COMMISSIONER OF INCOME TAX MADRAS Vs. P K N COMPANY LIMITED

JUDGEMENT

(1.) THE following Judgment of the court was delivered by :

(2.) A partnership styled P. K. N. was carrying on money-lending business in several towns in India and also in the Federated States of Malaya. In the course of its business the P. K. N. firm acquired rubber estates and other immovables in the Districts of Murar and Segamat in the Federated States of Malaya. On 4/12/1937 a private limited company was registered in the name of P. K. N. Company Ltd. -hereinafter called 'the Company'under the Pudukottai Company Regulation V of 1929 with its head office at Viswanathapuram, in the territories of His Highness the .Maharaja of Pudukottai. The share capital of the Company was of the face value of 6,60,000.00 Malayan dollars. Between 23/03/1939 and 8/07/1939, an area of more than 3,000.00 acres of rubber plantations, several houses and open plots of land, which were the assets of the P. K. N. firm were transferred to the Company for an aggregate consideration of 16,50,000.00 Malayan dollars. In consideration of the transfer of these properties, the Company allotted shares of the face value of 6,60,000.00 Malayan dollars to the partners of the firm of P. K. N. and the balance remained outstanding as a debt due by the Company to the firm of P. K. N. On March 14, 194] the Company purchased a rubber estate called the Lee Estate for 2,62,655 Malayan dollars. On 7/07/1941 the Company purchased for 5,000.00 Malayan dollars a house in co-ownership with another firm. in the year 1941 and 1942 some of the properties acquired from the firm of P. K. N. were sold by the Company. Between 1942 and 194.5 the territory of Malaya was under occupation by the Japanese forces, and it appears that during that period some houses belonging to the company were destroyed by fire. After 1945 some more lands admeasuring approximately 700 acres in the aggregate were sold by the Company.

(3.) BARRING acquisition of a half share in the house purchased on 7/07/1941 for 5,000.00 Malayan dollars, the purchase of asseta by the Company was in two lots. The first lot was purchased between 28/03/1989 and 8/07/1989 from the P. K.N. firm for 16,50,000.00 Malayan dollars, and the other, which was the Lee Estate was purchased on 14/03/1941 From the statements of account of the Company, it appears that large amounts of money were spent or cultivation and development of the rubber and coconut estates, ana "substantial income was derived therefrom The total area of 8,000 acres originally transferred by the P. K. N. firm on the formation of the Company was apparently not a compact block and the Company was unable to administer the far-flung estates in different. places effectively and economically, and on that account certain small plots of land were sold in 1940 and 1941. Between the years 1942 to 194B the territory of Malaya was under Japanese occupation and during that period also some plots of land Were sold. .Thereafter in 1946, 1949 and 1980 lands were sold from time to time and profits wen made. As a result of these disposals, the total holding of the Company was reduced to about 4,000.00 acres of rubber estates, besides some houses acquired from the P. K N.Arm and the Lee Estate.