# [1971] 1 S.C.R. 517

- **Citation:** [1971] 1 S.C.R. 517
- **Court:** Supreme Court of India
- **Decided:** 1970-05-05
- **Case number:** Civil Appeals Nos. 1627 II c and 1628 of 1968
- **Bench:** J. C. Shah, K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1971-1-s-c-r-517-5091
- **Pages:** 5

## Headnote

lndi1111 /11come-ra.r Act, ( 11 of 1922)-Assessee p11rchase.v propri<tory
riRlrt.~ u·ith arrea1·s of rent and royalty-Wlrether receipt of tire arrears tax•
11hh·-As.1·w·ee .<ells-Profit If taxabl<~findlng of Hlb11nal, if opr11 to re·
riew h.v HiRlt Court.
The assessee-company purchased the proprielury interests in lands rich
in coal and fireclay.
The deeds
assigned to the assessee the vendors'
right to receive arrears of rent. and royalty in pursuance of the agreement
between the vendors and third parties. Later the assessee sold its right
since it could not win the mines for want of finances.
The Income-tax
Officer assessed the entire arrears of rent, and royalty to tax in the
assessee's hands as revenue receipts. He also assessed the profit df the
•ale to tax as a business transactiC\n.
The Appellate Assistant Commis·
sioner, and the Tribunal agreed with the orders. The Tribunal found that
the assessee was heavily indebted to the vendor but there was no evidence
that the payment of the am'lunt was pressed for; the memorandum
of
association of the assc~ee empowered it to acquire, sell and--disposc
of
and deal with mines and mining properties; as a major part of the land
purchased by the assessee was in possession of other mining companies, it
was not possible for the assessee to undertake any large scale and pront·
able mining operations; the assessee sold the lands purchased by it for a
profit; and the properties purchased were sold very soon after they were
purchased.
But the High Court differed from these .conclusions.
Dis·
missing the appeals, this Court :-
HELD: (i) The purchase of the riaht to collect arrears of rent and
royalty could not be considered as an income. It was true that the assessee
purchased the lessors' right from the vendor in pursuance of the agree·
ments entered into by the vendor with third parties whose ~ights had been
acquiled by the assessee.
The assessee company had been incorporated
on Jan. 23, 1947. Th.erefore, it could not have got any right in the pro·
perty prior to the conveyance in its favour on Dec. 22, 1947. As per the
terms of the conveyance, the assessee becomes entitled to the arrears of
rent and royalty as a purchaser of those rights. It had no right to collect
ihese arrears of rent and royalty as the owner of the property. It may be
that in determining the price payable under the conveyance, the arrears of
rent and royalty were not taken into consideration.
But that did not
change the nature of the right acquired by the assessee. [520 DJ
(ii) The findings of the Tribunal did not afford any basis to it to come
to the conclusion that the purchases made by the assessee and the subsequent sale were in the nature of a trading adventure. The circumstances
that the memorandum of association of the assessee permitted the assessee
to acquire and sell and dispose of and deal with mining properties was an
in~Qn~lu1iv-. one. It was not shown that the assessec had acquired
or
sold any other property. The fact that the assessee sold property pur·
chased by it for profit was not decisive in finding out whether the sale
was effected in the course of the business of the assessee.
From the fact
I
518
SUPREME COURT REPORTS
(1971 J 1 S.C.R.
that' the assessee could not undertake large scale an'<l profitable mining in
the- area which was in its possession, no inference may be drawn that lands
\\'ere acquired with a view to sell later on nor the circumstance that
the
properties were sold very soon after they were purcha5ed affords any basis
for the conclusion that the sale.1 in ques~ion was effected in the course of
the business. [,521 BJ
(iii) If the finding of faci is based on an in°fcrence from the primary
cvidentiary facts proved in the case, it_s correctness or validity is open to
challenge in refe·rence proceedings within narrow limits.
It is open to the
parties to challenge a conclusion of fact ctr.awn by the trib11nal on the
ground that it is not supported by an)i legal eyidence or that the in1pu

## Text

517
A
COMMISSIONER OF INCOME· TAX, WEST BENGAL II
B
c
D
f
G
H
v.
RAJASTIIAN MINES LfD., CALCUTTA
May 5, 1970
[J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.J
lndi1111 /11come-ra.r Act, ( 11 of 1922)-Assessee p11rchase.v propri<tory
riRlrt.~ u·ith arrea1·s of rent and royalty-Wlrether receipt of tire arrears tax•
11hh·-As.1·w·ee .<ells-Profit If taxabl<~findlng of Hlb11nal, if opr11 to re·
riew h.v HiRlt Court.
The assessee-company purchased the proprielury interests in lands rich
in coal and fireclay.
The deeds
assigned to the assessee the vendors'
right to receive arrears of rent. and royalty in pursuance of the agreement
between the vendors and third parties. Later the assessee sold its right
since it could not win the mines for want of finances.
The Income-tax
Officer assessed the entire arrears of rent, and royalty to tax in the
assessee's hands as revenue receipts. He also assessed the profit df the
•ale to tax as a business transactiC\n.
The Appellate Assistant Commis·
sioner, and the Tribunal agreed with the orders. The Tribunal found that
the assessee was heavily indebted to the vendor but there was no evidence
that the payment of the am'lunt was pressed for; the memorandum
of
association of the assc~ee empowered it to acquire, sell and--disposc
of
and deal with mines and mining properties; as a major part of the land
purchased by the assessee was in possession of other mining companies, it
was not possible for the assessee to undertake any large scale and pront·
able mining operations; the assessee sold the lands purchased by it for a
profit; and the properties purchased were sold very soon after they were
purchased.
But the High Court differed from these .conclusions.
Dis·
missing the appeals, this Court :-
HELD: (i) The purchase of the riaht to collect arrears of rent and
royalty could not be considered as an income. It was true that the assessee
purchased the lessors' right from the vendor in pursuance of the agree·
ments entered into by the vendor with third parties whose ~ights had been
acquiled by the assessee.
The assessee company had been incorporated
on Jan. 23, 1947. Th.erefore, it could not have got any right in the pro·
perty prior to the conveyance in its favour on Dec. 22, 1947. As per the
terms of the conveyance, the assessee becomes entitled to the arrears of
rent and royalty as a purchaser of those rights. It had no right to collect
ihese arrears of rent and royalty as the owner of the property. It may be
that in determining the price payable under the conveyance, the arrears of
rent and royalty were not taken into consideration.
But that did not
change the nature of the right acquired by the assessee. [520 DJ
(ii) The findings of the Tribunal did not afford any basis to it to come
to the conclusion that the purchases made by the assessee and the subsequent sale were in the nature of a trading adventure. The circumstances
that the memorandum of association of the assessee permitted the assessee
to acquire and sell and dispose of and deal with mining properties was an
in~Qn~lu1iv-. one. It was not shown that the assessec had acquired
or
sold any other property. The fact that the assessee sold property pur·
chased by it for profit was not decisive in finding out whether the sale
was effected in the course of the business of the assessee.
From the fact
I
518
SUPREME COURT REPORTS
(1971 J 1 S.C.R.
that' the assessee could not undertake large scale an'<l profitable mining in
the- area which was in its possession, no inference may be drawn that lands
\\'ere acquired with a view to sell later on nor the circumstance that
the
properties were sold very soon after they were purcha5ed affords any basis
for the conclusion that the sale.1 in ques~ion was effected in the course of
the business. [,521 BJ
(iii) If the finding of faci is based on an in°fcrence from the primary
cvidentiary facts proved in the case, it_s correctness or validity is open to
challenge in refe·rence proceedings within narrow limits.
It is open to the
parties to challenge a conclusion of fact ctr.awn by the trib11nal on the
ground that it is not supported by an)i legal eyidence or that the in1pugncd conclusion dra~u from
the rele".ant facts is
not rationally possible.
If such a plea is established, the Court has to consider whether the conclusion in question is not perverse and should not, therefore, be set aside.
On the facts of this case, the High Court was justified in examining the
· correctness of the inference drawn by the Tribunal on th;: basL;; of th~
primary facts found by that Tr'bunal. [521 EJ
G. Venkatarwa1ni Naidu and Co. v. Conunissioner of I11con1£'-tax, 35
l.T.R. 594; followed.
CIVIL APPELLATE JURISDICTION:
Civil Appeals Nos. 1627
II
c
and 1628 of 1968.
D
Appeals from the judgment and order dated January 19, I 965
of the. Calcutta High Court in Income-tax Reference No. 240 c·f
1961.
S. Mitra, G. C. Sharma, R. N. Sachthey and D. :a. Sharma, for
the appellant (in both the appeals).
E
The resp~ndent did not appear.
The Judgment of the Court was delivered by
Hegde, J.
This appeal by certificate arises from the decision
of the Cakutta High Court rendered in a reference made to it by
the Income Tax Appellate Tribunal, 'B' Bench, Calcutta under s.
66(1) of the Indian Income-tax Act, 1922 (which will hereinafter
be referred to as the. 'Act'). Alongwith its statement of case. the
tribunal submitted two questions to the High Court. for its opinion.
They are:
"(I) Whether on the facts and in the circumstances
of the case,
the
sums of Rs.
2,55,733/-
and
Rs. 3,00,332/- receivable by the assessee as arrears of
royalty and, rent were assessable as the income of the
assessee for the assessment years 1948-49 and 1950-5 l
respectively ? and
(2) Whether on the facts and circumstances of the
case the sum of Rs. 2,80,000/- being the surplus derived
by the assessee on sale of property was assessable as the
income of the assessee for the assessment year 1950-51."
F
G
H
I
C.I.T. v. RAJASTHAN MINES LTD. (Hegde, J.)
519
A
. The facts set out in the statement of the case, in brief are as
II
{'
D
E
F
G
H
follows:
·
The assessee M/s. Rajasthan Mines Ltd. is a public li'mited.,
Company incorporated on January 23, 1947. The Raja of Ramgarh was the landlord of the North and South Karanpura fields
covering about 312 villages.
Those tracts of lands were rich m
coal and fireclay. M/s. Karanpura Development Co. Ltd., held
coal mining licence in about 14 of those villages. It also held fireclay leases in about 8 villages and leases of other minerals in porttions of two villages. That Company had also a prospecting licence
for the coal in the said fields with the option to take further coal
mining leases.
The leases were also held by three other parties
namely South Karanpura Development Ltd., Janab Mohammad
Kamruddin and Jagadish Prasad Bhagat in respect of other parcels
of land, in these fields.
By an indenture dated December 22,
1947 (registered on the 26th of February, 1948), in pursuance
of agreements dated September 20, 1945 and August 7, 1947, the
assessee acquired from the Raja of Ramgarh proprietory interest
in all those leased out lands, more fully specified in the schedule
appended to the said indenture. By the said indenture, the Raja
of Ramgarh also transferred and assigned to the assessee his right
to receive the arrears of rent and royalty from the lessees with
effect from September I, 1946.
The consideration paid .by ~he
assessee for the acquisition of the proprietory rights with the right
to realise and recover the arrears of rent and royalties was Rs. 5
lucs.
For the assessment year 1948~49, the Income-tax Officer assessed the entire amount of arrears of rent and royalty receivable
from the said lessees, from September I, 1946 upto the date of
conveyance namely December 22, 1947, as the assessee income
for the previous ,Year ended on the 31st March, 1948. The net
amount included · in the assessment under that head was
Rs. 2,55,733/-.
In the previous year ended on December 31, 1949 relevant
for the assessment year 1950-51, the assessee purchased another
lot of villages from the Raja of Ramgarh as per the conveyance
·dated January 24, 1949, in pursuance of the agreements already
referred to for a consideration of Rs. 2 lacs with all arrears of
rent and royalty which on December 31, 1948
amounted to
Rs. 3,00,332/-. On August 13, 1949, the assessee sold away his
right, title and interest in the major portion of the village& acquired under the aforesaid deeds of conveyance dated December
22, 1947 and January 24, 1949 to Sirka Valley Coal Co.
Ltd.
and threle other parties for a total sum of Rs. 7,50,000/-. The
Income-tax Officer treated the entire arrears of rent and royalty
amounting to Rs. 3,00,332/- as revenue receipts of the assessee
taxable during the assessment year 1950-51. He also treated the
$20'
(1971] lS.C.R.
SUPREME COURT REPORTS
'
'
salt; of the lands by the assessee as a business transaction and taxed
a sum of Rs. 2,~0,000/- as the net profit of the assessee arising
from the sale, which profit was recomputed by the Appellate Assi~
tant Commissioner at Rs. 2,80,000/-. The Income-tax Appellate
Tribunal agreed with those conclusions.
The High Court of Calcutta differing from the concl!islom
reached by the Income-tax Officer, Appellate Assistant Commissihner and the Tribunal came to the conclusion that the sums oi
Rs. 2,55,733/- and Rs. 3,00,334/- receivable by .the .assessee as
· .arrears of royalty and rent were not assessable as, the profits of
the assessee for the assessment year 1948-49 and 1950-51 respectively. ' It also disagreed with the conclusions reached by the
Income-tax Officer, Appellate Assistant Commissioner and
the
Tribunal that profit made by the assessee by the sale of the properties purchased from Raja of Ramgarh was assessable as the
income of the assessee for the assessment.year 1950-51. Aggrieved by that order, the Commissioner of Income-tax, West Bengal
has come up in appeal to this Court.
We are in agreement with the High Court rhat the purchase of
the right to collect arrears of rent and royalty cannot be considered
as an inccn1e.
It is true that the assessee purchased the lessor·s
right from the Raja of Ramgarh in pursuance of the agreements
entered into by the Raja of Ramgarh with third parties whose
rights had been acquired by the assessee. The assessee company
had been incorporated. as seen earlier, on January 23, 1947.
Therefore it could not have got anv right in the property prior
to the conveyance in its favour on December 22, 1947. As per
the tenns of the said conveyance, the assessee became entitled to
A
B
c
D
E
the arrca~s of rent and royalty
1
• as a purchaser of those rights. It
had no right to collect those arre:rrs of rent and royalty as the
owner of the property.· It may be that in detennining th~ price
payable under the conveyance, the arrears of rent and royalty .F
were not taken into consideration. But that does not change the
nature of the right acquired by the assessee. Hence we agree with
the High Court that the first question referred to earlier must be
answered in favour of the assessee.
Now coming to the second question, according to the asscssee.
it purchased the tracts of land in question with a view to win mines
G
but for want of finance, it was compelled to sell the same. The
primary facts found by the tribunal are: (1) the assessee was heavily indebted to Raja of Ramgarh but there was no evidence to
show that the Raja was pressing for the payment of the amount due
to him; (2) the memorandum of association of the assessee p;ave it
power to acquire, sell and dispose of and deal with mines and minff
ing properties; (3) as a major part 'Of the land purchased by the
assessee was in the possession of the other mining Companies, it
was not possible for the assessee to undertake any large scale and
I
A
B
c
D.
E
F
G
H
C.I.T. v. l!.AJASTHAN MINES.LTD. (Hegde, !.)
521
profitable minjng operations; (4) the assessee sold the lands purchased by it for a profit and (5) the properties purchased were sold
very soon after they were purchased.
The above findings did not afford any basis to the tribunal to
come to the conclusion that the purchases made by the assessce
•md the subsequent sale were in the nature of a trading adventure.
The circumstance that the memorandul)I of association of the assessec permitted the assessee to ac.quire, and sell and dispose of
and cleal with mining properties is .an inconclusive one. It is not
sho\\n that the assessee had acquired or sold any other property.
The fact that the asses~~e sold property purchased by 1t for profit is
not decisive in finding out whether the sale was effected in the
course of the bu,iness of the assessee. From the fact that t1\e assessee could not undertake large scale and profitabie minmg in the
area which was in its possession, no inference may be drawn that
lands were acquired w:ith a view to sell later on, nor the circumstance that the properties were sold very soon after the} W•'re
purchased affords any basis for the conclusion that lhe sale in
question was effected in the course of the business. The primary
facts found either individually, or collectively could not have afforded a basis for arriving at the conclusion that the trans~ction in
question w:8 an adventure in trade.
It was urged on behalf of the RevenUe that the finding of the
tribunal that the purchase and sale of lands were made in the
course of business being a finding of fact, it was not open to !he
High Court to interfere with that finding. But as observed by this
Court in G. Ve11karaswami Naidu and Co.
v. Commissionet of
Income-tax( 1). if the finding of fact is based on an inference from
the primary evidentiary facts proved in the case, 1ts correctness
or validity is open to challenge in reference proceedings within
narrcw limits. It is open to the parties to challenge a conclusion
of fact drawn by the tribunal on thi: ground that it is not ~upportcd
by any legal evidence or that the impugned conclusion drawn from
the relevant facts is not rationally possible. If such a pka is established, the court has to consider whether the conciu,ion in question is not perverse and should not. therefore. be set a>ide.
On
the facts of this case the High Court was justified in examinini:r the
correctness of the inference drawn by the Tribunal on the basis of
the primary facts found by that Tribunal.
For the reasons m~ntioned above. we agree with the
High
Court that the second question referred to it for its upinicn •nu st
also be answered in favour of the assessee.
In the result these a~_oeals fail and they are dismissed.
Y.P.
Appeals dismissed.
(I) 35 l.T.R. 594.