1. Of the two questions referred in this case at the instance of the assessee, Dr. Pal abandoned one at the very commencement of his 'argument. On the other, we have been addressed by both sides at considerable length. That question concerns the nature of a receipt which came into the hands of the assessee under the provisions of one of the clauses of a deed by which the assessee transferred certain rights and. concessions to a third party.
2. The assessee Messrs. National Cement Mines Industries Ltd. is a public limited company, incorporated on 27-12-1931, The Memorandum of Association sets out 53 objects of the venture but Clause 3(1) states that the principal object was to 'carry on the businesses of cement and lime manufacture and also of limestone supply and for the purposes of such businesses to acquire rights and concessions pertaining to limestone, coal and surface lands from the Dewarkhand Karanpura Mines and Industries Limited'. Among the other objects which I need mention here was one to work mines or quarries and to find, win, get, work, etc., or otherwise deal with clay and bauxite. The statement of the case says that the business of the company is to manufacture 'limestone' which is not easy to understand, but there can be no question that the company is a manufacturing and trading concern producing and dealing with lime, coal and mineral substances of various kinds.
3. The rights and concessions of the Dewarkhand Karanpura Mines and Industries Ltd. which, for brevity's sake, I shall hereafter call the Karanpura Company, were such rights and concessions under three deeds, all executed on 29-11-1930. It appears that, on that date, the Karanpura Company acquired a mining lease which has been called the 'Limestone Lease' from one Maharaja Per-tap Narain Udai Nath Shah Deo in respect of limestone beds in certain villages in Dewarkhand with the rights, privileges and liberties mentioned in the relevant deed. On the same date, the Company acquired from one Maharaj Kumar Nand Kishore Nath Shah Deo the surface rights necessary to exercise the powers and privileges of the principal lease in respect of all the villages covered thereby except Hoyer and similarly it obtained from one Maharaj Kumar Raj Kishore Nath Shah Deo similar surface rights in respect of the Hoyer village. The period of these leases was 30 years and it was the rights under these which the assessee company intended to acquire. In fact, however, the Karanpura Company did not make any direct transfer to the assessee, but executed a deed of trust on 17-3-1932, whereby it conveyed the rights and options under the three documents to the assesses. Thereafter, in 30-9-1934, several transactions took place. On that date, the assessee company acquired, on its own account, from Maharaja Pertap Narayan Uday Nath Shah Deo and Maharaj Kumar Raj Kishore Nath Shah Deo the limestone and surface rights in a certain Pergana called Umedanda for a period of 95 years. This lease has been referred to in these proceedings as the 'Umedanda lease. On the same date, the assessee also entered into an agreement with Maharaja Pratap Narayan which has been called the 'Bauxite option agreement' and thereby it acquired the first option, to take a lease or leases of any area or areas of bauxite deposits in certain villages. It also acquired from the same Maharaja the first option of taking-a lease or leases of limestone beds in the Tori District and that transaction has been called the Tori Option agreement. There was a fourth agreement executed on 30-9-1934, between the Karanpura Company, Maharaja Pertap Narayan Udai Nath Shah Deo acting with the consent of Maharaj Kumars Raj Kishore Nath Shah Deo and Nand Kishore Nath Shah Deo and the assessee by which, the royalties reserved by the original limestone lease were reduced from six annas or seven annas per ton of cement to an uniform rate of three annas per ton and at the same time the period of the lease was extended to 99 years as computed from 29-11-1930, which was the date of the original deed. The period of the Umedanda lease obtained by the assessee was 95 years. The result therefore was that on 30-11-1934, all the leases and agreements came to be leases and agreements for that period.
4. I may now pass to the next document, on the construction of which the answer to the question debated before us depends. On 7-5-1935, the assessee executed a deed in favour of a company called The Dewarkhand Cement Company Ltd., the Karanpura Company joining the assessee as a confirming party, and by that deed the assessee transferred to the Dewarkhand Cement Company Ltd. its rights and privileges under all the leases and agreements which I have already recited. Thus, the subject-matter of the transfer was four leases and two agreements, namely, the Limestone Lease of 20-11-1930, the two surface leases of the same date, the Umedanda Lease of 30-9-1934 and the Bauxite Option and the Tori Option agreements of the same date. The benefit of the agreements for the reduction of the royalty payable under the limestone lease and for an extension of the period of that lease was also transferred. The transfers of the leases and agreements were for the unex-pired period with all the rights, liberties and obligations attached thereto. It appears that some time later, on 21-6-1935, to be precise, the transaction was approved of and accepted by the original lessor, the' Maharaja. The deed executed at the time, which was called a 'Memorandum of Acknowledgment and Confirmation', has not been printed in the paper book, but a typed copy was supplied to us by the learne'd Advocate for the assessee. Unfortunately, the copy is littered with, mistakes, but this much can be ascertained that the original lessor was assuring the Dewarkhand Cement Company Ltd. that all the leases and agreements were in full force and that its acquisitions under the deed of 7-5-1935, would thereafter be held by it 'unaffected by any act, omission or default of the National Cement Company and the Karanpura Company or either of them.'
5. It appears that the Dewarkhand Cement Company Ltd. has since come to be known as the Associated Clement Ltd.
6. I shall have to refer hereafter to the terms of the deed of 7-5-1935, In some detail, but may indicate here briefly what the consideration for the transfer thereunder was. The purchasers' covenants stated that the purchasing company would pay to the vendor 13 annas per ton of cement manufactured by it from the limestone won from the lands and sold, that it would pay, further, half of the profits derived by it from the sale of fiuxstone to the Tata Iron and Steel Co. Ltd. or any other party and that it would also pay onehalf of any royalty that it might receive from the Tata Iron and Steel Co. Ltd. on account of the right granted to them to quarry and remove fiuxstone from the lands concerned.
7. During the assessment of the assessee company for the year 1946-47, questions arose as regards two payments received by it. The relevant accounting year was the period commencing on 1-6-1944, and ending on 31-5-1945. It appears that during that accounting period, the assessee company acquired a new mining lease for a sum of Rs. 70,000 -- and paid 71/2 per cent of that sum to the Maharaja of Chotanagpur as commission. The amount actually paid was Rs. 5,250. The assessee contended that the sum ought to be treated as a revenue expense and a deduction in respect of it ought to be allowed under Section 10 (2) (xv), Indian Income-tax Act, but the Department's view was that the expense was a capital expense. It is that dispute which is reflected in the first of the questions referred to this Court. At I said a few moments ago, Dr. Pal, appearing for the assessee, intimated to us that he did not desire to press the question. Nothing further need there fore be said about it.
8. The other receipt was of a sum of Rs. 77,820 which the Associated Cement Co. had paid to the assessee company under the first of the purchasers covenants providing for a payment of 13 annas per ton of cement manufactured from the limestone obtained from the lands and sold. The assessee-contended that the receipt was of a capital nature and therefore not liable to tax, but it was concurrently held by the Income-tax Officer, the Appellate Assistant Commissioner and the Appellate Tribunal that the receipt was an income receipt. The assessee was not prepared to accept that decision and asked for a Reference to this Court. The question which has been referred reads as follows : --
'Whether on a proper construction of the Deed of Assignment elated 7-5-1935, and on the facts and in the circumstances of this case, the Tribunal was right in holding that the sum of Rs. 77,820 represented a receipt of a revenue nature in the hands of the applicant and assessable as such?'
9. The assessee's contention before the Tribunal was that the transaction of 7-5-1935, was a sale and that the receipt of Rs. 77,820/- was an instalment of the price. The Tribunal repelled that contention on three separate grounds. It held in the first place that the transaction was a business deal which had been entered into by the, assessee for sharing in the profits of the working;, of the mines or, as it was put, the assessee, rather than working the mines, had given them to the Associated Cement Co. Ltd. under an agreement to share the profits thereof. The receipt was therefore business income in the hands of the assessee. The Tribunal proceeded to hold that, even otherwise, the amount received was liable to tax, because it was consideration for the assignment of the assessee's leasehold rights in the lands and was itself of the nature of a royalty. In support of that view, the Tribunal relied on the well-known decision of the Privy Council in the case of 'Kamakshya Narain Singh v. Commissioner of Income-tax' B. and O.' 1943 PC 153 ALIA 30, corresponding to 1943 11 ITR 513 (A). Lastly, the Tribunal held that the rights of the assessee in the lands concerned which, in its view, were leasehold rights, constituted a commercial asset & their alienation was a business deal, the consideration received for which would be income, liable to assessment. In support of that view, the Tribunal relied on the decision of the Supreme Court in the case of 'Commissioner of Excess Profits Tax, Bombay City v. Shri Lakshmi Silk Mills Ltd. : 20ITR451(SC) .
10. It will be noticed that the Tribunal, at least in connection with one of the grounds given for its decision, treated the transaction of 7-5-1935, as a lease. It has not given any reasons as to why it took that view, but seems rather to have-assumed that the transaction in question was of that character. Both the appellate order and the Statement of the Case state in the course of the narration of the facts that the assessee company, acting with the Karanpura Company, 'leased out' its rights in the mines, deposits, beds and quarries to the transferee under the document, as if it was-an accepted fact that the transaction was a lease. That the Tribunal treated the transaction as a lease, appears further from the ground on which it, distinguished the case of 'Minister of National Revenue v. Catherine Spooner', AIR 1933 20 PC 211 (C), because what it said of it is 'that was not a ease of a lease of mining rights & consequently is not comparable'. Besides these references to the character of the transaction which seem to me to contain an assumption rather than a decision, we derive no assistance from either the appellate order or the Statement of the Case as to the grounds on which the Tribunal regarded the transaction as partaking of the nature of a lease. I may add that not only has the Tribunal not given any reason in support of its view, but both parties agreed that the statement of facts given by it, both in para 8 of the appellate order and para 6 of the Statement of the Case, was utterly confused.
11. Before us, Dr. Pal conceded that if the transaction of 7-5-1935, could be said to be a lease his client would be out of Court at once, because the amount received by it would come directly within the principle of the decision in . His first task, therefore, he submitted, would be to establish that the transaction was not a lease. Dr. Pal proceeded to submit that after excluding a lease and discharging the negative burden, he would proceed to establish his positive case and try to prove that the transaction was a sale. He conceded that even if he succeeded in his second task, he would not be able to take the receipt out of the liability to tax, unless he could prove further that although what the asses-see had received was price upon a sale, it had not taken the consideration ,in a form under which the consideration had ceased to be consideration and resulted in the purchase of a periodic payment. The three tasks which Dr. Pal undertook accordingly were to establish (a) that the transaction was not a lease; (b) that it was a sale and (c) that the receipt concerned was not only a part of the consideration for the sale but also a receipt in a form which had not made it cease to be a receipt of a capital nature.
12. On behalf of the Commission of Income-tax, Mr. Meyer submitted that he would not give up the case that the transaction was a lease, but he would rely more strongly on the nature of the transaction which, according to him was an arrangement by which the assessee had used an asset for the purpose of making a provision for an income.
13. Before the rival contentions of the parties are examined, it will be convenient at this stage to refer to the material provisions of the document. It will be tiresome to refer to all of them in full and, therefore, except in the case of the clause which falls directly to be construed, I shall content myself with giving the substance. I may point out first that the assessee is described in the document as 'the vendor' and the Dewarkhand Cement Co. Ltd. as 'the purchaser'. The operative words are that in consideration of the covenants on the part of the purchaser, the vendor 'grants, assigns and transfers unto the purchaser' the several rights, privileges and properties under the various agreements thereafter recited. As I have already stated, in the case of the two leases, the assignment, or to use a neutral word 'transfer', is of 'all the residue now unexpired of the term'. Proceeding now to the purchaser's covenants, the first of them under which the payment in question in this case was made reads as follows:
'That it will pay to the vendor a sum equal to thirteen annas in respect of every ton of cement sold by it which shall have been manufactured from the limestone won by it from the lands hereby transferred and comprised in the hereinbefore recited leases and agreements'.
By the second covenant, the purchaser undertakes not to sell any flux stone won by it from the lands concerned to the Tata Iron and Steel Co. Ltd. at a price less than Re. 1/14/- per ton P.O.R. By the third, it covenants to pay to the vendor one-half of the profit, if any, which it shall make by selling fluxstone to the Tata Iron and Steel Co. Ltd. or to any other person. The fourth, again is a restrictive covenant by which the purchaser undertakes not to grant the Tata Iron and Steel Co. Ltd. any right to quarry and remove fluxstone from the lands concerned at a royalty of less than ten annas per ton. The latter part of the Covenant is of an affirmative character and thereby the purchaser undertakes to pay the vendor one-half of any royalty which it may receive from the Tata Iron and Steel Co. Ltd.
14. Then follows a covenant securing certain minimum payments to the vendor. The fifth covenant is to the effect that if, in any year, the payments under the first, third and fourth covenants fall short of the graduated minima thereinafter set out, the purchaser shall pay, in lieu of payments provided for by those clauses, certain minimum sums. Such sums are, during the first year to be computed from 1-1-1935, Rs. 10,000/-; during the second year Rs. 30,000/-; and during every subsequent year Rs. 50,000/-. There is a rather curious proviso attached to this provision which no one was able to explain. It states that if and when Rs. 50,000/- comes to be paid as the minimum amount per year, Rs. 20,000/- thereof shall be deemed to have been paid in respect of the payment on account of profit derived from the sale of fluxstone. The only other affirmative covenant of the purchaser is that it will pay, at all times, all rents, royalties and payments becoming due under the four leases, namely, the Limestone Lease, the Umedanda Lease and the leases of the Surface Rights. There is also the usual indemnity clause that the purchaser shall keep the vendor indemnified from and against all proceedings and claims and expenses on account of any omission to pay the rent, royalties and payments which it was undertaking to pay.
15. Another restrictive covenant follows. The purchaser is not to raise, remove or use stone of clay in the properties comprised in the leases and agreements transferred by the documents for the purpose of making lime. The purchaser also undertakes not to cause any of the agreements to be determined by any act or omission on its part and it is also provided that the rights of the vendor under other leases and agreements in areas not containing lime stone would remain unaffected by the indenture. The vendor also reserves the right to remove and utilise clay and shales lying within the areas which do not contain limestone, but in modification of the restrictive covenant, to which I referred a little while ago, the purchaser is given the right to excavate, use and remove clay from certain demarcated areas and also to erect permanent structures and to make use of a siding.
16. I forgot to mention that with respect to the limestone lease, the assessee did not transfer its rights in all the villages covered thereby but reserved for itself two villages, named Dundu and Ray. It appears that a third Mouza, Nawadih had been excepted even from the original limestone lease. The vendor's covenants include an undertaking to pay all rents and royalties due in respect of Mouzas Ray and Dundu. The covenants of the Karanpura Company which, as I have said, joined the transaction as a confirming party are of a general character, merely assuring all concerned that the leases or grants in which it was interested are still in full force, unforfeited and unsur-rendered.
17. The document ends with the recital of an option given to the purchaser and it says that if the limestone within the areas comprised in the leases transferred by the document is exhausted, the purchaser 'will be entitled to determine this indenture on giving to the vendor six months' notice in writing, in which case the purchaser, if so required, will re-transfer the leases and agreements aforesaid'. The very last recital in the deed is not material, for it merely charges the payments under the first, third and fourth of the purchaser's covenants as security for a certain advance of Rs. 1,25,000/- which the purchaser appears to have made to the vendor.
18. As regards the nature of the transaction, the only provision in the document, round which the argument before us mainly turned, was the provision by which an option is given to the purchaser to determine the indenture. It was said that one determined a lease, but determination of a sale was unknown. Dr. pal admitted that the language used in the document was certainly not very happy or appropriate, but he contended that the right given to the purchaser to bring the transaction to an end before the expiry of the stipulated period did not take away from the transaction the character of a sale. He pointed out, taking a cue from my learned brother, that the document contained a provision for a reconveyance to the vendor, if the purchaser should decide to determine the indenture. It is true that if the main transaction was a transaction of out and out sale and the entire property in the subject-matter passed absolutely to the transferee, a determination of it would be meaningless and every if some meaning could be attributed to it, the remainders at that time of the original leases would remain without an owner. Dr. Pal contended that it was for that very reason that the parties had been careful to add a provision for reconveyance & that another reason for that provision was that but for such reconveyance, the purchaser would continue to be liable for the rents and royalties to the original lessors, because it being an absolute assignee of the remainder of certain leases, there was clearly a privity of estate between those lessors and itself which carried with it the liability to pay the rent. The only view of the transaction which would fit in with' all the circumstances of the specific provisions of the deed was, Dr. Pal contended, that there was a sale with a provision for or condition of resale in a certain contingency contemplated by the parties,
19. As against that view, Mr. Meyer pointed out the various exceptions and restrictive covenants to which I have already made a brief reference. He contended that an idea of an absolute transfer was totally inconsistent with not only the reservations made, but also the restraints under which the purchaser was being put. As regards the reservations, Dr. Pal could only say that the sale was a sale of a part of the property held by the vendor under the original leases and agreements. I do not think that this is a very satisfactory explanation, as it would not account for all the exceptions made, consistently with the absolute words used in the operative clause of the document. As regards the restraints, Dr. Pal referred to the second paragraph of Section 11, Transfer of Property Act and contended that the vendor held other leases, in respect of other minerals, of the same lands and those leasehold rights were immoveable property. The next step of his reasoning was that the restraints had been imposed for the purpose of securing the beneficial enjoyment of the immoveable property which the vendor had in the very same lands and, accordingly, they were both valid and consistent with an absolute transfer of the subject-matter of the six leases and agreements. In my view, the 'immoveable property', contemplated by the second paragraph of Section 11, Transfer of Property Act can hardly be said to be an incorporeal right as contended for by Dr. Pal and I do not think that the difficulty of construing the transaction as an out and out sale was adequately met by the explanation offered by him.
20. Nevertheless, I find it extremely difficult to hold that the transaction amounted to a lease. It purports to be an assignment and uses words appropriate to a transaction of that character. The provision for determination undoubtedly suggests that it might be a lease, 'but in view of the other clauses in the other provisions in the document and the explanation offered by Dr. Pal, I do not think that the provision is a decisive indication that the transaction is a lease. At the same time, it must be conceded that there are difficulties in the Way of construing it as a sale or an absolute sale, although in one view it may perhaps be contended that if there be reservations or restraints, they will be void, but the character of the transaction as a sale will not be affected. Looking at the document as a whole and viewing it in the background of the facts, I am of opinion that The position here is exactly the same as the Scottish Court found in the case of 'Trustee.' of Earl Haig v. Commissioners of Inland Revenue', 1939 22 Tax Cas 725 (D). It was pointed out in that case by Lord Normand that the trustees of Earl Haig might have confined themselves to a transaction which would be a simple out and out sale of the copyright in the diaries of the Earl and they might have also chosen to grant a licence for the use of the asset, but that, in fact, they had done neither. They had chosen to enter into a transaction which did not partake of the character of either a sale or a licence but which was convenient to them and appropriate for the purpose which they had in view. In my opinion, the transaction in the present case is neither a lease, truly so called, nor a sale, but a transaction which is merely an arrangement come to between the vendor and the purchaser for business purposes for the exploitation of the leases and agreements with a view to making profit as they were exploited.
21. Indeed from the point of view of the Income-tax law, it is hardly necessary to decide finally the true legal character of a transaction or the character in law of a payment. As has often been pointed out, what has to be seen when a question under the Income-tax law comes to be decided is the character of the transaction or the payment from a business or accountancy point of view. If when looked at from that point of view, it appears that what had been done was that an asset had been sold for an ascertained or ascertainable total consideration and only the payment of the consideration had been spread over a number of years, the receipt will be a receipt of a capital nature. If on the other hand, an asset had been used in order to provide for an income or even where there was a sale, the consideration had been applied for the purchase of a' periodic payment spread over a number of years, the receipt would be a receipt of an income character, it is not necessary to go further and decide the ultimate character of the transaction in law.
22. Certain principles have now come to be regarded as fundamental. They were first summarised in a convenient form in the decision of Rowlatt, J., in the case of 'Jones v. Commissioners of Inland Revenue' (1920) 1 KB 711 (E) and although that decision is not the first in point of time, it is generally regarded as the root authority from which all subsequent statements of the law have mainly sprung. In that decision the principles were thus stated.
'A man may sell his property for a sum, which is to be paid in Instalments, and when that is the case, the payments to him are not income. Or a man may sell his property for an annuity. In that case the Income-tax Act applies. Again, a man may' sell his property for what looks like an annuity, but which can be seen to be not a transmutation of a principal sum into an annuity but is in fact a principal sum, payment of which is being spread over a period and is being paid, with interest calculated in a way familiar to actuaries -- in 'such a case income-tax is not payable on what is really capital. On the other hand, a man may sell his property nakedly for a share of the profits of the business. In that case the share of the profits of the business would be the price, but it would bear the character of income in the vendor's hands'.
23. The case was one in which a person sold his interest in certain inventions and letters patent for 750 in cash and a percentage, called a royalty, payable for ten years on the sale of all machines constructed under the patent. Of the sum of 750, 300 was paid in cash, but the payment of the balance was secured by providing that it would have to be paid by way of 5 per cent, on the sale of the machines. There was no question about this 5 per cent, which, the Revenue agreed, was not to be included in computing the total income, of the transferor. A question having arisen with regard to the further 10 per cent, Rowlatt J. observed as follows:
'The property was sold for a certain sum, and in addition the vendor took an annual sum which was dependent upon the volume of business done; that is to say, he took something which rose or fell with the chances of the business. When a man does that he takes an income -- it is in the nature of income'.
It will be seen that the 10 per cent, about which a question under the taxing statute arose was related to the trading activities of the transferee and had no relation to any capital or gross sum. It would appear that in all the cases, except one, that can be found in the books, the test for determining whether, what has been paid is price and therefore an instalment of a contract debt or whether it is one of periodic payments of an income nature, has been taken to be whether or not a gross or capital sum was in contemplation. The exception is the case of (1939) 22 Tax Cas 725 (D), which I have already mentioned. Still, however, it will not be correct to adopt any single test as a test of universal application and it will be well to remember the observations of Lord Greene M.R., in the case of 'Commissioners of Inland Revenue v. 36/49 Holdings, Ltd.', (1944) 25 Tax Cas 173 (F):
'The true nature of the sum is not necessarily its nature in law, but its nature in business or in accountancy whichever way one likes to put it, because from the legal point of view, there may be no difference whatsoever as between the parties between a capital and an income sum. It may be totally irrelevant to the legal relationships into which they are proposing to enter. When, however, the 'tertius gaudens', in the shape of the Revenue, appears on the scene, that matter which, as between the parties, may have been a matter of not the slightest importance, becomes immediately a matter of very great importance, and it is necessary to examine the circumstances of each individual case, including any documents which require to be construed, in order to ascertain what is the character to be attributed to the payment.
That is why I say that I personally find very little assistance from examining the circumstances of other cases. In some of them a particular feature has appeared which the Court has, regarded as turning the scale one way or another. In other cases, that feature may have been absent, but another feature was present and so on. Nothing can be more misleading than to take cases previously decided on the basis of the presence of a particular factor and to argue from that that the cases where that factor is absent ought to be decided the other way'.
To those words of caution may be added the words of Romer L.J., in the case of 'Commissioners of Inland Revenue v. Ramsay', (1936) 20 Tax Cas 79 (G) where the learned Lord Justice observes that a man may provide for some periodic receipt by paying the same consideration and yet do it in one or other of two forms, under one of which the receipts will be taxable and under the other not, although the monetary result to himself in both cases would be precisely the same. Observations to a similar effect were made by Lord Uthwatt in the case of 'Nethersole v. Withers (H. M. Inspector of Taxes)', (1946) 28 Tax Cas 501 (H), where the learned Lord, after holding that the transaction before the House was a sale and the receipt a price, went on to say that the fact that the same commercial result as that produced by the assignment might equally well have been achieved by an appropriately worded licence, was irrelevant. We have, therefore, to consider the transaction before us as a whole from a business or accountancy point of view and apply our minds particularly to the form of the transaction without being influenced by the consideration that the financial result to the assessee under a transaction in another. form would be the same or similar,
24. Although this case must be dealt with of its own facts, it is necessary before we proceed to' deal with it, to consider the cases cited at the Bar. All of them except one were cases where the nature of a receipt fell to be decided. In one case, the-question for decision was the nature of the payment-made by the assessee.
25. A ease which comes very near in its facts' to the present case is that of 'Chadwick v. Pearl Life Insurance Co.' (1905) 2 KB 507 (I). It was not really an Income-tax case, but an action brought by the transferor of a leasehold interest who sued to recover an amount deducted by the transferee on account of Income-tax from an amount payable by him. The plaintiff had sold his leasehold interest in certain property for the residue of the term for 1,000/- in cash, an undertaking to pay the ground-rent of 300 a year to the landlord and a payment of 1,625 by quarterly payments until the last day of the term. In making the quarterly payments, the transferee deducted income-tax at the current rate and the plaintiff sued to recover the amounts so deducted on the ground that the payments would be capital receipts in his hands and consequently not liable to tax. That contention was repelled. The learned Judge, Walton, J., pointed out the distinction between a case where there was an agreement for good consideration to pay a fixed gross amount and to pay it by instalments and the case where there was an agreement for good consideration not to pay any fixed gross amount, but to make a certain or uncertain number of annual payments. Having pointed out that distinction, the learned Judge asked himself if the annual payments were really instalments of the price, what the gross amount payable was: As he found none and as it transpired that the annual payment reserved was precisely the equivalent of the rent which the plaintiff used to receive formerly from the sub-lessees of the property, the learned Judge held that the payments received by the plaintiff were not payments of a capital but of an income nature. 'It Seems to me', observed the learned Judge, 'to make no difference whether the contract to make the annual payments is entered into in consideration of money paid or in consideration of property assigned'. The ground on which the learned Judge proceeded, therefore, was that although a particular payment might be the consideration for the assignment of property, it might still partake of the nature of income in the hands of the transferor and that whether or not any gross amount had been fixed as the consideration would be a most Important if not the ruling consideration.
26. The case to which I would next refer is that of (1944) 25 Tax Cas 173 (F). The facts were that an investment company which had been incorporated to acqutre the whole of the issued share capital of a trading company, the consideration being the whole of its authorised share capital, sold its rights to two other companies, the consideration being various sums including is, for each non-mechanically propelled bicycle and 1 for each motor bicycle sold by the second, third or the fourth company or any of their subsidiaries. This payment was to continue for 'all times thereafter' unless the third company commuted it for a certain sum between two stated dates. The question being whether the sums received under the clause providing for the payment of is. and 1 respectively on each bicycle and motor-cycle sold were income or capital receipts, it was held by the Court of Appeal that they were income in the hands of the transferor company. Lord Greene M. R., who delivered the leading and in fact the only judgment, gave as the reasons for the decision the following features of the transaction, namely, that the payments were to go on in perpetuity which was quite impossible to reconcile with their belonging to the category of capital; that they were related to the turnover of the transferee companies which were trading companies; that they were not tied in any way to any special sum whatsoever; and. lastly, that the right of commutation was unilateral. It would appear that once again it was considered relevant that the consideration was not any gross sum of an ascertained or ascertainable character with which the periodic payments might be said to be connected and that the payments firmed on the business activities of the transferee companies. The learned Master of the Rolls referred to the contention that the payments were instalments of a capital sum and asked 'what is the capital sum?' In answer to his own question he observed that any reference or dependence upon any capital sum was altogether absent.
27. The next of the cases cited to which I would refer is that of (1948) 28 Tax Cas 501 (H). The case concerns a novel by Rudyard Kipling which the assesses had with his permission dramatised. In 1914, she entered into an agreement with the author by which the latter was given the right to enter into contracts on her behalf, so far as her lights in the dramatised version of the novel was concerned and she was to get one-third of the sums received for film rights in the novel or the play. In pursuance of that agreement, the rights were granted by Mr. Kipling to a certain party and the assessee was duly paid her one-third share of the receipts. There appears to have been a further agreement in 1930 to which no reference is necessary. In 1939, the widow of Mr. Kipling made a fresh grant of the film rights to an American Company for a period of ten years for a consideration of a sum of 8,000 and the assessee was paid one-third of that amount, namely 2,666. It was the nature of that amount as the receipt in her hands which fell to be considered. The case went through all the Courts, ultimately reaching the House or Lords, and the assessee's contention throughout was that what she had received was a capital sum. It appeared that the grant covered the right to adopt and change the play and also to combine it with other works. In the Court of Appeal it was held by Lord Greene M. R. that there was a transfer and it was of a comprehensive character, 'covering a portion of the assessee's copy right and a great deal more than would be covered by an assignment of such rights; in other words a partial assignment of copyright and other extraneous rights. The consideration, it was pointed out, had no reference to any royalty calculation but was a definite stated sum and since it had been found that the assessee had not been carrying on any profession or vocation & was not engaged in any trade, it was held that she had sold a part of her copyright as also certain other rights and realised a part of a capital asset. The grounds on which the House of Lords proceeded were practically the same. Viscount Simon pointed out that the assessee had not merely hired out the use of the play in the manner of granting a licence to use a patent, but had made an out ', and out transfer of a part of her copyright together with certain other rights, for a lump sum. Particular reference was made to the fact that the grantee had been given the right to alter the play and it was observed 'that it was clearly proved by that fact that rights in the corpus itself had been transferred and not merely a licence granted for using it in an unchanged condition. Lord Uthwatt pointed out that a person was entitled to divide an asset into parts and that the assessee before their Lordships had done so by selling a part of her copyright for a lump sum. The receipt resulting from a transaction of that character, it was held, could only be a capital sum and the fact that the asset had a value only when put to commercial use or that an appropriately worded licence might have brought about the identical result, was considered to be immaterial. Once again the form of the consideration which was a lump sum was considered to be a factor of primary importance and 'the receipt was held to be a capital receipt on the ground that it was a result of an out and out sale for an ascertained consideration in the form of a single sum.
28. Another case cited was 'Delage v. Nugget Polish Co. Ltd.' (1905) 21 TLR 454 (J). That again was not an Income-tax case, but an action brought by the transferor of a secret process for the manufacture of a certain article against the transferee to recover from him the amount deducted as income-tax. The facts were that the plaintiffs who were foreigners resident abroad, sold a secret process to the assignors of the defendants, upon the terms that the purchasers, their successors and assigns, should, for a period of forty years, pay to them annually a sum equal to 8 per cent, of the gross receipts on-the sale of articles made by the secret process. In making the payment for the relevant accounting year, the defendants, who were purchasers from the transferees of the plaintiffs, deducted a certain amount as income-tax under Section 40, Income-tax Act of 1853. The question being whether the amount would be a capital receipt in the hands of the plaintiffs, it was answered by Phillimore, J., in the negative. Reference was again made to the fact that there was no first ascertainment of a lump sum and that the sum payable fluctuated within no definite limits with the fluctuations in the business of the transferees.
29. The recent-most case which was cited at the Bar was the case of Mitchell (H. M. Inspector of Taxes v. Rosay, (1954) 35 Tax Cas 496 (K), an extremely instructive decision of the Court of Appeal. The facts were that under an agreement of the year 1945, the assesses acquired the sole rights to exhibit or otherwise exploit a film-in certain areas during a certain period. The consideration provided for was that the assessee should pay 1,000 and that the receipts from the exploitation of the film should be divided equally between her and the second party to the agreement. Thereafter, in 1946, the assessee entered into another agreement with a company by which she granted to the company the rights which she had acquired under the first agreement. The consideration provided for by this agreement was that after the deduction of certain expenses and the payment of 1,000 which the assessee had paid under the first agreement, the gross receipts were to be shared between the company and herself in the proportion of 30 per cent, and 70 per cent. Under that agreement, that respondent received altogether a sum of 3,848 from the company and after deducting the sum of 1,000 as stipulated for, she retained for -herself half of the balance of 2,848. This sum was apparently spread by the Revenue authorities over a number of years and tax was claimed' thereon on the ground that the sums assigned to the several years were income receipts. The trial Court, Wynn-Parry J. held that they were receipts of an income nature, as contended for by the Revenue and his decision was upheld by the Court of Appeal. Great reliance 'was placed before both the Courts on the case of (1948) 28 Tax Cas 501 (H), to which I have already referred and also to the case of (1939) 22 Tax Cas 725 (D), which also I had occasion to mention a little while ago. Both the trial Court and the Court of Appeal distinguished Nethersole's case (H) on the ground that it was a case of an out and out sale of a capital asset in consideration of a lump sum. Evershed M. R. in the Court of Appeal, did not consider it to be of much importance that Miss Nethersole obtained her dues in one payment, but what he considered material was that the consideration agreed to by Mrs. Kipling was itself a lump sum of 8,000, as would ordinarily be the case where a piece of property was sold. In the case of Haig's Trustees (D), the consideration was not a gross sum, but the receipt was yet held to be of a capital nature. The facts were that the executors under the Will of Earl Haig allowed the late Mr. Duff Cooper, who was engaged in writing a biography of the Field Marshal to make use of his diaries for the purposes of' the projected work and gave him the right to extract and publish what he thought fit from the diaries. For that right Mr. Cooper was to pay not a capital sum but a share of the proceeds of the publication. Nevertheless, it was held by the Court that the amounts received from Mr. Cooper were of a capital nature, because what the trustees had done was not to provide for obtaining an income by the use of an asset but to dispose of an asset in a way which they thought would be best for the persons concerned under the trust. Evershed M. R. distinguished the case on the ground that the trustees were charged with the duty of realising the assets of the estate of the deceased Earl and that since, once published by Mr. Duff Cooper, the future value of the diaries for the estate would be almost negligible, the transaction had really been regarded as a sale; and since the trustees had not been carrying on any trade or business, it had been held that the form they had chosen for the transaction was really a form of realising an asset, because after the transaction, the publication value of the diaries would be reduced to almost nil. In the case before him, the learned Master of the Rolls adopted the test applied by Lord Normand in the case of the Trustees of Earl Haig (D) and asked himself whether, according to 'the look of the thing', the transaction was a means of realising an asset or a means of obtaining income by the use of an asset. He answered the question by saying that what the assessee before him had done was to use an asset as a means of 'obtaining income. Under the first agreement she had obtained the right to alter the film but she conveyed no such right to her own transferee. She was, therefore, not making a transfer of a copyright or any substantive right. What she was taking from the transferee was a stated percentage of the receipts as such. Those' receipts in the hands of the transferee were undoubtedly receipts of an income nature and since the assessee took a share of the receipts as such, they did not change their character when they reached her hands. It would appear that the absence of a lump sum consideration and the connection of the payment with the trading receipts of the payer were regarded as the most important considerations apart from the nature of the whole transaction and, as the learned Master of the Rolls put it, 'the look of the thing'.
30. The above were all the cases cited which were cases of receipts. One case, however, was cited which was concerned with the nature of a payment in relation to the payor. The case cited was (1936) 20 Tax Cas 79 (G). The facts of that case were that the assessee purchased a dental practice for a primary price of 15,000 of which, 5,000 was to be paid in cash. As to the balance, the agreement was that it would be discharged by the payment each year for ten years of a sum equal to 25 per cent, of the net profits of the practice of the year, but if the amount, so paid during the ten years, were in the aggregate more or less than the balance of the primary purchase price, that price was to be treated as correspondingly increased or diminished and such payments were to be taken by the transferor in full satisfaction of the balance of 10,000. The sum in question in the case was an amount of 886, being the first annual payment under the agreement. The Court of Appeal held that the annual sums paid under the agreement would be instalments of capital find therefore the amount of 886 was not admissible as a deduction in the computation of the assessee's taxable profits. The reason given by Lord Wright M. R., as also Romer and Greene L. JJ.. was that, throughout, the parties had contemplated and had arranged the transaction on the footing that there was a lump sum in respect of the purchase money. 'The 15,000', observed the learned Master of the Rolls, 'is not an otiose figure; it is a figure which permeates the whole of the contract, and upon which the whole contract depends'. Similarly it was observed by Romer, L. J., that the consideration bargained for was a lump sum and by Greene L. J., that it was quite impossible to say that the sum of 15,000 had no real existence. Once again the deciding factor was taken to be the lump sum character of the consideration, although payment of a part of it was adjusted to the fluctuating fortunes of the transferee's business.
31. As against the above decisions, some of which Dr. Pal very fairly himself cited, reliance was placed on the assessee's behalf on the decision of the Privy Council in the case of AIR 1933 20 PC 211 (C). That was, a case under the Income War Tax Act of Canada, 'but the fact seems to make no difference. The facts were that the assessee had sold all her right, title and interest in some land which she owned in freehold to a company in consideration of a certain sum in cash, of certain shares in the company and an agreement to deliver to her 10 per cent, of oil produced from the land. This oil was described as a royalty. The transferee company, after it had commenced operations, struck oil and raised some of it in the year of account, but did not deliver to the assessee any part of the oil produced. It sold the whole of it and paid over 10 per cent, of the gross proceeds to the assessee which she accepted in satisfaction of the royalties reserved to her under the agreement. It appears that at the time when the question arose, the assessee had not yet conveyed the lands to the company and the title was still continuing to be in her own name. Be that as it may, the question being whether the amount which the lady had received in lieu of the oil was 'annual profit or gain from any other source', the Appellate Court in Canada held that it was not so, but was a capital receipt. The leading judgment which 'was delivered by Newcombe J (1931) Can SCR 399 (L), referred to the decision of Rowlatt J. in Commissioners of Inland Revenue v. Marine Steam Turbine Co., Ltd. (1920) 1 KB 193 (M), but did not pay any attention to it beyond saying that it was a decision under the English .Act. On appeal, the Judicial Committee agreed with the Appellate Court of Canada that the case was not without its difficulties, but in the end they said that they were not prepared to differ from the view of the transaction which an eminent Judge like Newcombe J., had taken and with which all his colleagues had agreed. The view they thus endorsed and which they held the Revenue had not succeeded in showing to be manifestly wrong was that the assessee had converted the land, which was her capital, into money shares and ten per cent of the stipulated minerals which the company might win and that, therefore, there was no questieh of profit or gain,
32. I shall have to deal with this case at some length, but before I do so, I may refer to a decision of the Bombay High Court in the case of Commissioner of Income-tax, Bombay City v. Kol-hia Hirdagarh Co., Ltd., Bombay AIR 1950 37 Bom 51 (N). which was cited before us as containing an elucidation of the decision in (1944) 25 Tax Cas 173 (F) and the Canadian case. Unfortunately, I do not find the Bombay decision to be of any assistance in appreciating the true meaning and effect of those two cases. The Bombay High Court had to consider the nature of a payment in relation to the payer. There also, there was an agreement between the proprietor of a .colliery and a third party by which it was agreed to promote the assessee company for the purpose of acquiring and carrying on the colliery. The purchase price was originally fixed in a certain form, but there were some subsequent changes and ultimately in discharge of a part of the consideration, the company agreed to pay a commission to the vendor at the rate of four annas per ton of steam and rubble coal and three annas per ton of slack coal raised from the colliery and sold and rented by the company therefrom. The question being whether the sum representing the commission paid by the assessee company to the vendor was a revenue expenditure, it was held that it was, because the payment was for an indefinite period, it had relation to the turnover of the company and it had no hearing on any specific sum fixed as a part of the purchase price. The learned Judges before whom the case of AIR 20 1933 PC 211 (C), was cited felt pressed by its authority, but distinguished it on, inter alia, the ground that the Privy Council had not been considering whether the delivery of the 10 per cent. of oil by the transferee company to the assessee was capital or revenue expediture, but whether it was capital or revenue income in the hands of the assessee. Curiously enough, having disposed of the decision of the Privy Council on that among other grounds the learned Judges held that they found the case of 1944 25 Tax Cas 173 (F), almost indistinguishable and ultimately fortified by their own view by a specific reference to that decision, quite overlooking that the decision they were relying on was also a decision concerning the nature of a receipt in the hands of the person receiving a payment and not the nature of the payment in relation to the person who made it. I do not, therefore, think that there is anything in the decision of the Bombay High Court which furnishes a useful commentary on the two decisions in 1944 25 Tax Cas 173 (F) and AIR20 1933 PC 211 (C) respectively.
33. Reverting now to the Spooner's case (C) it does not really contain any decision by the Judicial Committee. Their Lordships merely say that as the judgment appealed from had not been shown to be manifestly wrong, they were not prepared to dissent from the view taken by an eminent Judge of the Canadian Court with whom all his colleagues had concurred. They did indeed; refer to some of the leading decisions of the-English Courts, particularly the decision of Rowlatt J. in 1920 1 KB 711 (E), but they cited against-that case another decision by the same learned Judge in 1920 1 KB 193, where there was no question at all as to whether the receipt concerned was income, but only whether it was income from business so as to be chargeable to excess-profits tax. Rowlatt J. did indeed say in the case-referred to by the Judicial Committee that the receipt then before him was an instalment of the price, but he did so, because the transferors were' the liquidators of a company who were not trading but only realising its assets. The decision of the Judicial Committee, if there was any decision at all, seems to rest on the basis that in view of the fact that the lady was not trading and had parted with all her interest in the lands once and for all, the transaction was a sale and that the-oil consideration was also price, notwithstanding that it was a percentage of the raisings by the company; and that since the lady took the consideration in kind in the form of a portion of the very thing which had been her own property and which she had parted with, there - was no trading and profit and, therefore, no 'profit or gain' within the meaning of S, 40 of the Canadian Act. The Canadian Act mentions only 'profit or gain', but not also 'income' and their Lordships seem to have considered it sufficient to find that in taking back a part of one's own property, no profit or gain could be made. Although their Lordships pointed out that profit or gain might, be received in kind as well as in money, they added that it was not without some significance that the lady had bargained to receive her share in oil. The true meaning of the decision, therefore, seems to be that since the lady was taking back a part of the oil which had been her own oil, there could be no profit or gain out of a transaction of that kind. The case was a very exceptional one. I have not seen it relied on in any other case. It was indeed cited at the Bar before the Judicial Committee in the case of Gopal Saran Narain Singh v. Commissioner of Income-tax B. & O., AIR 1925 12 PC 143 (O) but the Board, as then constituted, did not even mention it in their judgment.
34. I have now briefly referred to all the cases, cited at the Bar. There can really be no precedent in matters of this kind unless a case can-be found which is exactly identical hi all its facts but the decisions cited do furnish some guidance as to the matters which are to be considered in such cases and the manner in which they are to be approached. The first step in the approach is that the whole transaction should be looked at, not with a view to discovering what its true legal character is, but with a view to ascertaining its true nature and effect from a business or accountancy point of view. In other words, to use the language of Evershed M. R., one must see, to begin with, what the 'look of the thing' is, A transaction may be a sale, or it may be the hiring out of the user of an asset, even if the subject-matter be a wasting asset and even if its use involves consumption. But whether it is a sale or a licence or a lease is not decisive, because even if it be sale, the consideration or a part of it can be taken in a form which involves disappearance of its character of consideration and an emergence of a character of periodical income. The 36/49 Holdings' case (P), Jones' case (E), Chadwick's case (I) and Delage's case (J), were all cases of a sale. On the other hand, even the consideration for a licence for a number of years may in certain circumstances be a capital receipt. What the parties call it, is not material and so also whether the monetary result to the parties would have been the same if the transaction had taken another form. The question arises generally in 'the case of periodic payments. If such payments be instalments of price as such, they are un-doubtedly capital receipts. But in deciding whether they are such instalments or only income amounts, the question whether there is a gross lump sum as the agreed consideration to which such payments are related is always a pertinent consideration, although in certain exceptional cases it may not be determinative. The payments may be arranged for in various forms. They may be portions of a lump sum which was agreed to as the price. In such a case, the payments will be payments of portions of a contractual debt and obviously capital receipts; but they may also be fixed shares of the profits made by the transferee in the course of using or exploiting the asset or they may have to be computed by reference either to the number or the quantity of the products or the gross receipts for sales. When they 'are in the latter forms and are' not tied to some agreed gross sum and the arrangement is not that by the periodic payments such gross sum shall gradually be paid off, they will normally have to be taken as income receipts. Bur, as I pointed out by reference to certain observations of Lord Greene, M. R., there can be no principle of universal application and no criterion which will be a sure test in all cases or the presence or absence of which will decide the result. The main question in all cases is, was the transferor realising an asset or was he using the asset as a means of obtaining an income or even if he was [realising an asset, was he realising it in such a form that he can be said to have applied it to the purchase of a provision for annual payments which, by reason of such arrangement, ceased to be portions of the price and assumed the character of income
35. What are the facts in the present case? The assessee is a business concern, carrying on the business of manufacturing lime and also, it would appear, working mines for coal and other mineral substances. It has not withdrawn from business, but at the time of the transaction, and also at the time of the receipts now in question, it was in business in the same or an analogous line. The principal object of its incorporation, according to the Memorandum of Association, was to carry on the business of cement and lime manufacture and also of limestone supply and it was-for the purposes of such business that it formed the object of acquiring the rights and concessions of the Karanpura Company. The business activities contemplated by the Memorandum ofAssociation are not limited to obtaining concessions regarding mineral substances and exploiting-them, but also 'to sell or dispose of the Undertaking of the company, or any part thereof forsuch consideration as the company may think fit(Clause 44)', 'to sell lease, mortgage, dispose of, turn to account, or otherwisedeal with all or any part of the property andrights of the Company (Clause 53)' and buying.and selling and turning to account various otherthings of various kinds. It was with such objects that the assessee company was incorporatedand it has since been in actual pursuit of such ,objects. It acquired the rights and concessions ofthe Karanpura Company in accordance with thefirst of its objects in 1932 and thereafter proceeded to obtain other leases and concessions, alsopertaining to limestone and other mineral substances, in 1934. Having done so, it transferredthe rights and concessions acquired from theKaranpura Company and certain other rights and,concessions it had itself acquired to a third com-pany as early as in 1935. As I have pointed outit did not' cease carrying on its manufacturingactivities and business, because the deed of 1935 -itself shows that it held other leases and the assessment order shows that it is in active businessas a manufacturer of lime from limestone. Indeed,it had other business interests in the very lands .which it was transferring to the DewarkhandCement Company Limited and Dr. Pal even madeit a point that it was for the purpose of protecting those interests that certain reservations had-.been made in the deed. It would appear that under the arrangement, entered into, the assessee-company and its transferee would be carrying onbusiness on parallel lines on different parts of thelands covered by the leases, those containing limestone being exploited by the transferee and the-other areas being exploited by the assessee com-pany and the assessee company would also be entitled to remove clay and shales from any partof the lands and to use them for all purposes .except that of cement manufacture. In my viewthe transaction of 1935 must be viewed against the background of those business objects andoperations of the assessee company and its professed object of not only carrying on the businesses of cement and lime manufacture, but also ofselling or leasing or mortgaging its properties and turning them to account in those ways or otherwise.
36. Coming now to the nature of the transaction, in form it is undoubtedly an assignment of the remainder of the leases though there are difficulties of construing it as an absolute transfer. The consideration is constituted of three items of three different categories. Under the third of the purchaser's covenants, it is a share of the profits; under the fourth, it is a share of royalty; and under the first, it is a rate per ton of so much-of the manufactured product of cement as might be sold. The stipulation in the third covenant is, to use a phrase of Rowlatt J., 'nakedly for a share of the profits' of the business of the transferee; that in the fourth covenant, has, to use a phrase of Lord Greene, 'reference to a royalty computation', and that in the first covenant has reference not to the raw-material of limestone, nor even to the cement manufactured from it, but to the sale of such cement and only to the quantity sold. The receipts provided for by the third and the fourth covenants could clearly not be called; capital receipts, but Dr. Pal contended that while a part of the consideration stipulated for might partake of the character of income, another part might still be capital. That indeed is true, but the force of Mr. Meyer's contention that a reference to the third and fourth covenants is relevant for the purpose of ascertaining the true nature of the whole transaction cannot be denied. For the moment I shall leave aside the third and the fourth covenants. As to the first. Dr. Pal referred to an observation in Spooner's case (C) and contended that the consideration provided for therein had taken that form, because of the uncertainty of how much limestone there might be underneath the surface and because the value depended on that contingency. In those circumstances, it was said that, not unnaturally, the price was made to depend on the quantum of the product, just as the oil consideration had been adjusted in Spooner's case (C) and that if the oil receipt in the hands of Mrs. Spooner was a capital receipt, the money receipt under the first covenant in the present case was equally a capital receipt in the hands of the assessee. I do not think that the analogy drawn by Dr. Pal from Spooner's case will work. The thing by which the consideration fell to be determined and measured in Spooner's case (C) was a part of, the very thing transferred, whereas the standard in the present case is not even the manufactured product but the quantum of such product brought under the business operation of sale. It has clearly a reference to the trading activity of the transferee and to use again a phrase of Rowlatt J., it is liable 'to raise or fall with the chances of the transferee's business.' I am not forgetting that in Ramsay's case (G), Lord Wright thought that Rowlatt J., could not have intended to set it up as a universal proposition that whenever a consideration was made to depend upon the fluctuating fortunes of a business it would necessarily be a capital receipt in the hands of the transferee, but he really distinguished the case on the ground that, in the case before him, there was a lump sum consideration of 15,000 and it permeated the whole of the contract, although provision had been made for the payment of a part of it out of the annual profits of the transferee's dental practice. In the present case, there is no capital sum mentioned, nor do I see that any capital sum can be conceived of. The transferee was to pay a share of the profits, if any made, a share of royalties, if any were rebelieved and a certain amount per ton of cement sold, if any sale of cement took place. We were reminded that there was a provision for a minimum payment, but it is impossible to regard that provision as indicating that the consideration provided for was a price, far less that it was a capital sum, because, as was pointed out by the Judicial Committee in the case of AIR 1925 12 PC 143 (O), it would obviously have no relation to 'the value of the subject-matter. Indeed, I cannot imagine how it could possibly be said that the parties were contemplating any particular price or could have contemplated any particular subject-matter of which the price would have to be paid. No sale of fluxstone might be made to the Tata Iron and Steel Company Ltd., or to anybody else, or even if such sale was made, no profit might result; no right might be granted to the Tata Iron and Steel Company Ltd. to quarry and remove fluxstone and no royalty might be received; and no cement might be sold. In those circumstances, it is difficult to see of what subject-matter the parties would be contemplating to pay and receive the price. To carry the analysis further, what the assessee company had before the transfer was a right to exploit the leases for the remainder of the respective terms. If they themselves carried put the exploitation, they might extract a certain quantity of limestone and might even exhaust the mines. There could be no certainty that, during the same period, the transferee would be able to quarry and extract the same quantity of limestone and therefore it seems to me that there was no definite subject-matter which could be susceptible of a transaction of sale for a price. The obvious nature of the transaction is that the assessee company, having obtained certain rights and concessions relating to mineral substances by transfer and otherwise and while carrying on business on the same lines on its own account under other leases and concessions, transferred the former in the course of its business operations and by way of turning them to account to the transferee company, providing for itself certain periodical receipts which would come to it as the share of the profits of the transferee's business, if any profits were made or as a part of the royalty, if royalties were received' or as an amount computed at a certain rate on the sale of cement, if any cement was sold. In my opinion, the view taken by the Tribunal that the transaction represented a business arrangement which the assessee company had entered into with the Dewarkhand Cement Company for the purpose of an exploitation of the mines and that it was providing for receipts of income which the nature of the receipts stipulated for clearly showed to be their character, is entirely justified. In my view, not only is that conclusion forced on one by the background of the facts, by the circumstances surrounding the transaction and by the nature of the receipts provided for, but the transaction is also a clear instance of the company turning into account some of its assets for a business purpose and receiving thereout a business income. In somewhat similar circumstances, where a company, after obtaining several concessions regarding mineral substances transferred some of them to other companies, the Judicial Committee- held that the transactions were indistinguishable from outright sales and yet the annual payments provided for, which were a part of the consideration and which could not be regarded as rent or royalty, were nevertheless trading profits, because they could not be properly segregated from other business earnings of the company. (See British South Africa Co. v. Commissioner of Income-tax, 1946 AC 62 (P) I do not say that the case is on all fours with the present one, but it goes very near and furnishes valuable guidance in interpreting the transaction before us. In my opinion, the receipts which came into the hands of the assessee company under the first of the purchaser's covenants were clearly of an income character.
37. In the result the questions referred to this Court are answered as follows:
Question 1 -- 'Not pressed'.
Question 2-- 'Yes'.
The Commissioner of Income-tax, West Bengal, will have his costs of this Reference.
Certified for two Counsel.
38. I agree.