TMI Blog1958 (9) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... mgarh Estate a prospecting licence with respect to an area, called the Karanpura Coal Fields. The terms of the licence were slightly modified in 1917, but the modifications are in no way material for our present purpose. The licence was granted in consideration of a premium of rupees one lakh and at an annual rent at a varying rate from the second year and the right it conferred was the sole and exclusive right to enter into and upon the coal fields and to examine, explore, prospect, search for, mine, quarry, bore, dig, and prove all or any of the mines, veins, beds and seams of coal lying within or under the coal fields or any part thereof. Shortly stated, it authorised Messrs. Bid and Co., to search for coal in the area concerned and to do all things necessary for finding the substance. Another term which is more important for our present purpose gave to the licensee an option to take a coal-mining lease or coal-mining lease of the coal-fields or parts thereof on certain stated terms. The terms were that the proprietor was to get salami at the rate of ₹ 40 per standard bigha of 14,400 sq. ft. in respect of the coal lands comprised in the lease and further that he was to get ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and manufacturers of brick, lime, coke and other bye-products of coal in all their respective branches. (6) To prospect for, crush, win, get, quarry, smelt, calcine, refine, dress, amalgamate, manipulate and prepare for market coal, ore, metal, and mineral substances of all kinds and to carry on any other prospecting, mining or metallurgical operations which may seem conducive to any of the company's objects and to buy, sell, manufacture and deal in minerals, plant, machinery, implements, conveniences, provisions and things capable of being used in connection with prospecting, mining or metallurgical operations or required by workmen or others employed by the company. (34) To acquire by purchase, lease, exchange or otherwise lands, buildings and hereditaments of any tenure or description and any estate or interest therein and any rights over or connected with land and either to retain the same for the purpose of the company's business or to turn the same to account as may seem expedient. (52) To sell, improve, manage, develop, exchange, lease, mortgage, dispose of, turn to account or otherwise deal with all or any part of the property and rights of the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalties at the uniform rate of 8 as. per ton for all kinds of coal. There was thus an excess in respect of both selami and royalty. No question arises in the present reference as respects the royalties. The Tribunal has placed it on record, both in its appellate order and in the statement of case, that on behalf of the assessee company it was admitted that the royalty receipts were business receipts in the hands of the assessee and that the profit contained in them was properly chargeable to tax. The only dispute raised was with respect to the selami receipts. It was contended that those receipts did not constitute trading or business receipts at all and that with respect to them, the assessee company's position was in no way different from what the Raja of Ramgarh's position would be, if he had retained the property in his own hands and granted coalmining leases to third parties as the proprietor of the coal fields. The Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal have all concurrently held that the selami receipts were trading receipts in the hands of the assessee company. The assessee did not accept that decision and required the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yield. The object was clearly to embark upon business operations of a very extensive kind, consisting in prospecting for coal, developing coal fields in area where coal was discovered and then, to refer to some of the objects which I have not yet mentioned, carrying on trades or businesses of colliery proprietors, prospecting for, cutting, refining and preparing for market, coal and also selling or leasing out the properties of the company. It is true that all the objects set out in the memorandum were not actually pursued, as it happens in the case of every company, but the objects which were actually pursued appear to me to be nothing but business objects. It has, however, to be seen whether the pursuit was in actual fact in such a form that a business can be said to have been carried on. I have already summarised the main functions performed by the company. The prospecting operations carried on by it have been continuous. The object for which those operations have been carried on has been to discover coal. The object of discovering coal has been to develop the area concerned into a coal-field. The object of so developing the area has been to obtain coal-mining leases from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had been formed, and turning them to account for the purpose of making a profit, it was carrying on a business, although it might be doing so in a passive rather than an active way. The leasing out of the concessions was only a form of turning the concessions to account and the fact that the company was merely receiving payments, computed on the profits arising out of the activities carried on by a third party, did not make its own activities, such as they were, any the less a business. So again, in the case of Inland Revenue Commissioners v. Westleigh Estates Co. Ltd. [1924] 1 K.B. 390, one of the three cases, the facts were that a limited company was formed for the purpose of more conveniently administering an estate which had become vested in a large number of beneficiaries and it went on performing that function. The company never worked the land or the mines comprised in the estate and its revenue was derived solely from leases of the land and the mines, the leases being renewed as soon as they failed. The Court of Appeal held that the business of the company might be quiescent, but it was still a business and, in fact, the very business for the carrying on of which it had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on any and that it has arranged for mining operations to be performed by third parties. The operations it had been actually carrying on, although they did not include mining operations, were plainly sufficient to constitute a business, as it had made a business of prospecting for coal, developing coal-fields, obtaining coal-mining leases, subletting such leases at a profit and of turning the lease and its properties and rights to account in the aforesaid way. Its position is wholly different from the position of an individual proprietor who may won coal fields and grant mining leases deriving therefrom only the premium and the royalties. It was taking leases from time to time, subletting such leases from time to time and was thus carrying on a continuous and well-planned operation of turning the Karanpura Coal Fields to account for its benefit by the various organized methods pursued in the sequence I have mentioned. To my mind, it is particularly important to notice that the head-leases which it obtained from the licensor contained among the lessee's covenants, a covenant to work and carry on the coal mines and premises in a skilful and workman-like manner according to the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this case that, in the case relied upon, there was no continuous prospecting, repeated taking of mining leases of one area and another and systematic subletting of them as in the present case, constituting a pattern of activities which is plainly a pattern of business. In the course of the judgment in the case of East India Prospecting Syndicate v. Commissioner of Excess Profits Tax [1951] 19 I.T.R. 571 Harries, C.J., expressed the view that the distinction made in the English cases between companies and individuals would not be a valid distinction under the Indian law and he also observed that under the special Acts with which the English cases dealt, the term business had been defined in quite different terms. Speaking for myself and speaking with great respect, it seems to me that there is virtually no difference between the definition of business , as contained in the Acts to which English cases relate and the definition in our Acts. But, in any event, it seems to me that the observations of the English Judges refer more to the general concept of business, as carried on by a limited company, than to the concept of business under any artificial definition, contained in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o which I have already referred. In my view, on the facts of the present case, having regard to the memorandum of association of the company, the recital of the objects as set out there, to the activity actually carried on and the plain character of those activities continuously pursued with a view to making a profit in a particular way make it abundantly clear that the assessee company had made a business of exploiting the prospecting licence by (a) prospecting, (b) developing coal-fields, (c) obtaining mining leases with respect to them, (d) subletting them on the same terms as those contained in its own leases and thus turning the licence and the leases to account to its profit. The receipts that came into its hands by way of selami on the subleases were in those circumstances clearly business receipts and the profit contained in them was clearly liable to be taxed as business income. Indeed, when the assessee company admitted that its receipts from the sublessees by way of royalties were business receipts of an income nature and had been properly brought to tax, it admitted that in dealing with the coal-fields and the coal-mining leases by way of subletting them it had been car ..... X X X X Extracts X X X X X X X X Extracts X X X X
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