# [1969] 3 S.C.R. 761

- **Citation:** [1969] 3 S.C.R. 761
- **Court:** Supreme Court of India
- **Decided:** 1969-02-19
- **Case number:** Civil Appeal No. 1593 of 1968
- **Bench:** J.C. Shah, Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1969-3-s-c-r-761-4639
- **Pages:** 12

## Headnote

Income-tax Act (11 of 1922), ss. 10(2)(vi-a) and (vi-b) Qnd 12(3)
and (4)--Scope of s. 10-lf els, (vi-a) and (vi-b) of s. 10(2) could be
read bv implication into s. 12.
The assessee-company, carrying on the business of crushing sugar
cane and gur refining, apprehending loss, entered into a lease with another
company.
Under cl. (7) of the indenture, the consideration of the lease
was royalty payable on the manufacture of sugar and molasses and was
subject to a minimum payment of Rs. 65,000 per annum. The lease was
for a term of 5 years commencttng from !st June 1945 with an option
to continue for a further term of 5 years and thereafter with two further
options of 5 years on the same terms and conditions subject to payme:.it
of higher rates of royalty.
Clauses 2 to 5 provided that the existing
machinery which was owned by the lessor could not be removed and that
the lessee would be entitled to set up additional machinery without interference from the lessor and that on the termination of the lease the lessee
would be entitled to remove the same without causing any damage to the
property demised.
The effect of els. 11 to 14 was that the lessor would
have no concernt with the production of the factory which was the principal part of the business pre:viously carried on by the lessor. In assessment
proceedings for the assessment year 1955-56, the assessee contended that
the lease was a lease of a commercial asset and therefore the income arising from it should be assessed under s. 10 of the Income-tax Act, 1922,
and hence, the assessee should be allowed depreciation and deve1opment
rebate in accordance with els. (vi-a) and (vi-b) of s. 10(2). The department and the High Court rejected the assessee's contention and held that
the income was liable to be assessed under s. 12 as 'income from other
sources' and that no additional depreciation and development rebate could
be allowed.
Jn appeal to this Court it was contended that : . (I) the income of the
assessee was liable to be assessed under s. 10 of the Income-tax Act and
not under. s. 12; and (2) Since the benefit under cl. (vi) of s. 10(2) is
allowed to the assessee under s. 12 ( 3), the assessee should be held to be
entitled to additional depredation and development rebate under els (vi-a)
and (vi-b) even if the assessment was under s. 12, on the groW,d that•
those two clauses are ancillary to cl. (vi) and should be taken to have
been included ins, 12(3) along with cl. (vi) .
. HELD : ( 1 ) The income of the assessee could not be characterised
as income from the activity of the assessee carrying on any business and
was therefore, liable to be assessed under s. 12 and not under s. l O of the
Income-tax Act. [769 F-G]
The primary condition for the application of s. JO is that the tax is
payabl_e by an assessee under the head 'profits and gains of business' in
respect. of business carried on by him. When an assessee does not carry
on. business at all, s. 10 cannot be applicable and the income that he receives cannot beair the character of profits of business. [769 D-E]
762
SUPREME COURT REPORTS
[1969] 3 S.C.R.
In the present case, a scrutiny of all the clauses of the indenture of
lease, shows that the intention of the assessee was to go out of the busi~
ness altogether, so far as the factory and machinery were concerned with
effect from !st June 1945, to part with the entire machinery of the factory
and the premlses with the purpose of earning rental income, and to use
the income arising from tl)e royalty in its capacity as owner of the factory.
It was not the intention of the a:ssessee '"lo treat the factory and machinery
as a commercial concern or asset during the subsistence of the lease. The
provision fdr payment of minimum royalty indicates that the asses·see had
no direct interest in the production of the factory. The royalty was not
paid for the production in the factory. There was no
direct nexus
between the inqome of the assessee and the production of the factory. The
produ

## Text

A
B
c
D
E
F
G
H
NEW SA VAN SUGAR & GUR REFINING CO. LTD.
V,
COMMISSIONER OF INCOME-TAX, CALCUTTA
February 19, 1969
761
(J.C. SHAH, V, RAMASWAMI AND A. N. GROVER, JJ.]
Income-tax Act (11 of 1922), ss. 10(2)(vi-a) and (vi-b) Qnd 12(3)
and (4)--Scope of s. 10-lf els, (vi-a) and (vi-b) of s. 10(2) could be
read bv implication into s. 12.
The assessee-company, carrying on the business of crushing sugar
cane and gur refining, apprehending loss, entered into a lease with another
company.
Under cl. (7) of the indenture, the consideration of the lease
was royalty payable on the manufacture of sugar and molasses and was
subject to a minimum payment of Rs. 65,000 per annum. The lease was
for a term of 5 years commencttng from !st June 1945 with an option
to continue for a further term of 5 years and thereafter with two further
options of 5 years on the same terms and conditions subject to payme:.it
of higher rates of royalty.
Clauses 2 to 5 provided that the existing
machinery which was owned by the lessor could not be removed and that
the lessee would be entitled to set up additional machinery without interference from the lessor and that on the termination of the lease the lessee
would be entitled to remove the same without causing any damage to the
property demised.
The effect of els. 11 to 14 was that the lessor would
have no concernt with the production of the factory which was the principal part of the business pre:viously carried on by the lessor. In assessment
proceedings for the assessment year 1955-56, the assessee contended that
the lease was a lease of a commercial asset and therefore the income arising from it should be assessed under s. 10 of the Income-tax Act, 1922,
and hence, the assessee should be allowed depreciation and deve1opment
rebate in accordance with els. (vi-a) and (vi-b) of s. 10(2). The department and the High Court rejected the assessee's contention and held that
the income was liable to be assessed under s. 12 as 'income from other
sources' and that no additional depreciation and development rebate could
be allowed.
Jn appeal to this Court it was contended that : . (I) the income of the
assessee was liable to be assessed under s. 10 of the Income-tax Act and
not under. s. 12; and (2) Since the benefit under cl. (vi) of s. 10(2) is
allowed to the assessee under s. 12 ( 3), the assessee should be held to be
entitled to additional depredation and development rebate under els (vi-a)
and (vi-b) even if the assessment was under s. 12, on the groW,d that•
those two clauses are ancillary to cl. (vi) and should be taken to have
been included ins, 12(3) along with cl. (vi) .
. HELD : ( 1 ) The income of the assessee could not be characterised
as income from the activity of the assessee carrying on any business and
was therefore, liable to be assessed under s. 12 and not under s. l O of the
Income-tax Act. [769 F-G]
The primary condition for the application of s. JO is that the tax is
payabl_e by an assessee under the head 'profits and gains of business' in
respect. of business carried on by him. When an assessee does not carry
on. business at all, s. 10 cannot be applicable and the income that he receives cannot beair the character of profits of business. [769 D-E]
762
SUPREME COURT REPORTS
[1969] 3 S.C.R.
In the present case, a scrutiny of all the clauses of the indenture of
lease, shows that the intention of the assessee was to go out of the busi~
ness altogether, so far as the factory and machinery were concerned with
effect from !st June 1945, to part with the entire machinery of the factory
and the premlses with the purpose of earning rental income, and to use
the income arising from tl)e royalty in its capacity as owner of the factory.
It was not the intention of the a:ssessee '"lo treat the factory and machinery
as a commercial concern or asset during the subsistence of the lease. The
provision fdr payment of minimum royalty indicates that the asses·see had
no direct interest in the production of the factory. The royalty was not
paid for the production in the factory. There was no
direct nexus
between the inqome of the assessee and the production of the factory. The
production was only a measnre of the royalty to be paid and had nothing
to do with the character of the payment as a receipt from business or
from other sources. [769 C-D, E-F]
Commissioner of Excess Profit Tax, Bomba,v City v. Shri Lakshmi Silk
Mills Ltd. 20 I.T.R. 451 (S.C.) and Narain Swadeshi Weaving Mills v.
Commissioner of Excess Profits Tax, 26 I.T.R. 765 (S.C.), distinguished.
(2) Clause (vi-a), which was inserted in the Act in 1949, gives additional depreciation allowance over and above the initial allowance which
was previously available under cl. (vi) in respect of buildings newly erected and new machinery and plant but not furnitnre installed after 31st
March 1948. The additional allowance is <lonfined to not more than 5
suceessive assessments falling within the period from !st April 1949 and
31st March 1959. It is deductible in determining the written down value,
unlike .the initial allowance granted under cl. (vi).
Clause (vi-b) was
inserted ·by the Finance Act, 1955. It grants developm~nt rebate in respect of machinery and plant provided that the machinery or plant is new
and has been installed after 31st March 1954, and provided further that
it is used wholly for the pnrpose of the assessee's business and the parti-
·Culars prescribed for the purpose of cl. (vi) have been furnished. Clauses
(vi-a) and (vi-b) thus int'roduce a new scheme and ciannot be treated as
an integ'ral part. of cl. (vi) by implication. Further, it is not permissible
for the Court to read the clauses by implication into s. 12(3) and (4),
because, the clauses were not specifically engrafted by Parliament into
s. 12 while amending s. 10(2). [771 E-H; 772 A-BJ
Kumar Kamalaranjan Rey v. Secretary of.State, L.R. 66 I.A 1, 10,
referred to.
·
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1593 of
1968.
..,,
Appeal from the judgment and order dated, September 20,
1963 of the Calcutta High Court in Income-tax Reference No. 23
Of 1960.
Sachin Chaudhari, T. A. Ramachandran and D. N. Gupta, for
the appellant
D. Narsara;u, R. N. Sachthey and B. D. Sharma, for the respondent.
The Judgment of the Court was delivered by
Ramaswami, J. This appeal is brought by certificate from the
judgment of the Calcutta High Court dated 20th September, 196"1
in Income Tax Reference No. 23 of 1960.
A
B
c
D
E
F
G
H
\
SAVAN SUGAR co. c.1.T. (Ramaswami, I.)
763
The appellant (hereinafter referred to as the assessee) was
carrying on the business oif. crushing sugarcane and gur refining.
M/s. Andrew Yule & Co. were acting as the managing agents of
the assessee. In a letter dated 5th February, 1946 addressed to
the share-holders of the assessee the managing agents referred to
the alarming increase of Government interference in the affairs
B of the 1>ugar industry in Bihar and the increase of wages of the
workers, as well as the levy of a cess of Government and deterioration in the cane crops. In view of this state of affairs, the managing agents apprehended a loss and suggested that the company's
affairs should be put on a "less discouraging basis" by accepting
the offer of a lease of the company as a running concern from the
Standard Refiinery & Distillery Ltd. At an extra-ordinary general
meeting of the share-holders of the assessee company held on
5th March, 1946 it was decided to authorise the directors to enter
into a lease with the said Standard Refinery & Distillery Ltd. By an
indenture of 15th March, 1948 the lease was executed to come
into effect retrospectively from !st June, 1945. The term of the
lease was originally for 5 years commencing from !st June 1945
D
with an option to the lessee to continue for further five years and
thereafter two further options to the lessee, each for five years, on
the same terms and conditions, but subject to the payment of higher
rates of royalties and also ,subject to the option on the part of the
assessee company to terminate the lease by a resolution of the shareE
F
G
H
holders of the company to be held before 30th November in any
year after the first two years. This option of termination of the
lease was not exercised by themsessce company. The consideration
of the lease as described in clause 7 of the indenture was royalty
payable on the manufacture of sugar and molasses. The royalty
on sugar was to be, at the rate of Rs. 75 per hundred maunds of
sugar manufactured for the first and second term of five years, at
the rate of Rs. 82.50 pet hundred maunds of sugar manufactured
for .the third five year period and at Rs. 90 for the fourth five year
penod. The royalty on molasses was to be calculated at 3 pies
per. maund on all molass~ sold during each year of the original
penod or the renewed penod of the lease. The computation of
the royalty was subject to a minimum payment of Rs. 65,000 per
annum.
For the assessment year 1955-56 the relevant accounting year
of the ~essee ended on 31st May, 1954. In the assessment
proceedmgs
for
1955-56
the
assessee's
main
contention was that the lease granted .under the indenture of 15th
March, 1948 was a lease of a commercial asset and therefore the
income arising from the lease should be assessed under s 1 O
o! t!te Income Tax Act and the ~see should be allowed d~re
ciation and development rebate m accordance with clause (vi-a)
and clause (vi-b) of sub-section (2) of section 10 of the Income
764
SUPREME COURT REPORTS
[1969] 3 S.C.R.
Tax Act. The Income Tax Officer assessed the income under s. 12
of the Act as being income under the head "other sources" and
held that no additional depreciation or development rebate could
be allowed as claimed by the assessee. According to the assessee,
the income derived from the lease of the sugar factory was income
from business because the factory was leased as a going concern
and the rent of the building, machinery, plant and spare parts was
fixed at a certain rate per maund of sugar produced, and at a certain rate per maund of molasses sold. On appeal, the Appellate
Assistant Commissioner found that it was a simple !ease of the
building and machinery in a sugar factory, and as such the method
of payment based on production .could not affect the character
and nature of the income derived under the said lease. In further
appeal the Appellate Tribunal came to the conclusion that on the
facts stated the case fell under section 12 and not under section 10
and that since sub-section (3) of section 12 did not include clauses
(vi-a) and (vi-b) of section 10(2) the claim of additional depreciation and development rebate could not,. be allowed. At the
instance of the assessee the Appellate Tribunal stated a case to
the High Court on the following questions of law under section
66(1) of the Income Tax Act, 1922 (hereinafter referred to as
the Act; :
" ( 1) Whether on the facts and in the circumstances
of the case, the income of the assessee ·company was liable
to be assessed under section 12 of the Indian Income Tax
Act and not under section 10 of the said Act ?
(2) Whether on the facts and in the circumstances
of the case, additional depreciation and
development
rebate can be allowed as a deduction ?"
The High Court answered both the questions against the assessee
holding that the income was liable to be assessed under section 12
and that no additional depreciation and development rebate could
be allowed.
Section 10 of the Act stood as follows at the material time :
"10. (1) The tax shall be payable by an assessee
under the head 'profits and gains of business, profession
or vocation' in respect of the profit or gai.n of any business, profession or vocation carried on by him.
(2) Such profits or gains shall be computed after
mal;.ing the following allowances, namely :-
(vi) in respect of depreciation of such buildings,
machinery, plant or furniture being the property of the
assessee, a sum equivalent, where the assets are ships
A
B
c
D
E
F
G
H
SAVAN SUGAR co. v. C.l.T. (Ramaswami, J.)
765
other than ships ordinarily plying on inland waters, to
such percentage on the original cost thereof to the assessee·
as may in any case or class of cases be prescribed. and
in any other case, to such percentage on the wntten
down value thereof as may in any case or class of cases
be prescribed :
B
and where the buildings have been newly erected, of
the machinery or plant being new, IDOi being machinery
or plant entitled to the development rebate under clause
(vi-b), has been installed, after the 31st day of March,
1945, a further sum (which shall however not be deductible in detennining the written down value for the pure
poses of this clause) in respect of the year of erection or
installation equivalentD
F
G
H
(a) in the case of buildings the erection of which
is begun and completed between the 1st day of
April 1946 and the 31st day of March 1956
(both days inclusive), to fifteen per cent of
the cost thereof to the assessee;
(b) in the case of other buildings, to ten per cent
of the cost thereof to the assessee;
( c) in the
case of machinery or plant, to
twenty per
cent of the cost
thereof to the
assessee;
Provided that-
( c) the aggregate of all allowances in respect of
depreciation made under this clause and clause (vi-a)
or under any Act repealed hereby, or under the Indian
Income Tax Act, 1886 (II of 1886), shall, in no case,
exceed the original cost to the assessee of the buildings,
machinery, plant or furniture, as the case may be;
(vi-a) in respect of -Oepreciation of buildings newly
erected, or of machinery or plant being new which has
been installed, after the 31st day of March, 1948, a
further. sum (which shall be deductible in determining
the wntten down value) eaual to the amount admissible under clause (vi) (exclusive of the extra allowance
for double or multiple shift working of the machinery
or plant and the initial depreciation allowance admissible under that clause for the first year of erection of
the building or the installation of the machinery or
plant) in not more than five successive
assessments
·
.for the financial years next following the previous year
LIOSup./69-14
766
SUPREME COURT REPORTS
[1969] 3 S.C.R.
in which such buildings are erected and such machinery and plant installed and falling within the period
commencing on the 1st day of April 1949 and ending on
the 31st day of March, 1959;
( vi-b) in respect of machinery or plant being new,
which has been installed after the 31st day of March,
1954, and which is wholly used for the purposes of the
business carried on by the assessee, a sum by way of
development rebate in respect of the year of installation equivalent to twenty-five per cent of the actual
cost of such machinery or plant to the assessee;
Provided that no allowance under this clause shall
be made w:iless the particulani prescribed for the purpose
of clause (vi) have been furnished by the assessee in
respect of such machinery or plant;
Section 12 was to the following effect :
"12. (1) The tax shall be payable by an assessee
under the head 'Income from other sources' in respect
of income, profits and gains of every kind which may
be included in his total income (if not included under
any of the preceding heads) .
( 2) Such income, profits and gains shall be computed after making allowance for any expenditure (not
being in the nature of capital expenditure)
incurred
solely for the purpose of making or earning such income, profits or gains.
( 3) Where an assessee lets on hire machinery,
plant or furniture belonging to him, he shall be entitled
to allowances in accordance with the
provisions of
clauses (iv), (v), (vi) and (vii) of sub-section (2)
of section 10.
( 4) Where an assessee lets on hire
machinery,
plant or furniture belonging to him and also buildings,
and the letting of the buildings is inseparable from the
letting of the said machinery, plant or furniture, he
shall be entitled to allowances in accordance with the
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
SAVAN SUGAR co. v. c.1.T. (Ramaswami, J.)
7&7
provisions of clauses (iv) '· ( v) , (vi) and (vii). o~ suJ;
section ( 2) of sectJ.on 10 m respect of such buildings .
The main contention of the assessee was that the lease as
contemplated in the indenture dated 15th March, 1948 waa a
lease of a commercial asset, and, therefore, the income arising
from the lease should be assessed under section 10 ( 1 ) of the
Act and not under section 12 (1 ) . In order to examine the
validity of this argument it is necessary to set out the relevant .
clauses of the indenture of lease. Clause ( 1) of the lease proi
vided that the lease was for a term of five years commencing
from 1st June 1945 with an option to continue for a further
term of five years and thereafter two further options of five years
in each case on the same terms and conditions subject to higher
payment of rates of royalties.
Clause 2:
The lessee shall be entitled to run the said sugar
factory and all other machinery annexed to the same
and 111e all the tools and implements, buildings
and
premises, offices, and erections and
utensils and all
other things which are now in or upon the said premises
and which may be added irorn time to time thereto provided always that the lessees shall not at any time remove the plant and/or machinery etc. hereby demised
or any part thereof from the said premises elsewhere
for the purpose of or in connection with the lessees'
other interests.
Clause 3:
The lessees shall at the time ot taking over possession of the factory from the lessors be entitled free of
payment to the goods already manufactured during the
current crushing season, i.e. 1945-46 or in the process
of manufacture and/ or to be hereafter manufactured
by the lessees and the lessees shall have absolute discretion to sell and deal with the same in such manner
as they think fit and proper.
Clause 5:
The lessees shall also be entitled to erect construct
~
maintain any other machinery as the l~
may
think fit and proper.
All machinery brought in and
erected by the lessees would remain the lessees' property and ~ter the termination of the lease the lessees
shall be entitled to remove the same provided always
that the lessees shall forthwith repair and make good
all damage caused to the demised premises by such
removal of the lessees' machinery.
768
SUPREME .COURT REPORTS
(1969) 3 S.C.R.
Clause 7:
Clause 7 provides for the
payment of royalty.
The royalty on sugar was to be computed at the rate of
Rupees Seventy-five per I 00 maunds of sugar manufactured for the first five yeats as well as next five years
then at the rate of Rupees eighty two and annas eight
per I 00 maunds of sugar manufactured for the third
five years and Rs. 90/- for the fourth five years. The
royalty on molasses was
computed at three pies per
maund on all molasses sold during .each year of the
original lease period and any renewals thereof subject
to the payment of a mi.nimum royalty oi Rs. 6,500/-
per annum.
Clause 8:
This clause provides that the lessee shall in addition to the royalty reserved be responsible for all the
running expenses of the factory including salaries and
wages and all factory staff and labour and shall pay all
sugar excise duty etc. excepting the ground rents payable to the landlords and taxes on income chargeable
to. the lessors and shall fully reimburse the lessors in
respect of such exp.~nses which have already been incurred by the lessors since the first day of One thousand nine hundred and forty five and property tax.
Clause 17:
(a) The lessors will keep the demised , premises
insured to the full value thereof and shall pay all expenses which will be incurred for insuring the demised
premises.
(b) The lessors shall PW all expenses of running
the lessors' company e.g. Directors fees, Audit fees,
Ground rents etc. but not the running expenses of the
factory and premises hereby demi~ed and shall also pay
for all the expenditure for additions, alte•ations breakdown and/or renewals and replacement of capital
nature (i.e. debitable to block account) to buildings
and machineries etc. and other similar expenses of a
capital nature on the demised premises.
It appears from clauses 2 and 5 that the existing machinery
which was owned by the lessor could not be removed and that
the le-see would he entitled to ~et un additional machinery without interference from the lessor •nd that on the termination of
the lease the lessee would be entitled to remove the same without
.causing any damage to the property demised.
Clause 3 conA
B
c
'
D
E
F
G
H
A
B
c
D
E
p
G
H
SAVAN SUGAR co. v. C.l.T. (Ramaswami, 1.)
7,f9
templates that if during the period, 1945-46 the lessors sell the
commodity manufactured the price thereof should go back , to
the Jessee.
Mr. Choudhury referred to clause 6 which entitled
the Jessee to use the railway siding during the period of the lease.
But the light of use of railway siding by the le:see under this
clause cannot in any way be construed as the exercise of control
over the business of the assessee.
The provision for minimum
royalty of Rs. 65,000/- per annum indicates that the assessee had
110 direct interest in the production oi the factory.
The cumulative effect of clauses 11, 12, 13 and 14 is that the lessor wiII
have no concern with the production of the factory which is ihe
principal part of the business, p1eviously carried on by the lessor.
The provisions in clause 17 are that the lessors shall keep the
demised premises insured to the full value and to repair and
replace the machines which are of capital nature. On a scrutiny
of all the clauses of the indenture of lease, our conclusion is that
the intention of the assessee was to part with the entire machinery of the facto1y and the premises with the obvious purpose
of earning rental income. It was not the intention of the a'sessee
to treat th.~ factory and machinery etc. as a commercial cor.cern
during the subsistence of the lease.
The primary condition for
the application of s. 10 of the Act is that the tax is payable by an
assessee under the head "profits and gains of business" in respect
of business carried on by him. When an assessee docs not carry
on business at all, section 10 cannot be applicable and the income
that he receives cannot bear the character of profits of business.
As we have already shown there is no direct nexus between the
income of the assessce and the production of the factory.
The
royalty payable to the assessee was not paid under clause 7 of
the indenture of lease for the production in the factory. The
production was only a measure of the royalty to be paid and,
in any event, the measure of payment had nothing to do with the
character of the payment as a receipt from business or from
other sources.
It follows that in the circumstances of this case
the income of the asscssee cannot be characterised as income
from the activity of the assessee carrying on any business.
The
High Court was therefore right in holding that the income of
lhe assessee was liable to be ass,essed under section 12 and not
wnder section 10 of the Act.
On behalf of the assessee ref.erence was made to the decision
of this Court in Commirsioner of Excess Profit Tax, Bnmbay
City v. Shri Lakshmi Silk Millr Ltd.(') in which the respondent
«>mpany which was formed for the purpose of manufacturing
inlk. cloth in~talled a plant for dying silk yarn as a part of its
busmess . dunng ~he , rele_v~nt c~arging accounting period. Owing
IO the ddliculty m obtammg silk yam on account of the war it
(1) 20 l.T.R. 45'
770
SUPRB:Ml! COURT REPORTS
[1969] 3 S.C.R.
could not make use of this plant which had remained idle for
somo time. In August, 1943, the plant was let out to another
company on a monthly rent.
The question arose whether the
income received by the respondent company in the chargeable
accounting period by way of rent was income from business and
aasessable to excess profit tax. It was held by this Court that a
part of the assets did not cease to be commercial assets of that
business merely because it was temporarily put to a
different
use or let out to another and accordingly the income from the
assets would be profits of the business irrespective of the manner
in which the assets were exploited by the company.
But this
Court clearly indicated that no general principle could be laid
down which would be applicable to all cases and that each case
must be decided on its own circumstances according to ordinary
commomense principles.
The material facts of l.Akshmi Silk
Mills Ltd. ( 1) are that only a part of the machinery was k:t out
on lease and the rest of the machinery was worked by the asse8see.
The letting out of the machinery was for a short period of fin
months.
There was also no letting out of the premises of the
factory by the assessee.
The ratio of the decision in Labhmi
Silk Mills Ltd.(') is therefore not applicable to the present case.
Ref.erence was made on behalf of the assessee to the decision in
Narain Swadeshi Weaving Mills v.
Commissione~ of Excm
Profits Tax(') in which the assessee firm carrying on a manu·
facturing business consisted of three partners, · N and his two
sons R & G.
In April, 1940, a public limited company was
incorporated with the object of taking over the business of the
assessee firm. This
company was director-controlled
and the
directors were N, his three sons R, G & S and a brother-in-law
of G.
The company purchased only the building and leasehold
rights fiom the assessee firm but took over from it on lease at
an annual rent th.~ plant and. machinery. The assessee firm did
not thereafter manufacture anythin~ and it had accordingly no
further trading or commercial acttvity.
In the circumstances,
it was held that leiting out of the plant and the machinery by
the assessee to the company could not fall within the definitioo
of "business" under section 2 ( 5) and as the assessee firm had,
no business during the relevant period to which the Act applied,
section 1 OA could not be invoked by the Excess Profit
Tax
Authorities.
It was however pointed out that whether a particular activity amounts to any trade, commerce or manufacture or
any adventure in the nature of trade, commerce or manufacture
is always a difficult que~tion to answer and no general principle
can be laid down which would be applicable to all cases, and
each case must be decided in the setting and background of its
own facts.
It is evident that the material facts in the present
case are somewhat different from those of Narain
Swadeslii
(I) 10 l.T.R. 451.
(2) 26 I.T.R. 76S.
A
B
c
D
E
F
G
H
B
c
D
E
F
G
II
SAVAN SUGAR co. v. C.I.T. (Rama.swami, !.)
771
Weaving Mills' case(') for there is no out-right sale of the building of the factory but only a lease of the factory premises together with the machinery for a long period of years.
For the reasons already expressed our conclusion is that the
intention of the assessee was not to treat the factory etc. as a
commercial asset during the subsistence ol the lease. In other
words, the intention of the assessee was to go out of the business
altogether so far as the factory and the machinery was concerned
with effect from 1st June, 1945 and the intention was to use
the iincome arising from the royalty in its capacity as the owner
of the factory.
1t follows therefore that the first question was
rightly answered by the High Court in favour of the Commissioner of Income Tax.
As regards the second question the argument was stressea
by Mr. Choudhury that clauses (vi-a) and (vi-b) ol section 10(2)
are ancillary to clause (vi) and should be taken to be included
within clause (vi) as mentioned in sub-section ( 3) of section 12.
It appears that clause (vi-a) was inserted by section 11 of the
Taxation Laws (Extension to Merged States and Amendment
Act, 1949). Clause ( vi-b) was inserted by s. 8 of the Finance
Act, 1955 with effect from 1st April, 1955.
At the time of
making the amendment under the said Acts, no amendment was
made to section 12(3) of the Act. It was argued by Mr. Choudhury that although this was not done specifically it followed by
implication that additional depreciation allowance in respect of
new assets and development rebate would come within the ambit
of section 12(3). It appears to us that clauses (vi-a) and (vi-b)
are not ancillary to clause (vi) because the scheme of clauses
(vi-a) and (vi-b) is somewhat different.
Clause (vi-a) which
was inserted in 1949 gives additional depreciation
allowance
over and above the initial allowance which was formerly available under the second paragraph of clause (vi) in respect of
buildings newly erected and new machinery and plant but not
furniture installed after the 31st March, 1948. The additional
allowance under this clause is confined to not more than five
successive assessments fallin~ within the period from 1st April
1949 and 31st March 1959. Further it is deductible in determining the written down value,
unlike the initial
allowance
gr~ted un?er the second paragraph of clause (vi). aause
(v1-b) was inserted by the Finance Act, 1955. It grants development ~ebate in respec.t of machinery and plant provided that
the machmery or plant 1s new and has been installed after the
31st March, 1954; and provided further that it is used wholly
fo~ the purpose of the assessee's business and the particulars prescn~d for the purpose of clause (vi) have been furnished. It is
rnamfest that clauses (vi-a) and ( vi-b) introduce a new scheme
(I) 2HT.R. 765.
772
SUPREME COURT REPORTS
[1969] 3 S.C.R.
and cannot be treated as an integral part· of clause (vi) by implication. Apart from this consideration it appears to us that
these clauses were not specifically engrafted by Parliament in
section 12 ( 3) and section 12 ( 4) while amendi11g section 10 ( 2)
of the Act. It is therefore not permissible for the Court to read
these same clauses by implication in section 12 ( 3) and section
12 ( 4) of the Act. The duty of the Court is to interpret the words
that Parliament has used,· it cannot supply the gap disclosed in
an Act or to make up the deficiencies. "Ir', said Lord Brougham,
in Gwynne v. Burnell,(') "we depart from the plain and obvious
meaning on account of such views (as those pressed in argument
on 43. Geo. 3, c. 99) we do not in truth construe the Act, but
alter it.. We add words to it or vary the words in which its provisions are couched.
We supply a defect which the legislature
could easily have supplied, and are making the law, not interpreting it" (Cf. Kumar Kama/aranian Roy v. Secretary of State(').
Accordingly, we are of opinion that the assessee is not entitled to
additional depreciation and development rebate and the second
question was rightly answered by the High Court in the negative.
For these reasons we hold that the judgment of the High
Court dated 20th September, 1963 is correct and this appeal
must be dismissed with costs.
V.P.S.
Appeal dismissed.
(1) (1840) 7 Cle, & F. 572, 696.
(2) 661.A. 1. JO.
B
c