RAMAKRISHNAN J. - This revision case against the order of the Agricultural Income-tax Tribunal raises a short question as to whether the sale proceeds of casuarina trees and charcoal by the liquidator of the assessee-company, after the liquidation had commenced, is liable to be assessed to agricultural income-tax under the Madras Act, V of 1955, at the maximum rate of 45nP. in the rupee fixed under the provisions of that Act for the assessment of agricultural income-tax on companies. The facts of the case as found by the authorities below, including the Appellate Tribunal, can be briefly put down.
The company was formed under its memorandum of association for raising casuarina plantations in the lands belonging to the company in Chidambaram Taluk, South Arcot District, and realizing the income from the sale of such casuarina plantations. Though it was not specifically referred to in the memorandum of association, it is common ground that charcoal was also manufactured and sold by the company as part of its activities. The company went into voluntary liquidation on December 28, 1958, and a liquidator was in charge thereafter. During the periods December 28, 1958, to March 31, 1959, and April 1, 1959, to September 30, 1959, which are included in the accounting year with which we are concerned, the company was found to have effected sales casuarina trees and charcoal for Rs. 1,710.88 and Rs. 5,015 respectively. Deducting certain items of expenditure, the income came to Rs. 5,549.69. Subsequently, on appeal to the Appellate Assistant Commissioner, the expenses for cultivation were enhanced on proportion basis, and the net income was assessed at 45nP. It is also in evidence that the liquidator subsequently on September 30, 1959, sold away the lands.
The first contention urged by the petitioner before us as well as before the lower Appellate Tribunal was that a company which had gone into liquidation cannot thereafter be assessed in respect of its realisations at the higher rate applicable to companies. Reliance was placed upon the decision of the Supreme Court in Liquidators of Pursa Ltd. v. Commissioner of Income-tax. But that decision did not lay down the proposition canvassed by the petitioners counsel. It dealt mainly with the manner in which section 10(2)(vii) of the Income-tax Act had to be applied. At the page 274 of the report, the Supreme Court observed that the machinery and plant which were sold had not at all been used for the purposes of the business carried on in the accounting year and, consequently, the second proviso to section 10(2)(vii) could have no application to sale proceeds to such machinery and plant. It is also necessary to state that in the supreme Court case, the machinery and plant were sold during the proceedings of winding up, and in the accounting year it was found that the company never had used the machinery and pant for the purpose of manufacturing sugar, which was the business for which the company had been formed, except to keep them in trim and in running order. But, apart from this, there are certain other observations of the Supreme Court in the self-same decision at page 275 of the report, which lends support to an inference that even after winding up had commenced, there can be occasions where the liquidator can carry on the business of the company. It is observed :
'Even if the sale of the stock of sugar be regarded as carrying on of the business by the company not a realization of its assets with a view to winding up, the machinery or pant not being during the accounting year at all and in any event not having had any connection with the carrying on of that limited business during the accounting year, section 10(2)(vii) can have no application to the sale of any such machinery or plant.'
The next decision cited before us was decision of this court in Ajax Products Ltd. v. Commissioner of Income-tax, which also dealt with the interpretation of section 10(2) (vii) of the Indian Income-tax Act, namely, the manner in which the profits by the sale of machinery during the winding up should be construed for the purpose of assessment. That followed the decision in Liquidators of Pursa Ltd. v. Commissioner of Income-tax. That has also no relevancy for the present purpose. However, the decision of the Supreme Court in Commissioner of Income-tax v. West Coast Chemicals & Industries Ltd. lays down principles which are of relevancy for this case. At page 138 of the report, the Supreme Court extracts what Halsbury has to say on this (third edition, vol. 20, pages 115-117) :
'210. Mere realization of assets is not trading; but the completion of outstanding contracts after the dissolution of a firm, the commencement of liquidation of a company, or winding up of the affairs of a trader, has been held to be trading.....
211. The cases illustrating the questions arising in such circumstances can be divided into two categories, first those where the sales formed part of trading activities, and, second, those where the realization was not an act of trading.'
As pointed out by the Supreme Court, the difficulty in deciding whether a particular case involves a mere realization of assets by the liquidator or a trading activity has to be decided on the facts of each case. It is not as if, after the commencement of liquidation, all trading activity should be considered to have ceased. There could be trading activity and whether a transaction was a trading activity must depend on the facts of each case. The Supreme Court on the decision last cited, at page 141, referred to an English case, J & R. OKane & Co. v. Commissioners of Inland Revenue, where a company dealing in wine and spirits went into liquidation. During the year of account, they sold their whole stock to diverse customers, and the question arose whether they were still carrying on their trade during that period, and whether the profits were thus made in the ordinary course of trade. The Court of Appeal pointed out that though the taxpayer had retired from business and had decided not to purchase any more stock he was still carrying on the business of trading in wines and spirits till his existing stocks were exhausted, and, therefore, the excess obtained by him represented profit. The principles laid down in Commissioner Of Income-tax v. West Coast Chemicals & Industries Ltd. show that from the facts of each case one has to decide whether the sale by the liquidator was entered into for the purpose of realization of the assets or was only a continuation of the previous activity of the company. The first point to note is that in effecting the sales of casuarina and charcoal the liquidator in this case carried on the same activity as the company had been doing before its liquidation. There seems to be absolutely no difference in the pattern of the sales effected after liquidation from that of the sales before the liquidation. When the assessing authority estimated the deduction for cultivation expenses at a certain figure the assessee on appeal succeeded in getting determined in his favor a higher figure for cultivation expenses in the year of account on the proportion basis. The assessee did not attempt to show that the sale of charcoal and casuarina was for a slump price, nor did he attempt to show that casuarina seedings even of immature growth were all plucked up and sold at the sales, which would be induced to prove that it was a liquidation sale and not a trading sale. Had these additional factors been placed before the Tribunal, the conclusion might have been different. The position before us is that to all interests and purposes the present sales were of the same pattern as of those previous to the liquidation and, therefore, there is no basis for drawing the inference that it was a realization sale and not a sale in the usual pattern of the companys activities. Even the subsequent sale of the lands on September 30, 1959, could not make any difference. As pointed out by the House of Lords in J.& R. OKane & C0. v. Commissioners of Inland Revenue :
'For, in truth, it is quite plain that right up to the end of 1917, they were engaged in trading which, so far as the external world is concerned, was the ordinary method of carrying on trade modified only by arrangements which were merely part of the machinery of business dealing adopted to effect their intention to retire. It may well be accepted that they did so intend; yet the intention of a man cannot be considered as determining what it is that his acts amount to; and the real thing that has to be decided here is what were the acts that were done in connection with this business and whether they amount to a trading which would cause the profits that accrued to be profits arising from a trade or business.'
Any possible intention on the part of the liquidator to wind up the concern by disposing of the land at a subsequent date will have no relevancy for showing that the sales in this case were realization sales and not trading sales.
Learned Government pleaded urged that principles under the Income-tax Act cannot be imported for the purpose of assessing agricultural income under section 2(a) of the Act of 1955 and that, under the definition in that Act, 'agricultural income' would include whatever is realised by a cultivator or the receiver of rent-in-kind of any land by the sale of the produce raised or received by him. He argued that since the sale proceeds of casuarina and charcoal fall in this definition, they would automatically be assessable as agricultural income, without any question as to whether they were received in the process of winding up as a result of a realisation sale, or after a sale partaking the nature of a trading activity. But, in the view we have taken, of the scope of the official liquidators sales in the present case, being of a pattern which followed the same pattern as the sales before liquidation and, consequently, that there was nothing to infer that they were realisation sales and not sales in the course of the normal activity of the company, it appears to us to be unnecessary to give any decision on this point raised by the Government pleaded regarding the scope of section 2(a) of the Agricultural Income-tax Act. We, therefore, hold that the order of the Tribunal is right and calls for no interference in revision. The revision case is dismissed. There will be no order as to costs.
Revision case dismissed.