# TATA IRON AND STEEL CO. LTD v. THE STATE OF BIHAR

- **Citation:** [1963] Supp. 1 S.C.R. 199
- **Court:** Supreme Court of India
- **Decided:** 1960-02-18
- **Case number:** Civil Appeals Nos. 587, 588, 590, 591, 600 and 601 of 1961
- **Bench:** B. P. Sinha, S. J. Imam, K. SuBBA RAo, K. N. Wanchoo, J. c. SHAH, N. Rajagopala Ayyangar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tata-iron-and-steel-co-ltd-v-the-state-of-bihar-2703
- **Pages:** 30

## Headnote

Gess-Annual net pro,fits from mines-Uvy of cess thereon-Mine- owner extracting ore and manufacturing productJJ tkertfrom-Legality of cess on ore extracted-Bengal Gess Act, 1888
(Ben. 9 of 1880), as amended in B,:/zar, ss. 5,6, 72.
The appellant company was the owner of certain mines
in Bihar from where it extracted iron ore which it utilised in its
factory atJamshedpur for making iron and steel. Under ss. 5
and 6 of the Bengal Gess Act, 1880, as amended in Bihar, all
immovable property situate in any part of the State of Bihar
was liable to payment of local cess which, in the case of mines,
was to be assessed on the annual net profits from them. For
the assessment year 1954-56, the company was assessed by the
Gess Deputy Collector on the basis that it had made a profit of
Rs. 4-7-0 per ton of iron ore extracted. The appellant claimed
that it was not liable to the levy of cess under the Act because
it did not sell any ore as such and could not therefore be treated
as having made "any profit" from the mines within the meaning of s.6 of the Act.
The question was whether the appellant
company could in law be said to have derived "profit" from
the mine when the ore extracted was not sold by it as such but
was utilised by it for the purpose of manufacturing finished products which it sold.
HeU, that on the true construction of ss.5, 6 and 72 of
the Bengal Cess Act, 1880, as amended in Bihar, where activities
The A.mal:•m•l•I
Coalfields Ltd.
v.
The Janapada Salho,
Chhi11dwara
Gojendragadkar, f,
1962
&ptnnber £1.
1962
Tata Iron and Steel
Co., Ltd.
v.
The State of Bihar
200 SUPREME COURT REPORTS [1963] SUPP.
other than mere winning the ore are carried on by an assessee with
a view to convert the ore into a finished product and there is a
transaction of sale of the ultimate product, the profit derived
from the working of the mine is imbeded in the final realisation, and the profit which accrues to the a,sscssee from the mining
operation can be disintegrated and ascertained, and a tax levied
thereon.
Kikabha-i Pte1nchand v. Co1nnii.ssioner of lncortie-tax, Bombay, [1954] S.C.R. 219, distinguished.
Conirnissioner of Income-tax, Bombay v. Ahmedbhui Umerbhai & Co.,
Bombay, [1950] S.C.R. 335 and Anglo-French
Textile Co. Ltd. v. Commissioner of Income-tax, Madras, [1950]
S.C.R. 523, relied on;
Commis8ianer of Income-tax, Madras v. Dewan Bahadur
S. L. Mathia.,. (1938) L. R. 66 I. A. 23 and Cmnmissianer of
Income-tax, Bombay City I, Bmnbay v: Bai Shirinbai K. Kooka,
[1962] Supp, 3 S. C.R. 391, considered.
CrvIL APPEALLATE JuR!SDIOTION : Civil Appeals Nos. 587, 588, 590, 591, 600 and 601 of 1961.
Appeals by special leave from the resolution
dated May 12, 1959, of the Board of Revenue,
Bihar in Cases Nos. 49, 233 and 234 of 1958 and
from the Judgment and Order dated
February
18, 1960, of the Patna High Court in Misc. Judi.
Cases Nos. 529, 530 and 531 of 1959.
M. 0. Setalvad, Attorney-General for India,
N. A. Palkhivala and P. K. Ohatterji, for the appellant (In C. As. Nos. 587 and 588 of 1961.)
Lal Narayan Sinha and D. P. Singh, for the
respondent (In C. As. Nos. 587 and 588 of 1961).
M. 0. Setafoad, Attorney-General for India,
A. V. Viswanatha Sastri, R. Ohoudhri and D. N.
Mukherjee, for the appellant (In C. As. Nos. 590 and
591 of 1961).
Lal Narayan
Sinha, D. P. Singh,
S. 0.
Agarwala, R. K. Garg and M. K. Ramarnurthi,_ for the
respondent (In C. As. Nos. 590 and 591 of 1961).
I S.C.R.
SUPREME COURT REPORTS
201
B. C. Ghosh and P. K.
Chr~tte1jee, for the appellant (In C. As. Nos. 600 and 601 of l!Jul).
Lal Narayan Sinh1i and S. P. Varma, for the
respondent (In C. As. Nos. 600 and 601 of 1961).
1962. September 24.
The Judgment of the
Court was delivered by
AYYANGAH, J.-These three sets of appeals raise
a common point relating to the validity of the imposition of a ccss under ss. 5 & 6 of the Bengal Ccss Act,
1880 (Bengal Act IX of 1880, as amended in Bihar),
hereinafter ref erred to as the Act.
These provisions
whose interpretation is the only poi

## Text

_Characters 0–39,521 of 58,697. This is a partial read: ask again with offset=39521 for what follows._

1 S.C.R. SUPREME COURT REPORTS
199
appellants will be entitled to their costs, but one set
of hearing fees will be taxed.
Appeals and writ petitions aUowed.
TATA IRON AND STEEL CO. LTD.
v.
THE STATE OF BIHAR
(And connected appeals)
(B. P. SINHA, C, J., S. J. IMAM, K. SuBBA RAo, K. N.
WANCHOO, J. c. SHAH AND N. RAJAGOPALA
AYYANGAR, jj.)
Gess-Annual net pro,fits from mines-Uvy of cess thereon-Mine- owner extracting ore and manufacturing productJJ tkertfrom-Legality of cess on ore extracted-Bengal Gess Act, 1888
(Ben. 9 of 1880), as amended in B,:/zar, ss. 5,6, 72.
The appellant company was the owner of certain mines
in Bihar from where it extracted iron ore which it utilised in its
factory atJamshedpur for making iron and steel. Under ss. 5
and 6 of the Bengal Gess Act, 1880, as amended in Bihar, all
immovable property situate in any part of the State of Bihar
was liable to payment of local cess which, in the case of mines,
was to be assessed on the annual net profits from them. For
the assessment year 1954-56, the company was assessed by the
Gess Deputy Collector on the basis that it had made a profit of
Rs. 4-7-0 per ton of iron ore extracted. The appellant claimed
that it was not liable to the levy of cess under the Act because
it did not sell any ore as such and could not therefore be treated
as having made "any profit" from the mines within the meaning of s.6 of the Act.
The question was whether the appellant
company could in law be said to have derived "profit" from
the mine when the ore extracted was not sold by it as such but
was utilised by it for the purpose of manufacturing finished products which it sold.
HeU, that on the true construction of ss.5, 6 and 72 of
the Bengal Cess Act, 1880, as amended in Bihar, where activities
The A.mal:•m•l•I
Coalfields Ltd.
v.
The Janapada Salho,
Chhi11dwara
Gojendragadkar, f,
1962
&ptnnber £1.
1962
Tata Iron and Steel
Co., Ltd.
v.
The State of Bihar
200 SUPREME COURT REPORTS [1963] SUPP.
other than mere winning the ore are carried on by an assessee with
a view to convert the ore into a finished product and there is a
transaction of sale of the ultimate product, the profit derived
from the working of the mine is imbeded in the final realisation, and the profit which accrues to the a,sscssee from the mining
operation can be disintegrated and ascertained, and a tax levied
thereon.
Kikabha-i Pte1nchand v. Co1nnii.ssioner of lncortie-tax, Bombay, [1954] S.C.R. 219, distinguished.
Conirnissioner of Income-tax, Bombay v. Ahmedbhui Umerbhai & Co.,
Bombay, [1950] S.C.R. 335 and Anglo-French
Textile Co. Ltd. v. Commissioner of Income-tax, Madras, [1950]
S.C.R. 523, relied on;
Commis8ianer of Income-tax, Madras v. Dewan Bahadur
S. L. Mathia.,. (1938) L. R. 66 I. A. 23 and Cmnmissianer of
Income-tax, Bombay City I, Bmnbay v: Bai Shirinbai K. Kooka,
[1962] Supp, 3 S. C.R. 391, considered.
CrvIL APPEALLATE JuR!SDIOTION : Civil Appeals Nos. 587, 588, 590, 591, 600 and 601 of 1961.
Appeals by special leave from the resolution
dated May 12, 1959, of the Board of Revenue,
Bihar in Cases Nos. 49, 233 and 234 of 1958 and
from the Judgment and Order dated
February
18, 1960, of the Patna High Court in Misc. Judi.
Cases Nos. 529, 530 and 531 of 1959.
M. 0. Setalvad, Attorney-General for India,
N. A. Palkhivala and P. K. Ohatterji, for the appellant (In C. As. Nos. 587 and 588 of 1961.)
Lal Narayan Sinha and D. P. Singh, for the
respondent (In C. As. Nos. 587 and 588 of 1961).
M. 0. Setafoad, Attorney-General for India,
A. V. Viswanatha Sastri, R. Ohoudhri and D. N.
Mukherjee, for the appellant (In C. As. Nos. 590 and
591 of 1961).
Lal Narayan
Sinha, D. P. Singh,
S. 0.
Agarwala, R. K. Garg and M. K. Ramarnurthi,_ for the
respondent (In C. As. Nos. 590 and 591 of 1961).
I S.C.R.
SUPREME COURT REPORTS
201
B. C. Ghosh and P. K.
Chr~tte1jee, for the appellant (In C. As. Nos. 600 and 601 of l!Jul).
Lal Narayan Sinh1i and S. P. Varma, for the
respondent (In C. As. Nos. 600 and 601 of 1961).
1962. September 24.
The Judgment of the
Court was delivered by
AYYANGAH, J.-These three sets of appeals raise
a common point relating to the validity of the imposition of a ccss under ss. 5 & 6 of the Bengal Ccss Act,
1880 (Bengal Act IX of 1880, as amended in Bihar),
hereinafter ref erred to as the Act.
These provisions
whose interpretation is the only point for consideration in these appeals run in these terms :
"5. All immovable property to be liable
to local cess.-From and after the commencement of this Act in any district or part of a
district, all immovable property situate therein,
except as otherwise in section 2( 2) provided,
shall be liable to the payment of local cess.
6. Cess how to be assessed.-The local cess
shall be assessed on the annual value of lands
and until provision to the contrary is made by
the Central Legislature on the annual net pro·
fits from mines and quarries, other than notified
mines and from tramways, railways ~nd other
immovable property, ascertained respectively as
in this Act prescribed ;
and the rate at which the local cess shall be
levied for eath year shall--
( a) in the case of such annual net profits,
be one anna on each rupee of such
profits; and
(b) in the case of the annual value of
lands, be such rate as shall be determined for such year in the manner in
this Act prescribed :
1962
Tata Iron and Steel
Co., Ltd.
v.
TM State of Bihar
A_1)'angar, J.
1962
Tola Iron and Steel
Co., Ltd.
v.
The Stat1 of Bihar
Ayyangar, J.
202 SUPREME COURT REPORTS [1963] SUPP.
Provided that the rate at which the local
cess shall be levied for any one year on the
annual value of lands shall not be less than the
rate of one anna and six pies or more than the
rate of two annas on each rupee of such annual
value."
The three companies who are the appellants here own
certain mines in Bihar. The Tata Iron & Steel Co.,
Ltd.-appellants in Civil Appeals 587 & 588 of
1961-has taken on lease certain iron-ore mines at
Noamundi in the Singhbhum district from where it
extracts iron-ore which it utilises in its factory at
J amshedpur for making iron & steel. Similarly, the
Indian Iron & Steel Co., Ltd., which is the appellant
in Civil Appeals Nos. 590 & 591 of 1961 holds mining concessions for iron and manganese ore at Gua
and Monoharpur in the district of Singhbhum and
the ore extracted by it is utilised for the manufacture
of iron & steel and steel products at the company's
factories at Burnpur and Kulti in the district of
Burdwan. In the same manner, the Indian Copper
Corporation Ltd., which is the appellant in Civil
Appeals Nos. 600-601 of 1961, has taken on lease
certain mines in the district of Singhbhum and the
ore mined by it is manufactured into copper and
copper products at its factory at Moubhandar in the
same district. The question raised for decision is
whetlier the three appellants could be said to have
derived "anmpl net profits from the mines" when the
ore mined by them is not sold as such but is utilised
for the production of finished
p~oducts which the
appellants sell.
In view of the nature of the question raised it
would not be necessary to set out in detail the facts
of each one of the cases and we will content ourselves
with narrating a few of the salient facts which preceded the proceedings culminating in the appeals now
before us reiating to the Tata Iron & Steel Co. Ltd.-
appellants in Civil Appeals 587 & 588 of 1961 to
I S.C.R. SUPREME COURT REPORTS
203
appreciate generally the antecedent history and the
proceedings giving rise to the appeals. The Company
was not assessed to the cess on the ore mined by it
till 1926, when the company sold some quantity
of iron ore extracted by it to the Bengal Iron and
Steel Co. Ltd. and an assessment to cess under the
Act was made against it in respect of that year. Even
though it made no sales of iron ore in later years but
utilised the ore extracted in its own factory, the
company was assessed to and paid the cess on an
assumed profit of 12 as. per ton of iron ore mined by
it upto I 939-40 and from the next year onwards the
profit was assumed to be a little higher, viz., at Re. 1
per ton. This basis of taxation was varied in the
year 1950-51 when it was raised to Rs. 1/4/- per ton
by reason of an agreement between the company and
the State Government.
There were some variations
in the basis of the rate at which the profit was computed during the succeeding years but it is unnecessary to
detail them.
Finally we come to the assessment in respect of
the year 1954-55 with which the present appeals are
concerned.
For that year the company was assessed
by the Cess Deputy Collector on the basis that it had
made a profit of Rs. 4/7 /- per ton of iron ore extracted.
The company filed an appeal to the Deputy
Commissioner and the ground urged by the company
was that it was not at all liable to the levy of cess
umkr the Act because it did not sell any ore as such
and could not therefore to treated as having made
"any profit from the mines" within the meaning of
s.6 of the Act.
The Deputy Commissioner rejected
this contention but considering that the cess Deputy
Collector had not adopted a proper basis for ascertain·
ing the profits, remanded the case for an enquiry as
to the cost of extraction of iron ore and for the
calculation of other working expenses.
The company
then filed a revision application to the Commissioner
of the Chota Nagpur Division raising the same point
1962
Tata Iron and Steel
Co., ltd.
v.
The State o,f Bih•r
.Ayyangar, J.
1962
Tata fron ond Steel
Co., Ltd.
v.
Tiu State of Bihar
Ayyangar, J,
204 SUPRE•ME COURT REPORTS [1963] SUPP.
about its non-liability to cess but when this was
rejected, preferred a further revision to the Board of
Revenue. This application met with the same fate
and thereafter the company moved the High Court of
Patna by petitions under Arts. 226 and 227 of the
Constitution for quashing the order of the.Board of
Revenue confirming the order of the Deputy
Commissioner remanding the proceedings to the Cess
Deputy Collector for enquiry for recomputing the net
annual profits of the company for the year. The
learned Judges of the High Court dismissed the Writ
application but granted leave under Art. 133 of the
Constitution. Civil Appeal 587 of 1961 is the appeal
filed in pursuance of the certificate granted by the
High Court. Civil Appeal 588 of 1961 is an appeal
by special leave granted by this Cou_rt against the
order of the Board of Revenue which was the subject•
matter of proceedings in the Writ Petition before the
High Court. The material facts of the other appeals
are similar and need not be set out. It is sufficient
to add that the writ petitions of the other two appel·
!ants were dealt with by the High Court, along with
the petition of the Tata Iron & Steel Co. Ltd. and
disposed of by a common judgment. In the case of the
other two appellants also the two appeals by each are
one from the Judgment of the High Court dismissing
the relevant writ petition and the other from the
order of the Board of Revenue.
It will be seen from the above narration that
the question for decision is whether a person could
in law be said to derive "profit" from a mine when
the ore extracted is not sold by him as such but is
utilised by him for the purpose of manufac~g a
finished product which he sells. Before settmg out
the argument on the basis_ of w~ch the ~PP.e!lants
raise the contention regardmg their non-hab1hty to
the cess it would be convenient to read a few of the
provisions of the Act which bear upon the point in
controversy.
I S.C.R. SUPREME COURT REPORTS
205
The long title of the Act reads :
"An Act to amend and consolidate the Law
relating to rating for the Construction, Charges
and Maintenance of District Communications
and other Works of Public Utility, and of
Provincial Public Works."
The relevant portion of the Preamble reads :
"Whereas it is expedient to amend and consolidate the law relating to rating for the construction, charges and maintenance of district roads
and other means of communication; and of
provincial public works, within the territories
administered by the Provincial GDvernment of
Bengal, and to the levy of a local cess on
immovable property situate therein, and to the
constitution of local committees for the management of the proceeds of the said local cess, and
also to provide for the construction and maintenance of other works of public utility out of
the proceeds of the said local cess : It is hereby
enacted as follows" :-
The Act consists of three Parts of which Part I is
concerned with the imposition and application of the
cesses and we have already extracted ss. 5 & 6 which
impose the charge with which these appeals are
concerned. Part II deals with the mode of assessment.
Chapter V of Part II is headed "Valuation, Assessment
and Levy of Cesses on Mines, Railways and other
Immovable Property" and of these those that are
material for the point arising for decision and to
which we were referred during the course of the
arguments were ss. 72, 72A, 73 to 76 and these run
in these terms :
"72. Notice to return profits.-(1) On the
commencement of this Act in any district, and
thereafter before the close of each year, the
Collector of the district shall cause a notice to
1962
Tata Iron and Sttel
Co., Ltd.
v.
The State of BihtJr
A.l'.)'angar, J.
1962
"ata lrsn and Stttl
Co., Ltd.
v.
'he State of Bihar
Ay)langar, J.
206 SUPREME COURT REPORTS [1963] SUPP.
be served upon the owner, chief agent, manager
or occupier of every mine or quarry other than
a notified mine and of every tramway, railway
and other immovable property not included
within the provisions of Chapter II, and not
being a tramway or railway on which local cess
is not leviable. Such notice shall be in the
form in Schedule (2) contained, and shall
require such owner, chief agent, manager or
occupier to lodge in the office of such Collector
within two months a return of the net annual
profits of such property, calculated on the
average of the annual net profits thereof for
the last three years for which accounts have
been made up.
(2) ............................................... ···'········
(3) The Collector may in his discretion extend
the time allowed for lodging any return referre:l
to in this section.
72A. Penalty for omitting to make a return.-
(!) Any owner, chief agent,
manager or
occupier who, without sufficient cause being
shown to the satisfaction of the Collector,
refuses or omits to lodge the required return
in the office of the Collector within two months
from the date of the service upon him of a
notice under section 72 or, within any extended
time which may have been allowed by the
Collector for lodging such return, shall be liable
to a fine which may extend to fifty rupees for
every day after expiration of such time or
extended time until such return is furnished or
until the annual net profits of or the annual
despatches of coal and coke from the property
in respect of which the notice has been served
shall have been otherwise ascertained and
determined by the Collector as hereinafter
provided.
1 S.C.R.
SUPREME COURT REPORTS
207
(2) The amount of such fine accruing due from
time to time may be levied by the Collector as
provided in section 98 or section 99, and the
fact of an appeal against such fine being
pending shall not avail to prevent the levy of
any such fine
pending the disposal of the
appeal, unless the Commissioner otherwise
directs.
(3) Whenever the amount levied in respect of
any such fine exceeds five hundred rupees, the
Collector shall report the case specially to the
Commissioner; and no furthtr levy for such
default shall be made otherwise than by
authority of the Commissioner.
73. When property lies in different districts.-
Whenever any property assessable under this
Chapter lies in two or more districts, the notice
to furnish a return under section 72 shall be
served on the owner, chief agent, manager or
occupier of such property by or through the
Collector of the district in which such owner,
chief agent, manager or occupier may reside or
have his chief place of business, and one return
for the whole of such property shall suffice.
74. When a property is partly in and partly
outside
Bengal.-Whenever
any
property
assessable under this Chapter lies partly within
and partly outside the territories administered
by the Lieutenant-Governor of Bengal, the
return furnished as required by section 72 shall
state the total annual net profit accruing from,
and the total annual despatches of coal and
coke despatched from such property, calculated
as aforesaid, and also the proportion of such
profits and despatches which may reasonably be
calculated to accrue in or to be despatched from
the territories administered by the LieutenantGovernor of Bengal.
1962
Tata Iron and Stet
Co., Lt/.
v.
The St•te of Bih•
Ayyan:ar, J.
1962
·ata Iron and Sttel
Co., Ltd.
v.
"he State of Bihar
Ayyan,g-ar, J.
208 SUPREME COURT REPORTS [1963] SUPP.
7 5. If return not furnished or incorrect,
Collector to make valuation .-If such return be
not furnished wihin the period of two months
from the date on which such notice was served,
or within any extended time allowed by the
Collector of the district or if such Collector shall
deem that any return made in pursuance of
such notice is untrue or incorrect, such Collector
shall proceed to ascertain and determine by
such wavs or means as to him shall seem
expedient the annual net profits of or the annual
despatches of coal and coke from such property
calculated as aforesaid.
711.
Valuation on value of property.-If such
Collector be unable to ascertain the ann•Jal net
profits, or the annual despatches, as aforesaid,
of or from any property assessable under this
Chapter, he may by such ways or means as to
him shall scrm
expedient,
ascertain
and
determine the value of such property, and shall
thereupon determine six per ccntum on such
value to be the annual net profits thereon or, in
the case of the annual despatches, shall determine such quantlty as having regard to all the
circumstances of the case he considers just and
proper to be the annual despatches therefrom."
The form of notice prescribed under s. 7:! is set out
in Sch. E to the Act.
The material words of the notice run :
"The owner ......... is required to lodge in the
office of the Collector of the district of ......... a
return in the form hereunto annexed, showing
the net profits of the ......... calculated
on
the average of the profits of the last three
years for which accounts have bcrn made up ... "
"Form of Return.
Dctail of yearly profits of mines, quarries,
railways and trannrnys, or other immovable property
l S.C.R.
SUPREME COURT REPORTS
209
in the possession or under [he control of the person
submitting the return.
l
2
District
Parganas
In which the property
lies
3
4
Name of Annual net proholder or fits per annum
manager on the average
of the last three
years of which
accounts
have
been made up.
"
The argument addressed to us by the learned
Attorney-General for the appellants was substantially
the same as was put forward before the learned Judges
of the High Court and which they rejected. Briefly
stated, the submission was this. Under s. 6, which has
to be read with s. 72, the tax imposed by the Act is
not a tax on the mine as a species of immovable property, but on the "anmia\ net profits" derived from the
mine. In order that a person may derive "profit"
from a mine, the mine must be worked and the ore
extracted, but even that by itself is insufficient. The
extraction of the ore involves expenditure and"profits"
could be said to be derived from the mine only when
the extracted ore is sold and the amount rea.Jised by
the sale of the ore is in excess of the cost of extracting
the ore.
A sale of the ore is thus an essential ingredient or a sine qnrt non for the emergence of a profit
on which alone the cess is levied. Where, however,
the ore extracted is not sold but is used by the owner
in the production of other finished products there is
no question of the owner of the ore realising a "profit"
from the mine. In thee ase of an assessee like the
appellants the business of winning the ore and of converting the ore won into a finished product is not by
any means to be conceived of as made up of two distinct
1962
Tata Iron and StCo., Ltd.
v.
Tiu St.le of Bih
A_yyangar, J,
1962
T'ata Iron 11n.d Steel
Co., Ltd.
v.
The State of Bihtir
AyyangRr) J.
210 SUPREME COURT REPORTS [1963] SUPP·
businesses conducted by them but only as a single
integrated undertaking for the production of sted and
steel products. Unless one could postulate first that
the business of winning the ore was a separate business
from that of converting the ore won into steel, and
secondly, could notionally treat the won ore as having
been sold by the first business to the second, it would
not be possible to conceive of any profit being derived
from the working of the mine.
He submitted that
there was no factual basis for the first postulate, viz.,
that there were two separate businesses and secondly,
even assuming that it were possible to separate the two
activities in the course of which goods produced in
one business were consumed in the other, still no
"profit" can in law result by such use because "profits"
could accrue only by the sale of the product and the
consμmption by the same individual of his own goods
could not result in a "profit" because a person cannot
sell to himself or trade with himself.
A further submission that was made was that
though the Act had made provision for the levy of a
cess or rate based upon mere beneficial occupation
without perception of rent from a third party occupier,
in the case of "land", it had deliberately made no such
provision for computing the beneficial occupation of
mines s11ch as the ones now under discussion and that
this was itself an indication that without the actual
receipt of"profit" a mere beneficial occupation of the
mine was not sufficient to enable a charge to be imposed.
There were a few other minor and ancillary
points suggested, but we shall refer to them later.
It would be convenient to deal with the above
two submissions separately. So far as the main and
the principal point which we have set out earlier is
concerned, it.is manifest that it hinges m1 the acceptance of the proposition that no "profit" accrues from
a mine to an owner unless the ore extracted is sold by
him to a third person and the somewhat related propositiou that where a perso;n carriCll 011 a multiple but
I S.C.R.
SUPREME COURT REPORTS
2ll
none-the-le>s an integrated activity that produces an
entire profit, the tntal profits derived by him cannot
be disintegrated and apportioned between the different
activities unless the relevant statute under which the
tax is imposed makes specific provision for such
purpose.
Before entering on a discussion of this question
it is necessary to notice an argument advanced before
us by Mr. Sinha, the learned Government Advocate
who appeared for the respondent.
His submission
was that it was s. 3 of the Act 1d1ich created the
charge and imposed the liability and that s. (; and
the other related provision in s. 72 merely provided
the yardstick or the measure of that charge and that
as the mine was immovable property within the district it wa subject to the cess at the rates specified in
ss. 6 & 72. \Ve consider that the submission provides
no answer tn the problem before us.
It matters little
whether in technical language the charging section is
s. 5 or ss. 5, 6 and 72 read together. When once it is
conceded, as it must be, that in the case of a mine there
is no liability to pay the tax unless the mi~c were
worked
and
the working produced a "profit'', the
question would still have to be answered as to whether
the mine can be said to produce an "annual net profit"
on the basis of . which alone the cess could be levied
when the ore won is not sold as such but "it is convertrd
into a finished product and is sold thereafter.
The learned Attorney-General concentrated on
the meaning of the expression "profit" occurring in
s. 6 and the related provisions of the Act.
"Profit",
according to him, arises only when. a commodity produced, obtained or acquired is the subject of a commercial transaction of sale and represents the difference
between the expense or cost of production or acquisition and the amount realised on the sale, and the main
submission was that as there was no sale by the mineowner of the product of the mine as such, no "profit"
1962
Tata !run and Sttt
Co., I.tr/.
v.
Tht State of Ri 1:ar
.~:vyanga1, J.
1962
Tata Iron and Str!el
Co., Ltd.
v.
Tho Stat' of Bihar
Ayyangar, J.
212 SUPREME COURT REPORTS [1963] SUPP.
could in law be deemed to have accrued to him from
the mine.
In further elaboration of this point, reliance
was placed on the fact that what was brought to
charge-or rather what was taken to be the taxable
event-was "the annual net profit," and this computed on the basis of the average of "annual net
profit for three years" (vide ss. 6 & 7'2 of the Act}.
This last circumstance however does not obviously
advance the case far, because, if it is possible to
conceive in law of a profit or a net profit being derived
when the mined ore is utilised by a mine-owner in his
factory, neither in logic nor on principle is there any
difficulty in there being an "annual net profit",
particularly seeing that the operation of mining is a
continuous process extending for years together.
In support of his basic submission the learned
Attorney-General called in aid the principle laid
down by the House of Lords in Styles v. 'l'ke New
York Life Insurance Company (') that no-one can
make a profit out of himself.
He also referred us to
the following passage in the judgment of Rowlatt, J.,
in Thomas v. Rickard Evans & Co., Ltd. (') :
·
"It is true to say a person cannot make a profit
vut of himself, if what is meant is that he may
provide himself with somt:ithing at a lesser cost
than that at which he could buy it, or if he does
something for hims_elf instead of employing
somebody to do it.
He saves money in those
circumstances, but he does not make a profit."
He further invited our attention to Ostime v. Pontypridd (8) and to the _passage in the speech of Viscount
Simon in the House of Lords :
"The identity of the source with the recipient
prevents any question of profits arising."
His next submission was that this principle had been
accepted by this Court in Kilwbh(t£ Premckand v.
Commissioner_ of Income Tax, Bombriy (') and that
(l)
(1889) 2 T. C. 4£0.
(2)
(1927) 11 T. C. 790, 822.
(3)
(194£) 28 T. C. 261, 278.
(4)
[1954] S. C.R. 219.
. -·
I
'
1 S.C.R.
SUPREME COURT REPORTS
213
the reasoning underlying this decision compelled a
decision in his favour.
It is not necessary to examine the scope of the
maxim that a person cannot make a profit out of
himself or ascertain whether the principle is subject
to any exceptions.
It might here be pointed out
that it has been held by the House of Lords in Sharkey
v. Wernher (') that the general proposition that no
one could trade witloi himself and make in its true
sense or meaning taxable profits by dealing with
himself is not universally true and that there are
situations in which a man could be said to make a
profit out of the consumption of his own goods.
However, as the principle underlying the decision of
this Court in Kikabhai Prernchand' s case (') runs
counter to the decision of the House of Lords in
Sharkey v. Wernher(') vide Cornmi88ioner oj Incornetax, Bombay City I, Bombay v. Bai Shirinbai K.
]( ooka (3) we are bound to proceed on the basis that
on facts similar to those in Kikabhai's msc (') the
principle applies and negatives the idea of a taxaLle
profit emerging.
It is, therefore, necessary to examine the precise
scope of the decision in Kikabhai's case ('). The
case arose under the Indian Income-tax Act and the
question related to the computation of the income
and profits of a bullion merchant. The asses~ee had,
during the accounting-year, withdrawn some bullion
from his stock-in-trade and transferred it to a trust
which he had created. The assessee valued the
bullion withdrawn at the price at which he had
bought it, so that no profit was shown to have resulted
to him by reason of the transfer of this stock-in-trade.
This was objected to by Revenue whose contention
was that the bullion withdrawn had to be valued at
the market price of the commodity on the day of the
transfer. This Court, accepting the contention of
the ao;sessee, allowed his appeal and the ratio of this
(l) [1956] A.C. 58.
(2) [1954] S.C.R. 219.
(3) [1962] Supp. 3 S. C. R. 391.
1962
Tata J1·ur1 and Stetl
Co., Ltrl.
v.
The Stale of Bihar
A)'yangar, J.
1962
Tata Iron and Str.el
Co., Ltd.
v.
1'he State of Bih11r
214 SUPREME COURT REPORTS [1963] SUPP.
decision is to be found in the following passage in the
judgment of Bose, J., who spoke for the majority :
"We are of opimon that it is unreal and artificial to separate the business from its owner
and treat them as if they were separate entities
trading with each other and then by means of
a fictional sale introduce a fictional profit which
in truth and in fact is non-existcn1.
Cut awav
the fictions and you reach the position that the
man is supposed to be se!Jing to himself and
thereby making a profit out of himself which
on the face of it is not only absurd but against
all canons of mercantile and income-tax law."
This was slightly expanded in the illustration given
of a trjlder in rice withdrawing rice from his stock-intrade for the purpose of consumption by his family.
The learned Judge added that if the trader in rice
transferred some stock to a private god own:
"What he chooses to do with the rice in his
godown is no concern of the Income-Tax Department provided always that he does not sell it or
otherwise make a profit out of it.
He can
consume it, or give it away, or just let it rot. .....
How can he be said tq have made an income
personally or his business a profit, because he
uses ten bags out of his godown for a feast for
the marriage of his daughter ?"
It would be seen from the above that the stock with·
drawn was not the subject of any commercial tran·
saction but was, so to speak, lost to the business.
But that is not the position here. Though the mined
ore was not itself the subject of a sale, it was converted into a commodity which was the subject of a
sale.
The question, therefore, arises . wheth~r when a
sale or a commercial transai:tion wluch might result
1 S.C.R.
SUPREME COURT REPORTS
215
in a profit takes place not of the commoditv itself but
of somethi~g into which it is transformed, '"a profit"
could be sa~d to
arcru~ by reason of the acquisition
of the basic commcidltv.
Let m now anahsc the
concept underlying this . oituatiun. It could not, for
instance, be that unless the mined ore was sold as it
came out of the mine there could be no profit and
that if the ore underwent any modification from
the state in whi~h it ':"as when mined, say by being
reduced to convemrnt sizes or by being broken
up
into small fragments or even pulverised, there could
be no profit arising out of the sale of the ore so
dr~s
sed.
It is needless to add that in such a case the cost
of the dressing or the pulverising for the market could
be an item of expenditure which would have to be
taken into account in ascertaining the profit from the
sale of tlie ore. If one is right so far that profit could
result from the sale of the mined ore so dressed up for
the market, could there be any logic in the contention
which denies the existence of profit from the mined
ore when not the dressed ore but some product of the
dressed ore is sold.
No doubt where the mined ore
undergoes some processing before it is marketed, the
process being either cleaning or dressing etc., the
processed product might continue to be commercially
known as ore.
But the question would then arise "Is
it essential for a 'profit' to result from the working of
the mine that there should be an identity in a commercial sense between the commodity which is the
subject of sale and the commodity which is won from
the mine 'I" In other words, is it the position that if
there is loss of that identity the concept of "a profit"
arising from the production of that commodity also
disappears? We find it difficult to appreciate the
ratio behind the contention that if the mined ore is
processed. and the proet'ssed product rnmmcrcially
goes under anotluor namt', becaU\c the processing
results in extensive mudificaticns of the raw material,
then the sale of 1 he finished product can in law vield
no "profit" from the working of tlw mine
1962
Tate Iron tlnd Steel
c,,., Lt,f.
v.
The Sttite of Bih~r
.~vyangcr, J.
1962
Tata Iron a11d Steel
Co., Ltd.
'·
The State of Bihar
A_J'.,Yangar, J.
216 SUPREME COURT REPORTS [1963] SUPP.
At this stage it is necessary to bear in mind
a fact that what we have here is not a consumption in
the sense of di,,;pation of the ore won as a re5u\t of
which the commodity is entirely lost, as would be the
case where, for instance, grain produced by an agriculturist is consnmcd in his own family-this being the
very illustration referred to by Bose, .J., in Ei/;ablmi
Prenicha.nd'8 m'e('). The situation here is that there
has been a sale of the end product and the contention
is that notwithstanding the sale and the realisation of
profit from the sale of that end product, there is no
profit attributable to the product of the mine.
In
this connection the learned Attorney-General referred
us to the decision of this Court in Doonr8 Ten Co.,
Ltd. v. The Cmnmissioner of AgricuUuml lncome-1,a,x,
West Bengal('). The question raised for decision was
whether the value of bamboos, fuel timber etc. grown
by an assessee, but wh~h were utilised by him for the
purposes of his tea business could be taken into
account in computing "his income, profits and gains"
for the purposes of the Bengal Agricultural Income
Tax Act.
This Court held that it could be and that
even if that item did.not fall within the word "profits
or gains", it was certainly "income" which was of
wider import. It may be pointed out that the learned
Judges did not expressly negative the item being
"profits", and the decision is authority only in regard
to the broad sweep of the expression "Income" in the
statute there interpreted.
It could not be disputed that factually the
profit from the mining operation and the wim1ing of
the mineral is imbedded in the profit realised from
the sale of the end product.
A simple illustration
would demonstrate this.
Let us assume that the cost
of winning the ore is Rs. 50/- a ton and the market
price of similar ore which would have to be used in
the absence of the ore mined is Rs. 60/- per ton.
There could not be any doubt that this difference of
Rs. IO/- per ton of ore would be reflected in the
(1)
[1954] S.C.R 219.
(2)
[1962) 3 S.C.R. 157.
1 S.C.R.
SUPREME COURT REPORTS
217
profit or loss resulting from the sale of the steel. It
is needless to add that if in a given case the mined
product costs more than the market price of the commodity, there would be a loss on the mining operation notwithstanding that there is a profit realised
from the sale of the end product-steel, but these are
matters of calculation not relevant at the present
stage, for we arc endeavouring to ascertain whether
there could in law be a profit when the mined ore is
converted into steel in the mills of the mining-company. If thus factually the profit from the mine or
from the mining operation is imbcddcd in the profit
from the sale of the. steel is there any principle of law
which prevents effect being given to this factual position ? The learned Attorney-General submitted that in
such a situation the "profit"' is not a real or an actual
profit but is one which is merely notional, and that
when the Act spoke of a "profit'' it meant an actual,
real and realised profit and not a merely notional
"profit". \Ve find ourselves unable to accept this
submission. We start with the premise that by the
sale of the end product a real "profit" has been realised.
When anal red it is found that that profit is
the aggregate or resultant of the profits from different
lines of activity. H arithmetically that total represents
the resultant aggregation of different items of activity
we fail to see how it could be said that the profit from
each item which results in that total is a ndional
and not an actual or real profit. In the interests of
cLi:·ity, we should add that the principle woukl be the
same when the sale of the end product yields nl'.i
profit, but results m a loss, only in such a case, the
relevant component, ciz, the disintegrated profit or
loss resulting from the mining operation would diminish the loss if that were a profit, or 2dd to the loss if
that were also a loss.
No doubt, there was a further
contention urged that you cannot dissect that final
pr~fit in ;lfdcr to ascertain its components, but it is
qmte a different one from that now under consideration and we shall deal with it in its proper place.
1962
Tata iron and Ster/
Co, l.td.
y.
The State of Bihar
Ay_vangar, J.
J'!(i2
Tata iron and Steel
Co., Ltd .
....
The State of Bihar
.A;yangar, J.
218 SUPREME COURT REPORTS (1963] SUPP.
But what we are now concerned to point out is that
if it is capable of dismemberment or disintegration
into its components, it would not be correct use of
language to designate the profit so apportioned and
ascertained as attributable to each line of activity any
the less real than the aggregate profit realised from
all the ventures. In the way in which we have
approached the problem there could be no question
involved of any departure from the principle that a
man cannot trade with himself.
In fact, the principle of dichotomy is brought in by the learned Attorney-General by first disintegrating the business of the
appe!Iant into two-first as a mine-owner winning
the ore ar.d later by a Steel Manufacturing Co.,
consuming the won ore and then posing the question
as to whether the transfer of the ore from the mining
section to the manufacturing one could in law involvt:
a sale of the product so as to yield a "profit". It
would be apparent that if one proceeded on the basis
of treating the businesses as a single and integrated
one, as the learned Attorney-General desired us to do ..
as one unbroken chain from the start of the mining
operation to the sale of the finished steel or steel products by the company-no question of a person trading with himself would arise, but the very different
one as to whether there could be a disintegration of
the profits of an integrated business, between the compopent constituents which go to make it up. Undoubtedly, in order to ascertain the profits from the mine
there would have to be a disintegration of the gross
profits which finally emerge from the sale of the finish€d steel or steel products. What we desire to point
out is that this involves no disintegration of the b11Siness affording scope for the contention based upon
the principle that a persQn cannot trade with himself,
but the one far removed from it, viz., whether when
a profit has been made a;; a conjoint result of d~ffe
rent but integrated operations, the profits so denved
could be br:oken up so as to permit the attribution of
1 s.c.R..
SUPREME COURT REPORTS
219
specific amounts of profit to each or any of the seve1962
ral 01Jerations or activities.
Tota Iron and Steel
This takes us to the point as to whether there
c.~.