Tulzapurkar, J. - (1.) These appeals by special leave involve a common question regarding the taxability of certain amounts received by the appellant company (hereinafter referred to as "the assessee") during the three accounting years, namely, 1359 B. S., 1360 B. S. and 1361 B. S. relevant to the assessment years 1953-54, 1954-55 and 1955-56 and the question is whether those amounts represented business income or receipts of a capital nature
(2.) The facts giving rise to the question may briefly be stated:The assessee was incorporated on July 3, 1920 for the purpose of taking over the Zamindari properties pertaining to the Ukhara Estate which belonged to Rai Pullin Behari Singha Bahadur and the late Gosta Behari Lal Singha. Therefore, on incorporation, by an Indenture dated July 5, 1920 the assessee took a lease of the extensive Zamindari pertaining to the said Estate for a term of 999 years and also took an assignment of moveables, including Government promissory notes and jewellery belonging to the members of the lessor's family and the arrears of rents and cesses, debts, decrees, etc. due by the tenants of the said Estate, the properties passing to the assessee being specified in the schedule appended thereto. The consideration for the said lease and assignment was fixed at Rs. 4,08,000/- which was paid and satisfied by the assessee by allotting and issuing its 4,080 fully paid up shares to the lessors. The quit rent receivable by the lessors for the lease was Rs. 100/- per annum and the assessee also undertook to pay the revenue and cesses payable to the superior landlords in respect of the Zamindari. Clause 3 of the Memorandum of Association sets out the various objects for which the assessee was formed and though sub-cl. (a) thereof showed that the assessee was primarily incorporated for the purpose of taking over the assets of the lessors' family upon the terms and conditions set forth in the Draft Agreement referred to in Article 3 of the Articles of Association, sub-cl. (b) of cl. 3 of the Memorandum empowered the assessee "to purchase, take on lease or otherwise acquire and to traffic in land, house and other property .......... and generally to deal in or traffic by way of sub-lease, exchange or otherwise with land and house property......." The Estate taken on lease comprised substantial coal bearing lands and mines which the assessee started giving on sub-lease in various parcels to well-known colliery companies for various terms of long duration. During the three accounting years in question the assessee granted several sub-leases for which it received salami and premia and there were also acquisitions of the portions of the Estate by the Land Acquisition Collector for which it received compensation. The total amount of salami, premia and the compensation received by the assessee in the three accounting years were respectively Rs. 22,197/-, 1,88,417/- and 73,327/- and the question arose whether these receipts were business income or receipts of a capital nature. The Income-tax Officer rejected the contention of the assessee that the receipts were of a capital nature and he included the said amounts in the total income of the assessee in each year as its business income holding that the assessee carried on business in leasehold rights and real property. On appeal by the assessee, however, the Appellate Assistant Commissioner reversed the finding of the Income-tax Officer and excluded the amounts in question from the total income of the assessee following the decision of the Tribunal rendered on June 7, 1960, in the assessee's case for the earlier assessment years 1946-47, 1947-48 and 1948-49. The matter was carried by the Income-tax Officer in further appeals to the Tribunal, but the Tribunal by its common order dated June 29, 1963 dismissed the departmental appeals holding that the receipts were of a capital nature not liable to be included in the taxable income of the assessee. In coming to that conclusion the Tribunal mainly relied upon cl. 3 (a) of the Memorandum of Association, Article 3 of the Articles of Association and the terms and conditions set forth in the Draft Agreement (in accordance with which the Indenture dated July 5, 1920 was executed) which showed that the assessee had been primarily incorporated for the purpose of the conservation and management of the Family Estate of the lessors, that, in fact, the assessee was not carrying on the business of taking leases and granting sub-leases inasmuch as it had not taken on lease any other property from anyone else since 1920 up to date and that the transactions of granting sub-leases of long duration to various colliery companies were by way of management of real property by the assessee as owner of leasehold interest and as such the receipts on account of salami, premia and compensation were of a capital nature. The Tribunal relied upon and applied the ratio of the decision of the Madras High Court in P. K. N. Company v. Commr. of Income-tax, (1963) 47 ITR 195 which has since been confirmed by this Court in (1966) 60 ITR 65.
(3.) At the instance of the Revenue the Tribunal referred to the High Court for its opinion the following question: "Whether on the facts and in the circumstances of the case, the Tribunal was justified in excluding the sums of Rs. 22,197/-, Rs. 1,88,417/- and Rs. 73,327/- from the total income of the assessee for the years 1953-54, 1954-55 and 1955-56 - The High Court answered the question in favour of the Revenue by holding that the receipts were not of a capital nature and were includible in the total income of the assessee as its business income. The High Court took the view that the assessee could not be regarded as a purely family concern incorporated for the preservation and management of the family assets for maintenance of the lessors' family especially as no provision had been made in its Memorandum of Association or Articles of Association conferring any right or share on new members that may be born in the coparcenery, it being admitted that Ukhara Zamindars constituted a Mitakshara Joint Family. Relying upon the several objects set out in the Memorandum of Association, particularly the one indicated in cl. 3 (b) (which permitted trafficking by way of sub-leases) and further relying on what it called two special features of the assessee, namely, declaration of dividend and creation of reserve fund by it, the High Court held the assessee to be a trading concern and that it had dealt with its leasehold rights in the lands as trading assets by using them to earn income, rent, royalty, salami, premia, etc. and, therefore, the receipts by way of salami, or premia were trading receipts and profits therefrom were business income. In other words, the High Court held that the assessee as a trading concern had dealt with its leasehold interest in Zamindari property not as an owner but as a trader and, therefore, the receipts in question were includible in the total income of the assessee as business income. The High Court relied upon the decision of this Court in Karanpura Development Co. Ltd. v. Commr. of Income-tax, West Bengal, (1962) 44 ITR 362. It is this view of the High Court that has been challenged before us by the counsel for the assessee in these appeals.;