TMI Blog1961 (1) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... H JUDGMENT The judgment of the court was delivered by SHAW, J.---Messrs. National Cement Mines Industries Ltd.---hereinafter referred to as the appellants---are a public limited company incorporated to " carry on the businesses of cement and lime manufacture and also of limestone supply and for the purposes of such businesses to acquire rights and concessions pertaining to limestone, coal and surface lands from Dewarkhand Karanpura Mines and Industries Ltd. " land also to " work mines or quarries and to find, win, get, work, etc., or otherwise deal with clay and bauxite." Dewarkhand Karanpura Mines and Industries Ltd.---hereinafter called the " Karanpura Company " had obtained three leases on November 29, 1930, first for mining limestone from Maharaja Pratap Narain Udai Nath Shah Deo from limestone beds in certain villages in Dewarkhand, second from Maharaj Kumar Nand Kishore Nath Shah Deo of the surface rights necessary to exercise the powers and privileges in respect of the first lease and the third from Maharaj Kumar. Raj Kishore Nath Shah Deo of surface rights in respect of Hoyer village. The period in each of the three leases was thirty years. On March 17, 192 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the High Court of Judicature at Calcutta : " Whether on a proper construction of the deed of assignment dated 7th of May, 1935, and on the facts and in the circumstances of this case the Tribunal was right in holding that the sum of Rs. 77,820 represented a receipt of a revenue nature in the hands of the applicant and assessable as such ? " The following facts were held proved by the Tribunal. The principal objects of incorporation of the appellants were to carry on the business of manufacturing cement and lime and sale of limestone and the appellants were formed with the object of acquiring the rights and concessions of the Karanpura Company. By their memorandum of association, the appellants were authorised to sell or dispose of the undertakings or any part thereof as they thought fit, and to sell, lease, mortgage, dispose of, turn to account or otherwise deal with all or any part of the property and rights and in pursuance of these objects the rights and concessions of the Karanpura Company were acquired and extension of leases and concessions were obtained and were transferred to the Associated Cement Ltd. The appellants were, therefore, carrying on in the year of acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ton, and will pay to the Vendor one half of any royalty so charged and received. (5) That in the event of the payments made under clauses one three and four above in any one year not amounting to the minimum hereinafter set out the Purchaser shall pay in lieu and in full discharge therefor the following minimum : (a) During the first year to be computed from the first day of January one thousand nine hundred and thirty-five, Rupees ten thousand. (b) During the second year Rupees Thirty thousand. (c) During every subsequent year Rupees fifty thousand. Out of the above minimum payment of Rupees fifty thousand per year for the purposes of account, the sum of Rupees twenty thousand shall be deemed to have been paid in respect of payment under clause three above. (6) That the Purchaser or the persons deriving title under the Purchaser will at all times from the date hereof duly pay all rents royalties and payments becoming due under the (four) hereinbefore recited Indenture of Lease (subject as regards the Limestone lease to the modifications effected by the agreement for reduction of royalty dated the thirtieth day of September One thousand nine hundred and thirty-fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery ton of cement manufactured from the limestone won from the lands and sold ; by clause (3), the Associated Cement Ltd. agreed to pay half the profits which they made by selling Fluxstone to the Tata Iron Steel Co., or to any other person ; and by clause (4), they agreed to pay half the royalty received from the Tata Iron Steel Company for the right to quarry and remove fluxstone from the lands. By clause (5), provision was made for minimum payment in the event of the aggregate under clauses (1), (3) and (4) not reaching the sums specified therein. Clauses (2), (4), (7), (8) and (9) were in the nature of restrictive covenants. By clause (2), the Associated Cement Ltd. were prohibited from selling any fluxstone won from the lands to the Tata Iron Steel Company for less than Re. 1-14-0 per ton f. o. r. By clause (4), an obligation not to convey the right to quarry and remove fluxstone for royalty less than 10 as. per ton was imposed. By clause (7), the Associated Cement Ltd. undertook not to remove or use or allow any one to raise work remove or use stone or clay in the lands. By clause (8), the Associated Cement Ltd. undertook not to do any acts or omissions causing the leas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of a joint venture between the appellants and the Associated Cement Ltd. Cement was to be manufactured by the Associated Cement Ltd. out of limestone to be won from the lands and in consideration of the rights conveyed, payments at specified rates were agreed to be made out of the price to be obtained by sale of cement, fluxstone and limestone. The appellants had no control over the production of limestone and manufacture of cement, or on the sale of fluxstone and limestone. But in assessing the true character of the receipt for the purpose of the Income-tax Act, inability to ascribe to the transaction a definite category is of little consequence. It is not the nature of the receipt under the general law but in commerce that is material. It is often difficult to distinguish whether an agreement is for payment of a debt by instalments or for making annual payments in the nature of income. The court has, on an appraisal of all the facts, to assess whether a transaction is commercial in character yielding income or is one in consideration of parting with property for repayment of capital in instalments. No single test of universal application can be discovered for a solution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her right, title and interest in land owned by her in freehold to a company in consideration of a certain sum in cash, besides shares of the company, and an agreement to deliver 10% of oil produced from the land on which the company covenanted to carry out drilling and, if oil was found, pumping operations. These were described as royalties. Oil was struck in the lands and the respondent was paid 10% of the gross proceeds of the oil produced in lieu of oil. The Supreme Court of Canada held that the sum so received was not an annual profit or gain within the meaning of section 3 of the Income War Tax Act, but a receipt of a capital nature and, therefore, not chargeable to tax. According to the Judicial Committee, there was between the respondent and the company no relation of lessor or lessee : the transaction was one of sale and purchase, and the transaction had taken the form which it did because of the uncertainty whether oil would be found by the purchaser. As the value of the land depended on this contingency, the price, not unnaturally was made to depend in part in the event of oil being struck. 'The judgment lays down no new principle ; it proceeded merely upon interpretatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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