Chakravartti, CJ. - (1.) The question referred In this case is whether the sums, received by the assessee company as selami for granting sub-leases of coal-mining leases which it had itself obtained, were trading receipts in its hands and whether the profit contained therein, it any, is assessable under the Indian Income-tax Act. The question has arisen out of the income-tax assessment of the assessee for the years 1949-50 and 1950-51 and its business profits tax assessment for the chargeable accounting periods ending on 31-12-1948, and 31-3-1949, respectively. The single question referred is common to all the four cases and consequently a single Reference has been made.
(2.) On an ultimate view, the facts of the case are fairly simple, but their history is somewhat long. It appears that on 26-3-1915, a firm of the name of Bird and Co., acquired from the Court of Wards, representing the proprietor of the Ramgarh 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 lac 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. Bird 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 coat-mining lease or coal-mining leases of the coalfields op parts thereof on certain stated terms. The terms were that the proprietor was to get selami at the rate of Rs. 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 royalties for every ton of coal and coke raised, manufactured or despatched from the demised premises at varying rates. He was to get 4as. per ton on steam coal, 3 as per ton on rubble coal, 2 as. per ton on dust, 8 as. per ton on hard coke and 6 as. per ton on soft coke. The lease or leases would also have to provide for a minimum royalty of a certain amount.
(3.) The licence was transferable. In 1920, the assessee company before us, the Karanpura Development Company Limited, was incorporated for various purposes which I shall presently mention, but one of the main purposes was to carry into effect an arrangement with Messrs. Bird and Co., to take over their prospecting licence. A specific reference to this agreement was made in Clause 3(1) of the Memorandum of Association of the Company where it was described as "the agreement referred to in Article 3 of the Company's Articles of Association," The Articles were produced before us and we were shown what the agreement was. In pursuance of that agreement, the company obtained an assignment of the prospecting licence from Messrs. Bird and Co., by a registered indenture, dated the 30th May, 1921.;