COMMISSIONER OF INCOME TAX Vs. SAHANA S K AND SONS LIMITED

JUDGEMENT

(1.) THESE references under Section 256(1) of the Income-tax Act, 1961, relate to two assessment years, namely, 1963-64 and 1964-65 of the assessee, Messrs. S. K, Sahana and Sons Ltd. The common question of law referred for our opinion is :

(2.) THE assessee is a public limited company deriving income from mining business known as New Bansjora Colliery. THE assessee and Messrs. Khas Ganeshpur Coal Mines (P.) Ltd. entered into an agreement dated the 22nd of April, 1959 (annexure "C/2"), to some of the terms of which I shall refer at a proper and appropriate place. By this agreement, Messrs. Khas Ganeshpur Coal Mines (P.) Ltd. (hereinafter referred to as "the managing contractor") was allowed to carr)' on the coal business of the assessee and to pay to it profit at a certain rate on the amount of coal raised and soft and hard coke manufactured subject to a minimum guaranteed amount. This income which the assessee received from the managing contractor aforesaid was assessed by the Income-tax Officer as income from other sources and not from business. THE assessee having preferred appeals before the Appellate Assistant Commissioner and having failed there too, pursued further appeals before the Tribunal. THE contention put forward on behalf of the assessee before the Tribunal, as has also been advanced in this court, was that the income received by the assessee from its managing contractor in respect of the two assessment years in question was an income from business since it arose out of a contract between a principal and an agent, the principal still carrying on the business through its agent-- the managing contractor. THE question lor determination before the Tribunal was as to whether, on a true construction of the deed of agreement between the parties, it was a transfer of the business, or a letting out of the commercial assets, or was there merely a contract of agency so that the assessee could still be held to be carrying on the business through its agent. THE Tribunal, by its appellate order, found as follows. THE relationship created between the assessee and the managing contractor was clearly one of principal and agent, THE power of attorney executed by the assessee in favour of the managing contractor strengthened the conclusion that the legal relationship between the parties was that as between a principal and an agent and the cumulative effect of all the various Clauses of the agreement established that the managing contractor aforementioned was only working as an agent of the assessee and the transaction was not at all that of letting out. In other words, there was not even a lease executed in favour of the managing contractor. THE Tribunal further held that the managing contractor aforesaid was carrying on the colliery business under the effective control and guidance of the assessee, which (control and guidance) militated against any contention that the relationship between them was one of lessor and lessee. On these findings, the Tribunal accepted the contention of the assessee that there was absolutely no question of any transfer either out and out or even by way of lease of the business of the assessee ; on the contrary, the assessee was very much carrying on its business through its agent, the managing contractor. THE income, thus, according to the Tribunal, clearly fell within the purview of "income from business" and could not be assessed as "income from other sources."

(3.) BORROWING the language of the Supreme Court, the instant case decided on its own circumstances, according to ordinary commonsense principles, induces me to hold that the facts of the present case put it in a much stronger position than the case of the assessee either in Shri Lakshmi Silk Mills case or in the case of Ray Talkies .