COMMISSIONER OF INCOME TAX Vs. KATIHAR JUTE MILLS P LTD

JUDGEMENT

(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 :

(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 :