Decided on April 15,1952



RAJAGOPALAN. J. - (1.) THE two questions that were referred to this Court were -- "(1) Whether there are materials for the Tribunal to come to the conclusion that the sum of Rs. 3,00,000 received by Captain T. P. M. Alexander by the sale of Cottangady estate in excess of its purchase price was a revenue receipt (2) Whether in the circumstances of the case for the proper ascertainment of the profits and gains in respect of raising and selling coffee, tea and other produce of the estate, the Tribunal was right in upholding the decision of the Appellate Assistant Commissioner in taking into consideration the value of the produce which remained on hand unsold at the end of the year of account." *
(2.) THE accounting year was 1st April, 1942, to 31st March, 1943, and the year of assessment was 1943-44 It is better to deal with each question separately, as the sets of facts necessary for answering each question are different The facts necessary for considering the points raised by the first question are as follows :--Though the assessee, Captain T. P. M. Alexander, died in July, 1946,--the proceedings have been continued by his widow it should be easier to refer to him as the assessee in the rest of this judgment. The assessee was a planter in South India. He acquired estates where rubber, tea, coffee and cardomom were raised. We need not concern ourselves in this case with the Kailasam estate which the assessee owned and which he sold in 1938 nor with the Aruna group of estates which the assessee purchased in 1936 jointly with Sir James Doak the assessee's interest in the Aruna group of estates appears to have been sold in March, 1949. The assessee purchased the Sivalogam estate in Travancore State in 1929 he sold that in August, 1942. That estate was managed by the agents Messrs. Harrisons and Crossfield all through. Though the assessee was originally a planter himself, for a period of about 12 years, i.e., between 1930, and January, 1942, he was employed as a Labour Officer in Burmah Shell Company. After retiring from the service of the Burmah Shell Company in January, 1942, he obtained employment as the agency manager of the South India Plantations Agency Ltd., at Coonoor. That company acted as agents and secretaries of various tea and coffee estates in South India. He occupied that post till February, 1943, when he became the director of that company, the South India Plantations Agency Ltd. In the latter half of 1942, the assessee was also the Secretary of the Southern India Planters Association for about three months. He left India finally in January, 1944. He died in England in July, 1946When the assessee sold the Sivalogam estate in August, 1942, he realised a sum of Rs. 4,46,000. That obviously provided the capital for his subsequent transactions. In September, 1942, the assessee started negotiations for the purchase of four estates, comprehensively referred to as the Cottangady group of estates. One of these four belonged to one Mr. Hall, and the other three to his mother Mrs. Emily Hall. These estates were first offered for sale to the Southern India Planters Association at a time when the assessee was the Secretary of that association. The association declined the offer. On 2nd September, 1942, the assessee inspected the Cottangady group of estates with a view to purchase. Again on 6th October, 1942, he inspected the estates along with Mr. Walker Leigh of Messrs. Davidson & Company. The company sold agricultural implements. The inspection of Mr. Leigh was to suggest improvements to the estate and the purchase of the necessary material including machinery. On 9th October, 1942, Mr. Leigh drew up a report which he forwarded to Harrisons and Crossfield, who, it should be remembered, had been managing the Sivalogam estate for the assessee, and Mr. Leigh requested Messrs. Harrisons and Crossfield in that letter to furnish estimates to the assessee to give effect to the recommendations of Mr. Leigh. Though the estimate furnished by Messrs. Harrisons and Crossfield was not on record, it would appear that their estimate came to Rs. 80,000. The assessee paid the purchase price of Rs. 2,50,000 for all the four estates and took possession of them on 11th November, 1942. It was agreed between the vendors and the assessee that the purchase should take effect from 1st July, 1942, i.e., the assessee became entitled to the crops that stood on the estates on 1st July, 1942, or were grown thereafter. No sale deed however was executed then. Even before the purchase it would appear that the assessee arranged through Messrs. Shaw Wallace Company to supply manure for the estates, and the supply of manure was on a long range basis, i.e., to improve the productivity of the estates on a long term plan. Though Mr. Hall and his mother Mrs. Emily Hall offered the estates for sale first to the Southern India Planters Association, they would appear to have been keen on the idea that the sale should be to a person who would keep the estates and satisfy their sentiment based on pride of ownership of a well-maintained estate. On 21st September, 1942, Mr. Smith, Director of South India Plantations Agency Ltd., of which the assessee was then the Agency Manager, wrote to Mr. Hall :-- "Glad that Alexander is pleased with the estate. I am sure that Mrs. Hall and you will be better pleased for the estate to be sold to a proprietor who will take the same interest in it as you have done in the past, rather than to a public company." *
(3.) FROM the extracts of correspondence supplied by the assessee during the enquiry before the Income-tax authorities and appended to the printed record made available to us, it would appear that on 13th November, 1942,--it should be remembered that the assessee took possession of the estates on 11th November, 1942,--the assessee supplied his agent Velu Menon of Cottangady with sets of account books. There were also other letters to show that the assessee himself was managing the estates up to 5th February, 1943. FROM a letter written on 8th February, 1943, by the assessee to Davidson & Co., it would appear that the assessee placed an order with them for the supply of a Sirocco Drier and a 44" S. A. Roller. These were two items of machinery included in the improvements suggested by Mr. Leigh in his report dated 9th October, 1942. The order itself was not put in evidence, and there was nothing to indicate on which date the order was placed with Davidson & Co. Davidson & Company would appear to have supplied the 44" S. A. Roller, because in the letter dated 8th February, 1943, the assessee asked for the erection of this plant. In the same letter the assessee cancelled his order for the Sirocco Drier. It was represented during the arguments before us that the 44" S. A. Roller cost about Rs. 9,500. As the assessee himself explained in his letter dated 8th February, 1943, he cancelled the order for the Sirocco Drier as he had already taken steps to sell the Cottangady group of estates. On 3rd February, 1943, the assessee entered into an oral agreement with Mr. P. S. George to sell the Cottangady group of estates to him for Rs. 5,50,000 and the assessee received an advance of Rs. 27,500. On 13th February, 1943, the assessee executed the written agreement of sale. It was during the interval, on 8th February, 1943, that the assessee informed Davidson & Company that the order for the supply of the Sirocco Drier should stand cancelledIt should be remembered that, though the assessee took possession of the Cottangady estates on 11th November, 1942, no document of sale was executed by the vendors. It was subsequent to the agreement of sale between the assessee and Mr. P. S. George that the sale deeds were executed by Mr. Hall, and Mrs. Emily Hall. One sale deed was executed on 11th February, 1943, covering the three estates that were situated in Cochin State. The second sale deed for the fourth estate, which was in British India, was executed on 26th February, 1943. Though Mr. P. S. George negotiated the purchase of this group of estates, it was obviously his intention that the eventual purchaser should be the Chandramalai Estate Ltd. which company Mr. P. S. George promoted. The agreement of sale dated 13th February, 1943, provided for the sale to Mr. George or his nominee. Clause 7 of that agreement required the assessee to make out a good and clear title to the properties sold, and that was apparently why the assessee had to obtain the sale deeds from the previous owners, Mr. Hall and Mrs. Emily Hall. Rs. 27,500 of the agreed purchase price, it should be remembered, was paid to the assessee on 3rd February, 1943, itself. The agreement of 13th February, 1943, provided for the payment of the balance before 31st March, 1943 the balance was actually paid on 10th March, 1943. On 19th April, 1943, the assessee executed the sale deeds in favour of Chandramalai Estate Ltd;

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