Sabyasachi Mukharji, J. - (1.) The assessee is a private limited company and was running a jute mill. Its accounting year is the calendar year. The relevant assessment year under consideration is the assessment year 1962-63. On 31st December, 1958, the company had a paid up share capital of Rs. 12,15,000. The profit and loss account balance at debit was Rs. 12,05,087. The company was thus very badly off. In the directors' report dated 8th August, 1959, accompanying the account for 31st August, 1958. after refering to the unsatisfactory financial position and circumstances under which the company was placed, it was stated that "faced with such a discouraging position your directors decided to close down the factory". It appears that at about that time, there was a dispute pending before the Industrial Tribunal for adjudication. The company had issued a notice of closure on the 2nd August, 1958, which led to the said industrial dispute. On the 6th July, 1959, there was an agreement under which the period from 29th July, 1958, to 31st December, 1959, was to be treated as the period of lay-off. The management agread to reopen the mill on the 1st January, 1960, and work with full complement of working 165 looms within three weeks thereof. The management required finances of Rs. 6 lakhs for which an application was made to the State Government which the union of the workmen agreed to support. On 16th November, 1959, there was a meeting of the board of directors. In that meeting, it was found that it was not possible to start the mill from January, 1960, due to lack of funds. It was, therefore, decided that subject to the confirmation of the shareholders the mill should be given on lease. The managing director was authorised to carry on the negotiations therefor.
(2.) The factory was given on lease to M/s. Barrackpore Industries Ltd. The lease related only to the jute mills. There were other properties belonging to the assessee consisting of rice mill, a workshop, a pattern shop, godown and staff quarters. These were excluded from the lease. Even with respect to the jute mills certain items of machinery were left out of the agreement. The annual rent was fixed at Rs. 5 lakhs payable in 12 equal monthly instalments. The lease was for a period of five years subject to renewal for another period of five years. Though the Tribunal has referred to the said lease, the said lease has not been annexed. It appears that before the expiry of the said lease on the 11th August, 1962, there was another lease between Barrackpore Industries Ltd., the lessee, on one part and Huldibari Tea Association Ltd. who was stated to be the new lessee and the assessee-company as the lessor. It recited the first deed of lease dated 22nd December, 1961, made between the assessee and the Barrackpore Industries Ltd. and, inter alia, recited as follows : "...Whereas by a deed of Lease bearing date the 22nd day of December, 1961, and made between the said Katihar Jute Mills Private Ltd. therein referred to as the lessor of the one part and the said Barrack-pore Industries Ltd. therein referred to as the Lessee of the other part and registered in the office of the Registrar of Assurances, Calcutta, in Book No. 1, Volume 167, pages 55 to 94 being No. 6222 for the year 1961 the Lessor for consideration therein mentioned demised unto the Lessee All That Jute Mills known as 'Katihar Jute Mills' including its fixed and movable machineries (save as therein excepted) the power house (both electric and steam) boiler house, warehouses, foundry workshop, factories godown including the two godowns let out to the Government and other structures and buildings and land, the Railway siding (but excluding the Rice Mills together with the old workshop and the shed adjacent thereto the pattern shop one small godown and the staff quarter attached thereto and one General stores godown and the open space opposite to the Rice Mill) shown in the plan attached hereto and thereon delineated within red border together with the lands and buildings thereto more fully described in the First Schedule thereto and delineated in the map thereto and shown in border and all manner of rights privileges easements appendages advantages and appurtenances whatsoever to the said Katihar Jute Mills belonging to in anywise appertaining thereto or therewith usually held used and occupied or enjoyed together with the benefit of all quota rights and the Indian Jute Mills Association working time agreement (subject as hereinafter mentioned) licence and marks held by the Lessor or in which the Lessor may be entitled in connection with the said Mill To Hold the same excepting all or any Jute Mills machinery a list whereof is set out in the Second Schedule hereto for the period of 5 years commencing from 1st day of January, 1960, with option for renewal for another five years as hereinafter contained Yielding And Paying therefor unto the Lessor an annual rent of Rs. 5,00,000 (Rs. five lakhs) payable in twelve equal monthly instalments of Rs. 41,666.67 each first of such monthly instalment to be paid on or before the 3rd day of each and every month succeeding the month for which such rent is due without any abatement or deduction whatsoever except as provided therein."
(3.) Thereafter the lease went on to state that the lessee had agreed with the lessor to surrender the said jute mill and the machinery and power looms, as demised, under the said original deed of lease by relinquishing all the right, title and interest which the lessee held in respect of the same under the said lease upon the lessor granting a new lease in favour of the new lessee immediately after the execution of the said lease. The said lease, inter alia, recited further as follows : "In consideration of the rent hereby reserved and the covenant and condition herein contained and on the part of the New Lessee to be paid observed and performed the Lessor doth hereby demise unto the New Lessee All That the Jute Mills known as Katihar Jute Mills including its fixed and movable machineries (save as hereinafter excepted) the power house (both electric and steam) boiler house, warehouses, foundry workshop, factories, godowns including the two godowns let out to the Government and other structures and buildings and land the Railway siding (but excluding the Rice Mill together with the old workshop and the shed adjacent thereto, the pattern shop, one small godown and the staff quarter attached thereto and one general stores godown and the open space opposite to the Rice Mill) shown in the plan attached thereto and thereon delineated within red border Together with the lands and buildings belonging thereto more particularly described in the Schedule thereto and delineated in the map hereto annexed and shown in border and all manner of rights privileges easements appendages advantages and appurtenances whatsoever to the said Katihar Jute Mills belonging or in anywise appertaining thereto or therewith usually held used occupied or enjoyed together with the benefit of all quota rights and the Indian Jute Mills Association working time agreement (subject as hereinafter mentioned licenses and marks held by the Lessor or to which the Lessor may be entitled in connection with the said mills To Hold the same excepting all or any jute Mills machinery a list whereof is set out in Second Schedule hereto for the period of 2 (two) years 9 (nine) months commencing from the first day of April one thousand nine hundred and sixty-two Yielding and Paying therefor unto the lessor an annual rent of Rs. 5,00,000 (Rupees five lakhs) payable in twelve equal monthly instalments of Rs. 4l,666.67 (Rupees forty-one thousand six hundred and sixty six and sixty seven naya paise) each first of such monthly instalment to be paid on or before the third day of month for which the same shall become due and every subsequent instalment to be paid on or before the Third day of each and every month succeeding the month for which such rent is due without any abatement or deduction whatsover except as provided herein.";