# Cl•lral Talkies Ltd., Kpnpur v. Dwarha Prasad Hidayatullah ], January z7

- **Citation:** [1961] 3 S.C.R. 502
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Case number:** Civil Appea1No. 84 of 1958
- **Bench:** J. L. Kapur, M. HrnAYATULLAH, J.C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/cl-lral-talkies-ltd-kpnpur-v-dwarha-prasad-hidayatullah-january-z7-2037
- **Pages:** 13

## Headnote

Income-tax-Conveyance with reservation of rights-Category
of-Receipts under the conveyance, if income or capital.
The appellants were carrying on the bnsiness of cement and
lime manufacture and supply thereof. By a deed dated May 7,
1935, the appellants conveyed to the Associated Cement Ltd.
the rights which had vested in them under an earlier conveyance
made in their favour by a company known as Karanpura Co.
Under the deed the appellants reserved to themselves the right
to receive from the Associated Cement Company 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 transferred and comprised in the leases and
agreements.
Pursuant to this stipulation in the year_ of account, the
appellants received from the Associated Cement Ltd. Rs. 77,820.
The Income-tax Officer included this amount in the total assessable income of the appellants in the assesment year and his order
was confirmed l>y the Appellate Assistant Commissioner and by
the Income-tax Appellate Tribunal. The contention of the
appellants before the High Court in_ a reference under s. 66 of
the Indian Income-tax Act that on a proper construction of
the deed and on the facts and circumstances of the case the sum
of Rs. 77,820 did not represent receipt of a revenue nature
in the hands of the appellants and was not assessable as such,
was negatived.
Held, that the deed 1iid not incorporate a transaction of
·either sale or lease. The conveyance was· subject to several
restrictions and the'appellants retained in part, rights in the
land conveyed. The transaction was substantially a transaction
for sharing the profits of the commercial activities of the Associated Cement Ltd. and the receipt under cl. I of the deed was of
the nature ·of income and not capital and as such assessable
to tax,
·
3 S.C.R.
SUPREME COURT REPORTS
503
Foley v. Fletcher, (1858) 3 H. &N. 769, Secretary of Statein Coullr96r
cil of India v. Andrew Scoble, [1903] A.C. 299, Oswald v. KirkcaJdy
Magistrates, [1919] S.C. 147, Commissioners of Inland Revenue v. National Cement
Ramsay, (1935) 20 T.C. 79, State of Bihar v. Sir Kameshwar Singh, Mines Industries,
[1952] 21 l.T.R. 382, Captain Maharajkumar Gopal Saran v.
Ltd,
Commissioner of Income-tax, Bihar & Orissa, [1935] 3 I.T.R 237
v.
(P.C.) and Chadwick v. Pearl Life Assurance Co., [1905] 2 K.B. 507, Commissioner of
considered and applied.
Income-tax,
In assessing the true character of the receipt for the purpose
Ww Bengal
of the Income-tax Act, inability to ascribe to the transaction a
definite category is of little consequence. It is not the nature
of the receipt under the general law but in commerce that is
material. It is often difficult to distinguish whether an agreement is for payment of a debt by instalments or for making
annual payments in the nature of income. The court has, on an
appraisal of all the facts, to assess whether a transaction is
commercial in character yielding income or is one in consideration of parting with property for repayment of capital in
instalments. No single test of universal application can be
discovered for solution of the problem. The name which the
parties may give to the transaction which is the source of the
receipt and the characterization of the receipt by them are of
little moment, and the true nature and character of the transaction have to be ascertained from tbe covenants of the·contract in
the light of the surrounding circumstances. The decision of the
question is however not left to the application of any arbitrary
standards. There are certain broad principles which guide the
determination of the character of the receipt. The distinction
between a capital receipt and revenue receipt though fine is
real. The dividing line may be thin, and often at first sight
imperceptible.

## Text

Cl•lral Talkies
Ltd., Kpnpur
v.
Dwarha Prasad
Hidayatullah ],
January z7.
502
SUPREME COURT REPORTS
(1961]
Criminal Procedure gave ample powers to Mr. Brijpal
Singh Seth to accord permission for bringing the suit,
a.nd the order of the District Magistrate, even if
treated as a. transfer, was valid.
In the result, the appeal fails, and is dismissed with
costs.
Appeal dismissed.
NATIONAL CEMENT MINES INDUSTRIES, LTD.
v.
COMMISSIONER OF INCOME-TAX,
WEST BENGAL, CALCUTTA.
(J. L. KAPUR, M. HrnAYATULLAH and J.C. SHAH, JJ.)
Income-tax-Conveyance with reservation of rights-Category
of-Receipts under the conveyance, if income or capital.
The appellants were carrying on the bnsiness of cement and
lime manufacture and supply thereof. By a deed dated May 7,
1935, the appellants conveyed to the Associated Cement Ltd.
the rights which had vested in them under an earlier conveyance
made in their favour by a company known as Karanpura Co.
Under the deed the appellants reserved to themselves the right
to receive from the Associated Cement Company 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 transferred and comprised in the leases and
agreements.
Pursuant to this stipulation in the year_ of account, the
appellants received from the Associated Cement Ltd. Rs. 77,820.
The Income-tax Officer included this amount in the total assessable income of the appellants in the assesment year and his order
was confirmed l>y the Appellate Assistant Commissioner and by
the Income-tax Appellate Tribunal. The contention of the
appellants before the High Court in_ a reference under s. 66 of
the Indian Income-tax Act that on a proper construction of
the deed and on the facts and circumstances of the case the sum
of Rs. 77,820 did not represent receipt of a revenue nature
in the hands of the appellants and was not assessable as such,
was negatived.
Held, that the deed 1iid not incorporate a transaction of
·either sale or lease. The conveyance was· subject to several
restrictions and the'appellants retained in part, rights in the
land conveyed. The transaction was substantially a transaction
for sharing the profits of the commercial activities of the Associated Cement Ltd. and the receipt under cl. I of the deed was of
the nature ·of income and not capital and as such assessable
to tax,
·
3 S.C.R.
SUPREME COURT REPORTS
503
Foley v. Fletcher, (1858) 3 H. &N. 769, Secretary of Statein Coullr96r
cil of India v. Andrew Scoble, [1903] A.C. 299, Oswald v. KirkcaJdy
Magistrates, [1919] S.C. 147, Commissioners of Inland Revenue v. National Cement
Ramsay, (1935) 20 T.C. 79, State of Bihar v. Sir Kameshwar Singh, Mines Industries,
[1952] 21 l.T.R. 382, Captain Maharajkumar Gopal Saran v.
Ltd,
Commissioner of Income-tax, Bihar & Orissa, [1935] 3 I.T.R 237
v.
(P.C.) and Chadwick v. Pearl Life Assurance Co., [1905] 2 K.B. 507, Commissioner of
considered and applied.
Income-tax,
In assessing the true character of the receipt for the purpose
Ww Bengal
of the Income-tax Act, inability to ascribe to the transaction a
definite category is of little consequence. It is not the nature
of the receipt under the general law but in commerce that is
material. It is often difficult to distinguish whether an agreement is for payment of a debt by instalments or for making
annual payments in the nature of income. The court has, on an
appraisal of all the facts, to assess whether a transaction is
commercial in character yielding income or is one in consideration of parting with property for repayment of capital in
instalments. No single test of universal application can be
discovered for solution of the problem. The name which the
parties may give to the transaction which is the source of the
receipt and the characterization of the receipt by them are of
little moment, and the true nature and character of the transaction have to be ascertained from tbe covenants of the·contract in
the light of the surrounding circumstances. The decision of the
question is however not left to the application of any arbitrary
standards. There are certain broad principles which guide the
determination of the character of the receipt. The distinction
between a capital receipt and revenue receipt though fine is
real. The dividing line may be thin, and often at first sight
imperceptible.
CIVIL APPELLATE JURISDICTION: Civil Appea1No. 84
of 1958.
Appeal by special leave from the judgment and
order dated December 22/23, 1955, of the Calcutta
High Court in l.T.R. No. 24 of 1953.
N. 0. Chatterjee, 1). P. Pal and D. N. Mukherjee for
-the appellant.
Hardayal Hardy and D. Gupta, for the respondent.
1961. January 17. The Judgment of the Court was
delivered by
SHAH, J.-Messrs. National Cement Mines Industries
Ltd.-hereinafter referred to as the .appellants-are a
public limited company incorporated to "carry on the
6~
Shah ].
504
SUPREME COURT REPORTS
[1961]
'96'
business of cement and lime manufacture and also of
Vt .
1 c
t limestone supply and for the purposes of such busia ion...
emen
.
,
efines Industries, nesses to acquire rights and concess10ns pertaining to
Ltd.
limestone, coal and surface lands from the Dewarv.
khand Karanpura Mines and Industries Ltd." and
iommissioner 01 also to "work mines or quarries and to find, win, get,
Income-tax,
-
h
work, etc. or ot erwise de. al with clay and bauxite."
West Bengal
Dewarkhand Karanpura Mines and Industries Ltd.
Shah J.
-hereinafter called the "Karanpura Company "-had
obtained three leases on November 29, 1930, first for
mining limestone from Maharaja Pratap Narain Udai
Nath Shah Deo from limestone beds in certain villages
in Dewarkhand, second from Maharaj Kumar Naud
Kishore Nath Shah Deo of the surface rights necessary to exercise the powers and privileges in respect
of the first lease and the third from Maharaj Kumar
Raj Kishore Nath Shah Deo of surface rights in
respect of Hoyer village. The period in each of the
three leases was thirty years. On March 17, 1932,
the Karanpura Company conveyed the rights and
options under the three leases to the appellants. On
September 30, 1934, the appellants acquired the limestone and surface rights in respect of limestone beds
in village Umedanda for 95 years from Maharaja
Pratap Narain Uday Nath Shah Deo and Maharaj
K\1mar Raj Kishore Nath Shah Deo. On the same
date, the appellants entered into two agreements, one
with Maharaja Pratap Narain Uday Nath Shah Deo
which is called the "bauxite option agreement"
thereby acquiring the first option to take a lease or
leases of any area or areas of bauxite deposits in
certain villages, and another from the said M11lrnraja
for the first option to take a lease or leases of limestone beds in the Tori Di~trict. By a fonrth agreement
also dated September 30, 1934, between the Karanpura
Company, Maharaja Pratap Narain Udai Nath Shah
Deo acting with the consent of M<1haraj K umars Raj
Kishore Nath. Shah Deo and Nand Kishore Nath
Shah Deo, the roy11lties reserved under the original
deeds dated November 29, 1930, were reduced and the
periods of the leases were extended to 99 years from
the date of the original leases,
3 S.C.R.
SUPREME COURT REPORTS
505
By deed dated May 7, 1935, the appellants conveyed
'96'
to Dewarkhand Cement Company Ltd. (which later National Gem•••
came to be known as Associated Cement Ltd. and will Mines Industri'5,
be referred to hereinafter by that name) the benefits
Lid.
of the fonr leases and the two agreements for the
v.
unexpired periods. By this deed, for a present conCommissioner of
I ncomt-tw;,
sideration of Rs. 25,000 "for trouble and expenses in
west B••&al
obtaining the leases and agreements" and for further
payment under several covenants which will be
Shah J.
presently set out, the appellants conveyed the rights
vested in them subject to certain reservations. In
the year of account June I, 1944, to May 31, 1945, the
appellants received from the Associated Cement Ltd.
under the first covenant of the deed, Rs. 77,820 being
the amount computed at the rate of0-13 As. per ton
of cement manufactured from limestone won from the
la:.ds and sold by the company. The Income-tax
Officer, Companies District I, Calcutta, included this
amount in the total assessable income of the appellants in the assessment year 1946-47. This order was
confirmed in appeal by the Appellate Assistant Commissioner and by the Income-tax Appellate Tribunal.
At the instance of the appellants, the Tribunal
referred the following question with another not
material for this appeal to the High Court of Judicature at Calcutta:
" Whether on a proper construction of the Deed
of Assignmen.t dated 7th of May, 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
a.s such ?"
The following facts were held proved by the
Tribunal. The principal objects of incorporation of
the appellants were to carry on.the business of manufacturing cement and lime and sale of limestone and
the appellants were formed with the object of acquiring the rights and concessions of the Karanpura
Company. By their Memorandum of Association, the
appellants were authorised to sell or dispose of the
undertakings or any part thereof as they thought fit,
506
SUPREME COURT REPORTS
[1961)
1961
and to sell, lease, mortgage, dispose of, turn to
N
.
1
account or otherwise deal with all or any part of their
ation•C•m•nt
t
d 'ht
d'
fth
b' t
Mi- btdusfries, proper y an ng s an m pursuance o
ese o JeC s
uti.
tha rights and concessions of the Karanpura Company
v.
were a.cquir<Jd and extension of leases and concessions
Commission" of were obtained and were transferred to the Associated
Jfteom•-tax,
Cement Ltd. The appellants were therefore carrying
ii
W ISi Bengal
h
f
g
on in t e year o account l 44-45 the business for
-'
Sllak J.
which they were incorporated.
After reciting the prefatory clauses, it was stated
,
~~ed~:
l
"WHEREAS it was agreed inter alia that the
Purchaser should pay to the Vendor the sum of
Rupees twenty five thousand for trouble and
expenses in obtaining the leases and agreements
dated the thirtieth day of September one thousand
nine hundrl'ld and thirty four hereinbefore recited
and hereinafter expressed to be hereby transferred
and Whereas the Purchaser hath paid to the
Vendor the said sum of rupees twenty five thousand
as the Vendor doth hereby acknowledge NOW
THIS INDENTURE WITNES8ETH that in consideration of the covenants on the part of the
Purchaser hereinafter contained the Vendor hereby
grants assigns and transfers unto the Purchaser and
the Karanpura Company at the request and by the
dire.ction of the Vendor hereby grants assigns
transfers and confirms unto the Purchaser : ".
The deed then proceeds to set out the description
of the various leases and concessions and agreements
and the covenants which the Associated Cement Ltd.
undertook in favour of the appellants. These covenants are:
(1) 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 heraby transferred and comprised in the hereinbefore recited leases
and agreements.
(2) That it will not sell any Fluxstone won by it
from the said lands to the Tata Iron :ind Steel Company Ltd., at a price less than l{upees one and annas
.
3 S.C.R.
SUPREME COURT REPORTS
507
fourteen per ton F. 0. R. the siding nearest to the
quarry or place from which it shall be won without
the consent of the Vendor.
(3) That it shall pay to the Vendor one-half the
profit (if any) which it shall make by selling Fluxstone
to the Tata Iron & Steel Company Ltd., or to any other
person such profits to be ascertained after deduction
from the price received all costs, charges and expenses
including the royalty payable to the Maharaja in
respect thereof but before deducting overhead charges.
Such accounts to be closed and adjusted on the
thirtieth day of June and the t.hirty-first day of December in each and every yeai-.
(4) That it will not grant to the Tata Iron & Steel
Company Ltd., the. right to quarry and remove F1uxstone from the lands hereby transferred at a royalty of
Jess than ten annas per ton, and will pay to the Vendor
one-half of any royalty so charged and received.
(5) That in the event of the payments made under
clauses one, three and four above in any one year not
amounting to the minimum hereinafter set out the
Purchaser shall pay in lieu and in full discharge therefor the following minimum :
·
(a) During the first year to be computed from the
first day of January one thousand nine hundred and
thirty-five, rupees ten thousand.
(b) During the second year
rupees thirty
thousand.
(c) During every subsequent year rupees fifty
thousand.
Out of the above minimum payment of rupees fifty
thousand per year for the purposes of account, the
sum of rupees twenty thousand shall be deemed to
have been paid in respect of payment under clause
three above.
(6) That the Purchaser or the persons deriving title
under the Purchaser will at all times from the date
hereof duly pay all rents, royalties and payments
becoming due under the (four) hereinbefore recited
Indenture of Lease (subject as regards the Limestone
lease to the modifications effected by the agreement for
jll aUt>nal C1tn1ttl
Mnus IMustt'i1s,
Lid.
v.
Commissioner of
Income-ta~.
Wist Bm~aJ
ohaA ].
I96I
Nati01Jal C1ment
Mims 111dustrias.
Lid.
v.
Commissioner of
lnecmu-tax,
Wis• Bengal
Slsah ].
508
SUPREME COURT REPORTS
[1961]
reduction of royalty dated the thirtieth day of September one thousand nine hundred and thirty -four hereinabove recited) in respect of the premises agreements
options rights or benefits hereby assigned and
transferred and observe and perform the covenants
agreements stipulations and conditions therein contained and henceforth on the part of the Lessee or
grantee to be observed and performed in respect of
the aforesaid premises or under the said Bauxite
agreement or under the said Tori Option agreement or
under the said agreement for reduction of royalty And
also will at. all times from the date hereof save harmless and keep indemnified the Vendor its successors
and adsigns from and against all proceedings costs
claims and expenses on account of any omission to
pay the said rent, royalty or payments or any breach
of any of the said covenants agreements stipulations
and conditions.
(7) That the Purchaser will not work raise remove
or use stone or clay in the properties com prised in the
leases and agreements hereby transferred to it for
making lime.
(8) That the Purchaser shall not by any of its
actions or omissions cause leases and agreements,
mentioned above and in respect of properties hereby
transferred, to be determined, or the rights there- •
under, including the right of renewal,
to be
prejudiced.
(9) That in areas comprised in the leases and agreements hereinabove expressed to be hereby assigned
and not containing limestone the Vendor's rights under
leases and agreements from the Maharaja of Chota.
nagpur ox Maharaj Kumar Nand Kishore Nath Shah
Deo other than the leases and agreements above
referred to shall not be jeopardised or affected by this
Indenture.
(10) That the clay and shales lying within areas,
which do not contain Limestone, can be removed and
utilised by the Vendor for all purposes except that of
cement manufacture.
The deed then proceeded after setting out certain
other covenants :
3 S.C.R.
SUPREME COURT REPORTS
509
"AND IT IS HEREBY EXPRESSLY AGREED
x96x
AND DECL~REJ? that if the Limestone within the National c,,.,.,
areas comprised m the Leases hereby transferred Mines Industrill,
available for manufacturing cement is exhausted
Ltd.
the Purchaser will bo entitled to determine this
v.
Indenture on giving to the Vendor six months' Commissio"''' of
notice in writing in which case the Purchaser, if so
Income-tax,
West Bengal
required, 'l'.l'ill retre.nsfer the leases and agreements
aforesaid."
Shah J.
By clauses (1), (3) and (4), the Associated Cement
Ltd. undertook to make certain payments to the
e.ppelle.nts. By cl. (1) they agreed to pay 0-13 As. for
every ton of cement me.nufe.ctured from the limestone
-
won from the lands and sold ; bye!. (3), the Associated
Cement Ltd. agreed to pay he.If the pr-0fits which they
me.de by selling Fluxstone to the Te.ta. Iron & Steel
Co., or to e.ny other person; and by cl. (4), they a.greed
to pay he.If the royalty received from the Te.ta. Iron &
Steel Company for the right to quarry and remove
fluxstone from the lands. By clause (5), provision we.a
me.de for minimum payment in the event of the aggregate under cls. (1), (3) and (4) not reaching the sums
specified therein; Cle.uses (2), (4), (7), (8) and (9l were
in the nature ·of restrictive covenants. By cl. (2), the
Associated Cement Ltd. were prohibited from selling
any fluxstone won from the lands to the Te.ta. Iron &
Steel Company for less than Re. 1-14 As. per ton
F. O. R. By cl. (4), e.n obligation not to convey the
right to quarry and remove fluxstone for royalty less
than 0-10 As .. per ton was imposed.
By cl. (7) the
Associated Cement Ltd. undertook not to remove or
use or allow any one to raise work, remove or use
stone or clay in the lands. By ol. (8), the Associated
Cement Ltd. undertook not to do any acts or omissions
ca.using the lee.see .and agreements to be determined or
the rights thereunder to be prejudiced. By cl. (9),
r,ights of other persons under leases and a.greements
in lands not containing limestone were not to be affected. By cl. (10), the right of the e.ppelle.nts to utilise
cla.y and she.le lying ·within the a.ree.s not containing
limestone except for the purpose of ma.nufa.c~nring
oement was retained. There were oerte.in exceptions
510
SUPREME COURT REPORTS
[1961]
to this and the ninth clause whereby the Associated
National Cement Cement Ltd. were entitled to excavate, use or remove
Mmes Inaust•ies, all kinds of clays in and from the areas within the
Ltd.
boundary lines marked in the plan and they were also
v.
authorised to . make permanent structures and use
Commissioner of
·
f J
d
Incom•-ta>.
certam strips o
ands. By cl. (6) the Associate
West Bengal
Cement Ltd. agreed to pay rent stipulated under the
Shah ].
original leases and agreements and also undertook to
keep indemnified the appellants from and against all
proceedings, costs, claims and expenses on account of
any omission to pay the rent royalty or payments or
any breaoh of any of the covenants agreements and
the leases.
There was also the covenant authorising the Associii.ted Cement Ltd. to terminate the deed in the event
of limestone in the land comprised in the leases being
exhausted. The appellants undonbtedly did not part
with all their rights in favour of the Associated
Cement Ltd. by this deed dated May 7, 1935. The
consideration under the deed consisted of a fixed ·
component and annual payments flnctnating with the
business activity of the Associated Cement Ltd. A
fiiced amount of Rs. 25,000 was paid "for trouble and
expense~ in obtaining the leases and agreements " and
additional payments were to be ma.de under els. (1),
(3) and (4) subject to the minimum prescribed by cl. (5).
lt is difficult to categorise a transaction of this
character. It is not a conveyance of all the rights of
the appellants nor can it be regarded as a sale even of
the rights which were conveyed. Numerous restrictions were imposed by the deed upon the rights of
the transferee which were inconsistent in their very
nature with the character of a sale, and the covenant
authorising termination of the deed in the event of
the Jimeatone being exhausted removes all doubt in
that behalf. Nor is it a lease: it is not a transfer of a
right to enjoy property for a certain time in consider·
ation of periodical payments. It also does not
evidence a transaction in the nature of & joint venture
between the appellants and the ABBocia.ted Cement
J,td, Cement was to be manufactured by the ABSOciated
~ment Ltd, out of limestone to be won from the lands
3 S.C.R.
SUPREME COURT REPORTS
511
and in consideration of the rights conveyed, payments
at specified rates were agreed to be made out of the
price to be obtained by sale of cement, lluxstone and
limestone. The appellants had no control over the
prod nction of limestone and manufacture of cement,
or on the sale of Huxstone and limestone. But in
assessing the true character of the receipt for the
purpose of the Income-tax Act, inability to ascribe
to the transaction a definite category is of little
consequence. It is not the nature of the receipt under
the general law but in commerce that is material. It
is often difficult to distinguish whether an agreement
is for payment of a debt by instalments or for making
annual payments in the nature of income. The court
has, on an appraisal of all the facts, to assess whether
a transaction is commercial in character yielding
income or is one in consideration of parting with property for repayment of capital in instalments. No
single test of universal application can be discovered
for solution of the problem. The name which the
parties may give to the transaction which is the
source of the receipt and the characterization of the
receipt by them are of little moment, and the true
nature and character of the transaction have to be
ascertained from the covenants of the contract in the
light of the surrounding circumstances. The decision
of the question is however not left to the application
of any arbitrary standards. There are certain broad
principles which guide the determination of the
character of the receipt. The distinction between a
capital receipt and revenue receipt though fine is real.
The dividing line may be thin, and often at first sight
imperceptible.
Where capital is repaid in instalments, it is not
liable to income-tax; for instance when a person sells
his property and agrees to receive the price stipulated
in instalments, by whatever name such instalments
are called, they are not liable to income-tax-see Foley
v. Fletcher('), Secretary of State in Council of India v.
Andrew Scoble('), Oswal.d v. KirkcaWy Magistrates(')
and Commissioners of Inland Revenue v. Ramsay(').
(1) (1858) 3 H. & N. 769.
(•) [1903) A.C. •99·
66
(3) [1919) s.c. 147.
(4) (1935) 20 T.C. 79,
z961
.fllational Cement
Mines Industri·es,
Ltd.
v.
Commissioner of
Income-ta%,
West Bengal
Shah].
512
SUPREME COUR.l' REPORTS
[196.1]
i96i
But where property is conveyed in consideration of
N
.
1 c
what in truth is annuity payable for a definite or a
atson•
ement d fi
bl
. d h
.
.
.
Mines Industries. e na e peno , t e annmty 1s not payment on cap1Ltd.
ta! account and is taxable-see State of Bihar v. Sir
v.
Kameshwar Singh (1), Captain Maharajkumar Gopal
Commissioner of .'!aran v. Commissioner of Income-tax, Bihar and
lmome-tax,
Orissa (2), Chadwick v. Pearl Life Assurance Co. (3).
W tst Bengal
"
"f
..... gain, 1 property is conveyed in consideration of
Shah J.
periodical payments, the pa~'ment being a share of
profits of a business or profession-( William John)
Jones v. Commissioners of Inland Revenue('), or a mineral
royalty depending upon the quantity of minerals raised
-Raja Bahadur Kamakshya Narain Singh of Ramgarh
v. Commissioner of Income.tax, Bihar and Orissa('), or
computed on sales of manufactured articles-Commissioners of Inland Revenue v. 36/49 Holdings, Ltd. ('),
or a percentage of gross profits made in the exploitation of a secret process-Delage v. Nugget Polish Go.,
Ltd.('), is income and taxable.
Counsel for the appellants submitted that the
receipt under clause (1) of the terms of the deed dated
May 7, 1935, was in the nature of capital payment
and relied upon certain decisions in support of that
submission.
In Minister of National Revenue v. Catherine
Spooner('), decided by the Judicial Committee of the
Privy Council in an appeal from the Supreme Court of
Canada, the respondent Catherine Spooner had sold
her rights, title and interest in land owned by her in
freehold to a company in consideration of a certain
sum in cash, besides shares of the company, and an
agreement to deliver 10% of oil produced from the land
on which the company covenanted to carry out drilling and, if oil was found, pumping operations. These
were described as royalties. Oil was struck in the
lands and the respondent was paid 10 of the gross
proceeds of the oil produced in lieu of oil.
The
(1) [1952] 21 l.T.R. 382.
(2) [1935] 3 I.T.R. 237 (P.C.).
(3) [1905] 2 K.B. 507.
(4) (1919) 7 T.C. 310;
(1920] I K.B. 711,
(5) (1943) L.R. 70 I.A. 180.
(6) (1943) 25 T.C. 173.
(7) (1906} 21 Times Law Reports 454·
(8) (1933] A.C. 68+.
I
3 S.C.R.
SUPREME COURT REPORTS
513
Supreme Court of Canada held t,hat the sum so received
was not an annual profit or gain within the meaning
.
f
f h
W
T
A
b
.
f
National Cement
o s. 3 o t e Income
ar ax
ct,
ut a receipt o a Mines Indust,ies,
capital nature and therefore not chargeable to tax.
Ltd.
According to the Judicial Committee, there was bev.
tween the respondent and the company no relation of Commissioner of
lessor or lessee : the transaction was one of sale and
Income-tax,
purchase, and the transaction had t>iken the form
West Bengal
which it did because of the uncertainty w hcthcr oil
would be found by the purchaser. As the value of i he
land depended on this contingency, the price, not unnaturally was made to depend in part on the event of
oil being ·struck. The judgment lays down no new
principle; it proceeded merely upon interpretation of
the (LJCument in the light of the circumstances.
In T,.ustees of Earl Haig v. Commissioners of Inland
Revenue (1), the question which fell to be determined
was whether a share of the royalties received in
consideration of allowing the use of the diaries of the
late Earl Haig for writing his biography were, in the
hands of the trustees under the will of Earl Haig,
capital receipts. That was undoubtedly a case in
which payments received by the trustees were dependent upon the professional activities of the author and
the proceeds derived from the sales of the biography
he wrote.
By the agreement, the author was authorised to extract and publish from the diaries what he
thought fit.
The diaries were undoubtedly an asset,
and after they were used by the author for publication of the biography, their value as an asset was, if
not wholly, largely exhausted and their future value
was negligible. The agreement was therefore regarded
as conveying an asset in its entirety to the author in
consideration of a share in the royalties and the receipt
of this share was regarded as receipt of capital. That
decision proceeded upon the special character of the
agreement and the nature of the asset transferred and
did not seek to lay down any general principle.
In Nethersole v. Withers('), N who had acquired
under an agreement the exclusive right to dramatise
(1) (1939) n T.C. 725,
(•) (1943) 28 T.C. 501.
Shah].
514
SUPREME COURT REPORTS
[1961)
x96x
a novel of Rudyard Kipling received under an agreeN t .
IC
1 ment with the widow of the author, a third share of
a iona
1men
.
·
Mines Indusi.ies a lump sum for whwh the sound and film rights were
Ltd.
' granted exclusively to a film company for a period of
v.
ten years. The film right of a comprehensive characCommi.ssioner of ter having been granted by the legal representative
Income-laK,
of the author against payment of the sum stipulated,
West Bengal
the question arose whether the payment received by
Shah J.
N was taxable under the Income Tax Act under
Case II of Schedule D or under case VI of Schedule D.
It. was held that N having ceased to be the owner of
the portion of the copyright she had assigned, the
proceeds were not annual profits or gains within the
meaning of Schedule D, Case VI. That was a case in
which N had wholly sold and disposed of a part of
the property and the amount received by her was the
price paid in lump and was not in the nature of
income. That case also proceeded upon the special
character of the transaction.
The case of The Commissioners of Inland Revenue v.
The Marine Steam Turbine Co., Ltd. (1) on which
reliance was sought to be placed by counsel for the
appellants nAeds no detailed consideration. In that
case, a company which was on the facts found not
carryi11g on a trade or business was held not assessable to Excess Profits Duty, because the condition of
liability was the carrying on of trade or business.
The appellants had however not sold the entirety of
the rights acquired by them from the Karenpura
Company. The conveyance was subject to several
restrictions and the appellants retained in part rights
in the land conveyed. The transaction was substantially a commercial transaction for sharing the
profits of the commercial activities of the Associated
Cement Ltd. The High Court was therefore right in
holding that the transaction dated May 7, 1935, was a
commercial transaction and the payment under cl. (1)
thereof at the rate of 0-13 as. per ton of cement sold
was of the nature of income and not capital.
In that view of the case, the appeal fails and is
dismissed with costs.
Appeal, d'8mi8aed.
(1) (1919) 12 T.C. 174; [1920] I K.B. 193.
I