LAJWANTI SIAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS proceeding under section 66(1) of the Income -tax Act, 1922, arises out of the decision of the Income -tax Appellate Tribunal, Bombay (herein -after called the Tribunal), in Income -tax Appeal No. 190 of 1950 -51. The Tribunal has submitted to this Court for judgment the following questions of la : (1) Whether the assessee in effecting the transfer of the management of the coal mines to the company made a capital gain and, if so, the extent thereo ? (2) If the answer to question (1) is in the affirmative, whether the law imposing a tax on capital gains is intra vire ? (3) If the answer to question (1) be in the negative, whether in effecting the transfer of the management of the coal mines to the company the assessee made an income liable to tax and, if so, the extent thereo ?

(2.) THE dispute relates to the assessment for the financial year 1st April, 1947, to 31st March, 1948. The assessee was Rai Saheb P.S. Sial, who died during the pendency of the proceedings and is now represented by his widow, sons and daughters. He had acquired coal mines at Majri, Ghogri and Ambara, but it appears that the Ambara coal mine was not being worked. A private limited company known as 'Rai Saheb P. S. Sial and Sons Ltd.' (hereinafter referred to as the company), was incorporated in 1944, the shareholders of which were the assessee, his wife and his sons and daughters. By an agreement, dated 31st March, 1947, called 'the agency agreement', the assessee transferred with effect from 1st April, 1947, the management of the entire business of working his collieries and mines to the company. Clause 6 of this agreement is to the following effec : 'That in consideration of the mining proprietor having allowed the use and occupation of the running collieries to the agency company, the company shall give to the mining proprietor royalty at the rate of Re. 0 -6 -0 (Rs. nil and annas six only) per ton of coal raised and despatched out of the colliery premises. The mining proprietor shall have nothing to do with any items of expenses that will be incurred for raising coal or for running the business at all these three places.' By clause 19 the following was provide : 'That the company has agreed to take over all the business outstanding debits either due by or to the proprietor at the face value as per books of the proprietor for the year ending 31st March, 1947, and in lieu thereof the company has agreed to allot shares of the equivalent net value in the name of the proprietor or his nominees.' It is not disputed that the assets transferred to the company amounted to Rs. 2,54,908, which included Rs. 1,10,000 for what is called the goodwill of the Majri and Ghogri mines. The company was indebted to the assessee in the sum of Rs. 23,450 on 31st March, 1947. Thus it had to pay to the assessee a sum of Rs. 2,78,358 for which it allotted to him shares of the face value a sum of Rs. 2,75,000, the balance of Rs. 3,358 being left with the company to the assessee's account.

(3.) IN his statement before the Income -tax Officer, the assessee has given a history of the amount of Rs. 1,10,000. According to him, the Majri mine was purchased by him for a sum of Rs. 1,35,000 by a registered deed, dated 26th June, 1936. The value of the machinery and plants etc. was fixed at Rs. 80,000 and the building were valued at Rs. 2,000, vide depreciation record of the year 1937 -38. An extra consideration which really amounts to Rs. 53,000 and not Rs. 55,000 as stated by the assessee, was, according to him, the value of the goodwill and right to work the mine. The leasehold rights in the Ghogri mine were purchased in the year 1934 for Rs. 55,000, which represented exclusively the consideration for the goodwill and right to work the mine. His case was that these values rose to Rs. 75,000 for each mine in the year 1939 and accordingly he actually suffered a loss of Rs. 40,000 and consequently there was no capital gain.