- (1.) This is an appeal under S. 66A(2) of the Indian Income-tax Act.
(2.) The appellant, the National Steel Works Ltd., Bombay, a limited liability company, hereinafter referred to as the assessee, carried on the business of a 'Rolling Mill' prior to the partition of the country in the territory now in Pakistan. It was a member of the Steel Rolling Mills Association of India and as such was receiving a quota of coal and steel from the Government of India. After the Partition, its registered office was shifted to Bombay. It had no factory there for carrying on the business of a rolling mill. Though possibly not entitled to receive the quota of coal and steel, it however continued its membership of the Steel Rolling Mills Association of India and continued to received the quota of coal and steel. In order to utilise the coal and steel so received, it entered into a partnership with one K. R. Irani who had put up a factory in Bombay called the New Era Iron and Steel Works, but had no quota of steel and coal. The agreement of partnership entered into between Irani and the assessee on September 29, 1948, provided that the partnership would continue so long as the quota system regarding steel continued in the Dominion of India or till the expiry of the then lease of the factory premises, and that the capital of the firm would be subscribed by the partners in equal shares. Paragraphs 12 and 13 of this agreement are of importance and are quoted below : "12. In consideration of the Company taking the said Mr. Irani as partner in the partnership, it is agreed that a sum of Rs. 50 per ton on all steel received by the partnership from the Company through the Steel Re-rolling Mills Association of India, Calcutta or Iron and Steel Controller, Calcutta shall be paid to the company by this partnership calculated every month, and after deducting all the other expensed incidental to the business of the partnership the net profit of the partnership after providing for out-goings and interest on the current loans, if any, shall be paid over to the partners in equal shares. 13. All the quota of steel and coal that the company may receive from the Iron and Steel Controller, the Government of India and from the Provincial Iron and Steel Controller, Bombay or from the Steel Re-Rolling Mills Association of India, Calcutta or any such other body under the quota system that may be in force from time to time for steel re-rolling mills of the company at Bombay shall be utilised solely for the purposes of the business of the partnership who shall pay for the same."
(3.) Thereafter, in 1954, the assessee and Irani entered into an agreement whereby the terms of the agreement of September 29, 1948, were modified. The amendments to Cl. 12 are important and they are quoted below : "IT IS HEREBYAGREED THAT in Cl. 12 of the Partnership Agreement dated 29-9-1948, the Royalty which is fixed at Rs. 50 per ton shall be reduced in the manner following from 1st October, 1953. (a) Royalty of Rs. 25 per ton shall be charged from 1-10-1953 on all rollable materials received up to 30-6-1954 except semis and perfect billets on which royalty will be charged at Rs. 10 per ton on all the said materials received up to 30-6-1954. (b) That cess charges payable to Steel Re-Rolling Mills Association of India, Calcutta, will be paid by the Partnership till the Partnership exists. (c) Mr. K. R. Irani hereby agrees to pay a lump sum of Rs. 60,000 as goodwill in consideration of waiving the Royalty from the Partnership Account on the quota of re-rollable scrap materials received after 30-6-1954. (d) Mr. K. R. Irani hereby agreed that the said amount of Rs. 60,000 be debited to his capital account in the books of Partnership, bearing interest at 6 per cent per annum from 1st July, 1954. (e) No Royalty will be charged on any kind of rollable materials received after 30th June, 1954, by the Company from the Partnership. (f) The Partnership shall pay to the Company Rs. 500 per month as office allowance from 1-10-1953 till the Partnership exists.";