COMMISSIONER OF INCOME TAX Vs. GAYA SUGAR MILLS COMPANY

JUDGEMENT

(1.) THIS is a reference under Section 256(1) of the Income-tax Act, 1961 (hereinafter called " the Act "). The following questions have been referred to us for the opinion of this court :

(2.) IN this reference, we are concerned with the assessment years 1965-66 and 1966-67. A consolidated statement of the case has been forwarded to us by the INcome-tax Appellate Tribunal, Patna Bench, Patna (hereinafter called "the Tribunal"). The assessee is an incorporated company. The assessee runs a sugar mill. IN the years in question, the company was under liquidation. The order for compulsory liquidation had been passed at the instance of the shareholders. A financial liquidator was appointed by this court on February 1, 1952. The company remained idle till December 5, 1952. On December 6, 1952, the financial liquidator, with the permission of the High Court, gave the sugar mill on lease to Guraru Co-operative Development and Cane Marketing Union Ltd. (hereinafter referred to as " the CDCM "). The lease was operative till December, 1954. Thereafter, the factory and its machineries were leased out to S. K. G. Sugar Ltd. IN 1958, S. K. G. Sugar Ltd. was granted another term lease for 7 years. IN terms of the lease of the machineries to Guraru CDCM, the Co-operative Society was to pay Rs. 20,000 or 40 per cent, of the net profit, whichever was higher, to the lessor. IN terms of the second lease in favour of S.K.G. Sugar Ltd., the lessee was to pay Rs. 1,50,000 per year to the lessor which lease was, however, terminated prematurely by an order of the High Court and the mills and its property were sold to the Government of Bihar on Octobers, 1961. The transfer of the sugar factory and its machinery, in fact, took place at the end of 1962.

(3.) THE Tribunal found as follows :