# M'!JI 3 • 1967. National Skf,l w ls Lid v. Co ·mi1•ioner of lmome4CJJ1:, Bomb•'

- **Citation:** [1963] 2 S.C.R. 937
- **Court:** Supreme Court of India
- **Decided:** 1963
- **Case number:** Civil Appeal No. 544of1961
- **Bench:** S. K. Das, J. L. Kapur, A. K. Sarkar, M. HrnAYATlJLLAH, Raghubar Dayal
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-ji-3-1967-national-skf-l-w-ls-lid-v-co-mi1-ioner-of-lmome4cjj1-bomb-2556
- **Pages:** 6

## Headnote

Income-tax-Agreement by qunla·holder to aupply steel to
manufacturer at a certain royalty fl'r to" -Receipt of lump aum
in lieu of royaUy-Asaessm1mt on amounl received-'-!/ according
lo
Zaw-Oapital
receipt and revenue receipt-Distinction-'-
Indian Income·tax Act, 1922,(11of1922), s, 66A (2).
The assessee company was receiving quota of coal and
steel from the Government but had no factory. It entered into
a partnership with a penon who had a factory but no quota.
The latter agreed to pay a royalty of Rs. 50 per ton of steel
supplied to the firm under the quota. A few years later,. .that
agreement was modified and the assessee agreed to receive a
lump sum of Rs. 60;000 in consideration of waiving the· roy-
~~
.
.
' ••
1968
Kalipada Chowdhur,,11 ·
. v.
U 11ion of India
Bubba Ra• J,
1968
M'!JI 3 •
1967.
National Skf,l
w ... ls Lid.
v.
Co ·mi1•ioner of
lmome4CJJ1:, Bomb•'
R.glitd"' Dap J.
038
SUPREME OOURT REPORTS [1963]
In as&essing the income-tu on the as1e5SCC, the Incometax Officer brought the amount of Rs. 60,000 to tax. When
the matter went to the High Court, that court held that the
amount was a revenue receipt, and hence liable to tax. On
appeal to this Court,
Held, that the amount of Rs: 60,000 represented capital·
ised profits of the assesscc company on account of its transferring or scllin&' the steel which the asscsscc company purchased
under the authority given by the quota allowed to it. The
asscsscc company purchased the goods In its own name and
delivered them to the partnership.
The sum of Rs. 60,000
represented the capitalised value of the profits the assesscc
company was to have on supplying all the steel it had under
the quota at net price.
No right to the quota itself was
transferred, and hence it could not be said that the sum of
Rs. 60,000 was
paid in lieu of the transfer of the rights in
the quota of steel. The description of the amount as goodwill
in consideration of waiving royalty from partnership account
did not convey the real nature of the amount. There was no
question of goodwill in waiving a royalty.

## Text

•
2 s.c.n..
SUPREME COURT REPOR'l'S
93'1
had become futile. I, therefore, hold that the Regulations in so far as they purport to· regulate the
mines situate in West Bengal have not been validly
made under the Act inasmuch as a. condition precedent imposed. by s. 59. of the Act on the exercise
ofthe Government's power to make a regulation
was not complied with.
In the result, I direct the issue of a writ of
prohibition against respondents 1 to 4 res training
them from proceeding with · the criminal case
launched against the petitioners.
The petitioners
will have their costs.
·
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BY ComtT : In view of the majority opinion
of the Court the Writ Petition fails and is dismissed.
THE NATIONAL STEEL WlJRKS LTD.
. v.
COMMISSIONER OF INCOME-TAX, BOMBAY
(S. K. DAS, J. L. KAPUR,. A. K.
SARKAR, M.
HrnAYATlJLLAH and RAGHUBAR DAYAL, JJ.)
Income-tax-Agreement by qunla·holder to aupply steel to
manufacturer at a certain royalty fl'r to" -Receipt of lump aum
in lieu of royaUy-Asaessm1mt on amounl received-'-!/ according
lo
Zaw-Oapital
receipt and revenue receipt-Distinction-'-
Indian Income·tax Act, 1922,(11of1922), s, 66A (2).
The assessee company was receiving quota of coal and
steel from the Government but had no factory. It entered into
a partnership with a penon who had a factory but no quota.
The latter agreed to pay a royalty of Rs. 50 per ton of steel
supplied to the firm under the quota. A few years later,. .that
agreement was modified and the assessee agreed to receive a
lump sum of Rs. 60;000 in consideration of waiving the· roy-
~~
.
.
' ••
1968
Kalipada Chowdhur,,11 ·
. v.
U 11ion of India
Bubba Ra• J,
1968
M'!JI 3 •
1967.
National Skf,l
w ... ls Lid.
v.
Co ·mi1•ioner of
lmome4CJJ1:, Bomb•'
R.glitd"' Dap J.
038
SUPREME OOURT REPORTS [1963]
In as&essing the income-tu on the as1e5SCC, the Incometax Officer brought the amount of Rs. 60,000 to tax. When
the matter went to the High Court, that court held that the
amount was a revenue receipt, and hence liable to tax. On
appeal to this Court,
Held, that the amount of Rs: 60,000 represented capital·
ised profits of the assesscc company on account of its transferring or scllin&' the steel which the asscsscc company purchased
under the authority given by the quota allowed to it. The
asscsscc company purchased the goods In its own name and
delivered them to the partnership.
The sum of Rs. 60,000
represented the capitalised value of the profits the assesscc
company was to have on supplying all the steel it had under
the quota at net price.
No right to the quota itself was
transferred, and hence it could not be said that the sum of
Rs. 60,000 was
paid in lieu of the transfer of the rights in
the quota of steel. The description of the amount as goodwill
in consideration of waiving royalty from partnership account
did not convey the real nature of the amount. There was no
question of goodwill in waiving a royalty.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 544of1961.
Appeal from the judgment and order dated
July 1, 1959, of the Bombay High Court in Inoometax Referenoe No. 58 of 1958.
C. B. Agarwala, A. D. Mathur for K. P. Gupta,
for the appellent.
K. N. Rajagopala 8a8tri a.nd D Gupta for reepondent.
1962. May 3. The Judgment of the the Court.
was delivered by
R.&GHUBAR DAYAL, J.-Thie is a.n appeal under
e. 66 A (2) of the Indian Income. Tax Aot.
The appellant, the Nations.I Steel Works Ltd.,
Bombay, a limited liability company, hereinafter
referred to as the 888elleee, oarried on the bueineea
of a •Rolling Mill' prior to the partition of the
country in the territory now in Pakistan. It was
a member of the Steel Rolling Mille Aasocia.tion 0f
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2 s.o.R.
SUPREME OOURT REPORTS
939
India and as such was receiving a quota of coal
and steel from the Government of India. After
the Partition, its registered office was shifted to
Bombay. It. had no factory there for carrying on the
business of a rolling mill.
Though possibly not
.entitled to receive the quota of coal.and steel, it
however continued its membership of the Steel
Rolling Mills Association of India and continued
to receive the quota of coal and steel. In order to
u\ilise the coal and steel so received, it entered
into a partnership with one K. l'. Irani who had
put a factory in Bombay called the New Era Iron &
Steel Works but had no quota of steel and coal. The
agreement of ·partnership entered into between
Irani and the assessee on September 29, 1948 provided that the partnership would continue so· long a.s
the quota system regarding steel continued in the
Dominion of . India qr till . the expiry of. ·the
then lease of ·the factory premises; and that the
capital of. the firm would be. subscribed by the
partners in equ~l shares. Para.graphs 12 an·d· 13 of
this agreement are ·of importance and are quoted
below:
.
·
"12. In consideration of Company taking
the said Mr. Irani as partner in the partnership
it is agr; ed that a sum of Rs. 50/- per ton on
all steel received by the partnership from the
Company through the Steel Re,H1)lling Mills
Al18ociation of India, Calcutta or Iron and
Steel Controller, Calcutta shall be paid to the
Company by this partnership oalt)ulated every
month, and after deducting all the other expen-
. see incidental to the business of the partnership
the net profit of the partnership after providing for outgoings and interest on the current
loans, if any, shall be pa.id over to the partners
in equal shares.
· · .
.
13. All the quota of steel and coal that
Company may receive from the . Iron & -Steel
1862
National Steel
Works Ltd.
v.
Commissioner of
L-:com~· Tax, 8Gmb1y
Raghuhar DaJal J.
11¥1
Nntional Stttl
Work• Ud,
..
rornmissiafl4r oj
/1u0Mt·lox, BH1ba'
Rag1uWaf' Do,10l J.
940
SUPREME OOUR.1 REPOR'l'S f 1963J
Controller, tho Government of India and from
the Provincial Iron & Steel Controller, Bombay
or from the ~tee! Re-Rolling Mille A88ociation
of India, Calcutta or any such other body
under tho quota. sy~tem that may be in force
from time to time for Steel re-rolling mills of the
company at Bombay shall be utilieed eolely
for the purposes of the business of the partnership who shall pay for the same.
Thereafter, in 1954, the asse88ee and Irani entered
into an agree111ent where by the terms of the
agreement of September 29, 1954, were modified.
The amendments to clause 12 are important and
they are quoted below:
"IT IS HEREBY AGREED THAT in
clause 1:1 of the Partnership Agreement dated
29.9.48, the Royalty by which is fixed at Ra.
50/- per ton shall be reduced in the manner
following from lst October, 1953."
(a) Royalty of Rs. 25/· per ton shall be
charged from
1/10/53 on all rollable
materials reoeived up to 30.6.54 except
semis and perfect billets on which royalty
will be charged at Rs. IO/- per ton on all
the said materials received upto 30/6/54.
(b) That ce88 charges payable to Steel ReRolling Mille Association of India, Calcutta,
will be paid by the partnership till the
partnership exists.
(o) Mr. K. R. Irani hereby agrees to pay a
lump sum of Rs. 60,000/- a good-will in
consideration of waivini the Royalty
from the partnership Account on the
quot~ of
re-rollable scrap materials
received after 30.5.54.
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\
2 s.o.R.
SUPREME COURT REPORTS
941
(d) Mr. K. R. Irani here agrees that the said
amount of Rs. 60,000/· be debited to his
capital account in the books of partnership, bearing interest at 6% per annum
from let July, 1954.
·
(e) No Royalty will be charged on any kind
of rollable materials received after 30th
June, 1954, by the Company from the
partnership.
(£) The partnership shall pay to the Company
Rs. 500/- per month as office allowance
from 1/10/53 till the partnership exists.
In &SBeBBing the income-tax on the assessee,
the Income-tax Officer brought the amount of
Rs. 60,000/- mentioned in · sub-cl. (d) . of amended
paragra:ph 12 of the agreement to tax.
The
assessee s appeal to
the
Appellate · Assistant
Commissioner failed and so did its appeal to the
Income-tax Appellate Tribunal. On an application
by the assessee, the Income-tax Appellate Tribunal
stated a case to the High Court for the decision of
the question whether the sum of Rs. 60,000/-
received by the asseBBee company from Irani is a
revenue receipt and liable to Income-tax.
The
High Court decided that it was a revenue receipt
and liable to tax.
It ie against this order that
thiS appeal bas been filed after obtaining the
certificate of fitness from the High Court.
The contention for the appellant is that the
sum of Rs. 60,000/- was paid by Irani t0 the assessee
company in
view of the partnership getting
the rights· under the quota which the aaaeaasee
company po880BBed and that therefore the sum
represented a capital receipt and not a revenue
receipt. We d1J not agree.
It is clear from the facts stated in the state·
ment of the caae that this amount represents capitalised prolita .of the IM!llessee company on account
1861
N otion1Jl Sl#eZ
W01k" Ltd.
••
Commissionlf' of
Intome..tax, B1m1hay
National Ste•l
Wwks Lt<l.
••
c.mmis•iont1' •f
/r.CnM-l•x, Bombay
!!42
SUPREME COURT REPORTS [1963).
of its transferring or selling the steel which the assessee company purchased under the :iuthority given
·by the quota allowed to it. It_ is the• assessee com·
pany which purchases the goods -in its own name
and delivers them to the partnership at cost price.
'Under the original agreement of 1948, the partnerRa1hulmDay.JJ.
ship was to pay to the assessee company Rs. 50/·
_ per ton on all steel it received -from the assessee
·company.· Clearly, therefore, the sum of Rs. 50/·
per .ton represented the profit which the assessee
company was getting per ton from the partnership. Under the terms of the amended agreement,
no such profit was to he paid to the, assessee company for the steel received from it-after June 30,
1954, and ~t was to receive Rs. 60,000/· in a ·lump -
sum. This amount, therefore, represents. the ca pit·
, I
-. alised value of the profits, the assessee company
was to have on sμpplying all the steel it_ receives
under its quota at net price. No right to the. quota
itself has been transferred • to Irani or the partner·
_ship under the agreement and therefore !here. could
be no basis for considering. that this . amount of
' Rs. 60,000/· was paid in lieu of the transfer of
-rights in the quota of steel to Irani or the partnel'.·
ship. The description of the amount_ as gqqdwi)l
in consideration of waiving royalty from the. p;:irtnership account on the quota of re-rollable. scrap mater.·
ials received after June 30, 1954, does not conviiy
the real nature of this amount and is really an ex·
pression which conveys no meaning. There is no
question of good will in w>iiving a rpyaJty.
_ - _
- - - We are, therefore, of opinion that the' High
- Court came to a correct conclusion that the sum of
·Rs. 60,000/· was a revenue receipt and liable to
tax •. We accordingly dismiss the. appeal· with costs.
Appeal dismissed.
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