessee received what he would have received as a revenue by letting out the ship for the disputed period. An injury caused by the breach of agreement by the repairer was inflicted on the assessee's trading and not on his capital assets. Though it is sometimes difficult to distinguish between a capital receipt and a revenue receipt, there can be no doubt that in that case the damages received would have been included in the trading account of the assessee. The case Cossimbazar Raj Wards Estate v. Commissioner of Income-tax, Bengal [1946] 14 ITR 377 , is easily distinguishable. It was the case of a lessor receiving a sum of Rs. one lakh in payment of royalty on the abandoned coal upon ceasing to work the mine. The payment was expressly provided for in the lease and therefore it was foreseen, known, anticipated, and provided for. It had its source in the agreement of lease itself where it was shown as royalty. It was therefore not a casual receipt and was an income from other sources taxabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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