COMMISSIONER OF INCOME TAX v. H.D. AGARWALA & SONS
[Citation -1987-LL-0512-2]

Citation 1987-LL-0512-2
Appellant Name COMMISSIONER OF INCOME TAX
Respondent Name H.D. AGARWALA & SONS
Court ITAT
Relevant Act Income-tax
Date of Order 12/05/1987
Assessment Year 1967-68, 1968-69, 1969-70
Judgment View Judgment
Keyword Tags relationship of principal and agent • profits and gains of business • minimum guaranteed amount • business or profession • income from business • additional payment • organised activity • business activity • managing director • authorised agent • commercial asset • partnership act • registered post • royalty payable • supply of coal • railway siding • rental income • sugar factory • going concern • res judicata • cold storage • right of use • annual rent • excise duty • letting out • flour mill • coal mines • lease deed • take over • plant • bidi
Bot Summary: Business, one must have the control, even if not all-pervasive, yet the ultimate power to direct the working and conduct of such a business. In any case, where both tests are lacking, namely, where there is neither control over the actual conduct of the day-to-day business nor any direct nexus with the profits or losses of a business, there can be no question of a business or profession carried on by the assessee in terms of section 28 and the case must fall within the ambit of section 56 as income from other sources. The commercial object of gain or profit of business was then highlighted by their Lordships of the Supreme Court in the following words in CIT v. Lahore Electric Supply Co. Ltd. 1966 60 ITR 1, 5: The question whether the company was carrying on business arises only because, if it was, it would be entitled under section 10 to deductions from its business income in regard to certain expenses incurred by it for the purpose of that business. Emphasis supplied To my mind, the aforesaid observations cover and conclude identical and similar cases of fixed long term leases of a whole business which is to be carried on by the lessee during the said term and where there is no direct nexus between the income of the lessor and the production of the leased factory, colliery or any other business. If the business as a whole is let out, the income would not be liable to be assessed as income from business... What has been said above applies equally to the case of CIT v. Vikram Cotton Mills Ltd. 1977 106 ITR 829, a Division Bench judgment of the Allahabad High Court which again adumbrated the theory of a commercial asset and there being no intention to dismantle or discontinue the business, even though a long-term lease of 10 years with an option for renewal for another 10 years had been executed after letting it out to another concern on a rent of rupees two lakhs per year. The core issue under section 28 is as to who is carrying on the business with that commercial asset: the proprietor who has merely rented or let it out or the managing contractor who actually works and runs the business thereof. To finally conclude, both on principle and on the binding precedent of New Savan Sugar Gur Refining Co. Ltd.'s case 1969 74 ITR 7, the answer to the question posed at the very outset is rendered in the negative and it is held that the proprietor of the colliery, by abdicating all control of its business in favour of its managing contractor by a renewable fixed term lease of ten years on the terms of an annual minimum guaranteed amount and royalty on the quantum of coal raised and manufactured, cannot be said to be carrying on the business of the said colliery within the meaning of section 28(i).


JUDGMENT JUDGMENT S. S. SANDHAWALIA C-. J.-In this set of connected and consolidated Income-tax References Nos. 240, 241, 249, 250 and 251 of 1976, larger question that looms for adjudication may be formulated in following terms: " Whether proprietor of colliery abdicating all control of its business in favour of managing contractor by lease for fixed term of ten years with option to renew by lessor on terms of annual minimum guaranteed amount of Rs. 18,000 and royalty at differential rates on quantum of coal raised and its manufacture, can still be said to be carrying on business of said colliery within meaning of section 28(i) of Income-tax Act, 1961? " Pointedly at issue is correctness of earlier view of Division Bench in CIT v. S. K. Sahana & Sons Ltd. [1976] 102 ITR 437 (Pat) answering identical question in affirmative. Virtually identical facts may be noticed from Tax Cases Nos. 249 to 251 of 1976. S. K. Sahana & Sons Ltd., assessee, is limited company which, inter alia, derives income from mining establishment known as New Bansjora Colliery. By agreement dated April 22, 1959, assessee-company leased out colliery to Khas Ganeshpur Coal Mines (P.) Ltd. by appointing latter as managing contractor for period of ten years with option of renewal for further period of three years. terms of agreement, inter alia, were for payment of minimum guaranteed amount of Rs. 18,000 per year to assessee and further to pay guaranteed profit of Rs. 1,50 per ton of coal raised from colliery and additional payment of Rs. 2.225 per ton for every ton of soft coke manufactured and Rs. 3 per ton for hard coke manufactured by managing contractor. For assessment years 1967-68 to 1969-70, it was contended on behalf of assessee before Income-tax Officer that minimum guaranteed amount of income and royalty received on every ton of coal raised by managing contractor should be assessed as income from business. This contention was, however, rejected by Incometax Officer (vide annexures A, A-1 and A-2), who referred to his orders for previous assessment years and for reason given therein held that guaranteed commission and royalty on coal was assessable under head " Income from other sources ". Income-tax Officer referred to fact that though Tribunal had taken different view, matter was still pending before High Court in reference. matter was carried before Appellate Assistant Commissioner in appeal, who, however, found that colliery had been leased out as running concern to managing contractor which worked it under power of attorney. He found that running concern as such had been handed over for management in name and on behalf of assessee. For these reasons, he took contrary view that income under contract of managing contractorship was income from business and not from other sources. consolidated order of Appellate Assistant Commissioner is annexure " B " to statement of case. When matter came up before Tribunal, all three years' appeals were disposed of by common order. Tribunal found that facts in these cases were same, as had been found in earlier assessment years 1963- 64 and 1964-65 in which it had earlier held that income derived by assessee was income from business and not income from other sources. Therefore, Tribunal followed its earlier orders and held that income derived by assessee was income from business (vide annexure " C "). Against aforesaid orders, Commissioner moved reference applications under section 256(1) of Income-tax Act, 1961 (" Act "), for referring question of law arising in case to High Court. Therein, on behalf of assessee, firm reliance was placed on fact that in respect of assessment years 1963-64 and 1964-65, High Court had considered same question and by its judgment dated September 20, 1974 ([1976] 102 ITR 437), it had been held that income of this very assessee received from managing contractor was income from business. It was contended that facts relevant for assessment years were same as had been mentioned in earlier statement of case for assessment years 1963-64 and 1964-65. On these premises, Tribunal referred following question to High Court for premises, Tribunal referred following question to High Court for three assessment years: " Whether, on facts and in circumstances of case, income of assessee received from managing contractor was income from business? " These cases originally came up for consideration by Division Bench presided over by my learned brother, Uday Sinha J. In his lucid order of reference to larger Bench, it was noticed that there appeared sharp cleavage of opinion within court itself between cases in S. K. Sahana & Sons Ltd. [1976] 102 ITR 437 and CIT v. Pure Dhansar Coal Co. [1985] 154 ITR 857 (Pat) on one hand and Khas Benedih Colliery v. CIT [1974] BBCJ 440 (Pat) and CIT v. Kuya & Khas Kuya Colliery Co. [1985] 156 ITR 206 (Pat) on other. It was consequently found appropriate that question of interpretation of lease granted by assessee should be considered by larger Bench for deciding whether earlier case in S. K. Sahana & Sons Ltd. [1976] 102 ITR 437 was correctly decided or not. To facilitate resolution of point, it was further directed that agreements executed by assessee, S. K. Sahana, in present cases and lease deed under consideration in Khas Benedih Colliery's case [1974] BBCJ 440 should be incorporated in supplementary paper book for ease of reference, which has accordingly been done. That is how matter is before us. As has been authoritatively said by final court in cases of present kind, apart from general principle, each case must be decided on its peculiar circumstances according to ordinary common sense principle and, in particular, on terms of contract betwixt parties. Consequently, before proceeding further, terra firma of contractual terms admittedly arrived at and duly executed and adhered to would necessarily first call for notice. Whilst reference to every clause will be obviously wasteful, summation of prominent terms thereof is inevitable to highlight core of contract betwixt parties. deed is admittedly dated April 22, 1959, and it is itself described by parties as deed of managing contract betwixt S. K. Sahana & Sons Ltd. referred to as " proprietor " and Khas Ganeshpur Coal Mines (P.) Ltd. referred to as " managing contractor ". Thereby, managing contractor was appointed for New Bansjora Colliery for period of ten years with option on part of proprietor for renewal of period on such terms and conditions as may be usually agreed upon. other significant clauses of deed warranting pointed notice provide as follows: " 18. That New Bansjora Colliery is now lying closed and reopening permission has to be obtained from proper authorities. That managing contractor shall take all necessary steps and make arrange- ments for obtaining reopening permission. That proprietor shall render all possible assistance to managing contractor in aforesaid matter and shall do such formal acts and deeds as may be as and when requested by managing contractor required to be done in said connection. 19. That notwithstanding anything hereinbefore contained, so long as reopening permission is not obtained from authorities concerned, managing contractor shall not be liable to pay to proprietor guaranteed income or profit reserved in this agreement, that is to say during such period managing contractor shall not have to pay minimum guaranteed income or profit referred under clause 15... 3. As there are no machineries existing at said colliery, managing contractor shall be entitled at its own cost to instal such machineries and to bring in such chattels and utensils at said colliery, as it may in its discretion think fit and proper for purpose of working said colliery. said machineries so to be installed and said chattels and utensils so to be brought shall remain absolute properties of managing contractor and on determination of these presents, subject to provisions of clause 5 hereof, managing contractor shall be entitled to remove such machinery, chattels and utensils as may be installed at or brought in by it to said colliery without any objection on part of proprietor. 2. managing contractor shall have full power and authority to search for, get, quarry, win and dig coal by all... [torn]... required modes of coal mining in said colliery and manufacture coke and otherwise to work said colliery according to Indian Mines Act and Rules and Regulations framed or to be framed thereunder and all other statutes, bye-laws, rules and regulations applicable to said colliery and business and in connection therewith to use all existing structures and buildings and railway siding and maintain property during said term without any lawful eviction, interruption, claim or demand by or on part of proprietor. 4. managing contractor shall have right at its own to build on any portion of surface land appertaining to said colliery and belonging to proprietor such buildings, structures, dhowaraha, creches, pithead bathe, washery, coke ovens, as it may in its discretion think fit with consent of proprietor and on termination of these presents, proprietor shall be liable to pay cost of same, less depreciation allowed by income-tax authorities, to managing contractor. 7. That during terms hereby created, business of said colliery shall be carried on by managing contractor in existing name of " New Bansjora Colliery " and all costs, charges and expenses for working of said colliery and for carrying on said business shall be borne and paid by managing contractor who shall indefinitely keep indemnified proprietor and its estate and effects in respect thereof and all coal raised and coke manufactured as aforesaid at said colliery during said term shall be treated as properties of managing contractor who shall be entitled to sell or otherwise dispose of same in accordance with terms and conditions herein contained for its own absolute use and profit. 8. That during term hereby created managing contractor shall be entitled: (i) To realise and appropriate price of all coal and coke sold and despatched from said colliery by railway as aforesaid. (ii) To enter into all contracts for sale of all kinds of coal raised or coke manufactured from said colliery. (iii) To carry out all correspondence in any way relating to working of said colliery and to sign name of proprietor or its business name of New Bansjora Colliery in such correspondence. (iv) To make out bills for supply of coal and coke against any party or parties to whom same might have been supplied and delivered and to sign such bills in name of proprietor or its business name. (v) To demand and realise all moneys payable to proprietor of New Bansjora Colliery from such parties and to grant and sign effectual receipts and discharges for same. (vi) To institute suits and other proceedings for recovery of price of coal and coke... [torn]... and delivered and for purposes aforesaid to sign vakalatnama, plaints, petitions and other cause papers. (vii) To enforce (sic) or otherwise negotiate any cheques that may be drawn in favour of proprietor of New Bansjora Colliery by any such party as aforesaid or otherwise to collect proceeds of cheques. (viii) To enter into siding agreements with Railway Administration and do all other things in connection with obtaining new siding accommodation and/or having additional loading accommodation. 9. That notwithstanding anything contained herein authorising managing contractor to sell coal or coke, managing contractor shall not sell or dispose of any coal or coke otherwise than by despatching same by Railways except with express written consent of proprietor and in presence of representatives of proprietor. 10. proprietor hereby undertakes to execute in favour of managing contractor or its nominee or nominees power of attorney authorising it to exercise all or any of aforesaid powers and such other power as may be necessary and required for purpose of working, managing and carrying on business of colliery in manner herein: provided always that managing contractor shall and hereby agree to indemnify and keep indemnified proprietor from and against all losses, damages and expenses of suits, action, proceedings that may be occasioned or suffered by proprietor on account of any default on part of managing contractor in respect of working and management of said colliery or in exercise of any of powers conferred or to be conferred on it, its nominee or nominees by proprietor by these presents and/or power of attorney hereinbefore mentioned. 12. During term hereby created, managing contractor shall have full authority to appoint such managers, clerks, workmen and other employees for working said colliery on such terms and for such period as it thinks fit but not exceeding said term hereby created including period of renewal, if any, granted and at its discretion to discharge and dismiss any such persons so to be employed as aforesaid and to appoint other or others in his or their place or stead. 14. That managing contractor shall keep and maintain proper books and registers showing raisings and despatches of coal and coke from colliery. Such books and registers shall be open to inspection of proprietor or its authorised agent at any time during usual business hours after giving 7 days' notice to managing contractor. 15. managing contractor shall prepare monthly returns of coal raised and coke manufactured and despatched from said colliery and shall send copy of same to proprietor by registered post within succeeding....... 16. That, in consideration of premises, managing contractor shall, during subsistence of these presents, pay to proprietor in manner hereinafter provided as and by way of guaranteed income or profit from said colliery, following amounts: (a) Rupee one and annas eight per ton of coal raised except such coal as is used for manufacture of soft coke and hard coke. (b) Rupees two and annas four per ton of soft coke manufactured. (c) Rupees three per ton of hard coke manufactured. Provided always that aforesaid payment of guaranteed income or profit at rates mentioned above is subject to minimum of Rs. 18,000 (rupees eighteen thousand) only per annum, that is to say, in case guaranteed income or profit on basis of raisings of coal and coke falls short of Rs. 18,000 (rupees eighteen thousand) only, in any particular year or years, managing contractor shall be bound to pay to proprietor fixed sum of Rs. 18,000 only. That said sum of Rs. 18,000 will be payable in three instalments of Rs. 5,000 (rupees five thousand) each in months of April, July and October of particular year and balance by month of January of succeeding year. In accordance with clause 10, proprietor also executed general power of attorney in favour of managing contractor authorising it to exercise all such powers as may be necessary and required for th purpose of working, managing and carrying on business of colliery. Now, what admittedly emerges from aforequoted terms of deed and deserves to be saliently put in forefront is, first, fact that colliery in question was not even working one and was undisputedly lying closed since long. There was thus no existing or continuing business of colliery as such and burden of applying for opening of said colliery and securing requisite permission to proceed with business of raising coal therefrom was at outset laid on shoulders of managing contractor. Equally undisputed is fact that no machinery or equipment worth name belonging to proprietor was on premises and this was also to be brought and installed by managing contractor himself. Equally significant was term that irrespective of profit or loss accruing to managing contractor, he was obliged to pay minimum guaranteed amount of Rs. 18,000 per annum to proprietor. Once permission for reopening was obtained, this payment was unrelated to fact whether managing contractor raised single ton of coal from colliery or otherwise. additional royalty on raising of coal was then related to its tonnage and quality of coal manufactured at differential rates of Rs. 1,50 per ton of coal raised, Rs. 2.25 per ton of soft coal manufactured and Rs. 3 per ton of hard coal manufactured. practical and end result of deed, therefore, was that there was neither any sharing of profits nor of loss betwixt proprietor of colliery and managing contractor to which it had been leased for fixed term of ten years. Whether managing contractor ran into loss of crore of rupees for period or made profit of rupees five crores was irrelevant to bare minimum guarantee of Rs. 18,000 payable in any event and above all it was related to quantum of coal raised and manufactured and not to profit or loss from sale thereof. It may be highlighted that in vagaries of business and in fluctuating prices of commodity like coal, colliery may sometimes run into bigger loss (the working expenses remaining constant or being enhanced) by raising larger quantum of coal whilst proprietor would be entitled in inverse ratio to claim higher quantum of royalty on basis of raised tonnage irrespective of actual financial loss to managing contractor. To crown it all, clause 7 in terms stated that business of said colliery shall be carried on by managing contractor. existing name of New Bansjora Colliery was preserved and all costs, charges and expenses in working of said colliery and for carrying on said business shall be borne and paid by managing contractor. Further, managing contractor was to keep proprietor indemnified in respect of coal raised and manufactured in colliery during term of lease and managing contractor was at full liberty to sell or otherwise dispose of coal raised or manufactured in colliery without let or hindrance. other terms of contract would leave no manner of doubt that actual carrying on of business of colliery after same was got reopened was done by managing contractor who was entitled to realise price of products raised, to enter into all contracts for their sale, to carry on correspondence, to make bills, to institute suits for recovery of amounts due, to enter into siding agreements with Railway administration and to employ labour and personnel for its working without let or hindrance by proprietor. It is against aforesaid backdrop of salient terms of contract betwixt proprietor and managing contractor that crucial tests of statutory provisions and principles have to be applied to determine whether it was proprietor who was carrying on business of running colliery or it was proprietor who was carrying on business of running colliery or it was managing contractor who was, in fact, doing so. terms of deed have thus to be put into crucible of statutory provisions of section 28(i) of Act employing words "any business or profession which was carried on by assessee " and legal principles applicable. Inevitably, one must now turn first to language of statute and equally to spirit of phraseology employed therein. relevant parts of sections 14, 28 and 56 of Act read as under: "14. Heads of income.-Save as otherwise provided by this Act, all income shall, for purposes of charge of income-tax and computation of total income, be classified under following heads of income:-- A. Salaries. B. Interest on securities. C. Income from house property. D. Profits and gains of business or profession. E. Capital gains. F. Income from other sources. " 28. Profits and gains of business or profession.-The following income shall be chargeable to income-tax under head'Profits and gains of business or profession',- (i) profits and gains of any business or profession which was carried on by assessee at any time during Previous year." "56. Income from other sources.-(1) Income of every kind which is not to be excluded from total income under this Act shall be chargeable to income-tax under head'Income from other sources', if it is not chargeable to income-tax under any of beads specified in section 14, items to E. (2) In particular, and without prejudice to generality of provisions of sub-section (1), following incomes shall be chargeable to income-tax under head' Income from other sources', namely: (i) dividends; (ia) income referred to in sub-clause (viii) of clause (24) of section 2; (ib) income referred to in sub-clause (ix) of clause (24) of section 2; (ii) income from machinery, plant or furniture belonging to assessee and let on hire, if income is not chargeable to income-tax under head ` Profits and gains of business or profession'; (iii) where assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and letting of buildings is inseparable from letting of said machinery, plant or furniture, income from such letting, if it is not chargeable to income-tax under head'Profits and gains of business or profession'." [Emphasis supplied] Perhaps at this very stage, it may be pointedly recalled (in order to appreciate earlier binding precedent) that earlier provisions of sections 10 and 12 of Indian Income-tax Act, 1922 (" 1922 Act"), though not in pari materia literally, were nevertheless closely corresponding sections of aforequoted provisions and principles laid down under said sections by earlier precedents of final court and High Court would be equally attracted in present case. Mr. B. P. Rajgarhia, learned senior standing counsel for Revenue, forcefully pointed out language of section 28(i), namely, " profits and gains of any business which was carried on by assessee ". Herein, he rightly highlighted two basic aspects, namely, in order to carry on Here printed in italics. business, one must have control, even if not all-pervasive, yet ultimate power to direct working and conduct of such business. Unless such control or authority to direct is manifest, person cannot be said to be carrying on such business. other thing rightly highlighted is that both statute and concept of business in commercial sense inevitably imply participation or sharing of profits and, if not otherwise provided for, losses of such business as well. By way of analogy, our attention was drawn to section 4 of Indian Partnership Act, 1932, which defines partnership as relation between persons who have agreed to share profits of business carried on by all or any of them acting for all. Section 13 of said Act provides that subject to contract between partners, partners are entitled to share equally in profits earned and shall contribute equally to losses sustained by firm. Counsel contended that core issue of carrying on business is either appropriation or sharing of profits or gains of business and unless expressly contracted otherwise to equally divide losses in same proportion if they are incurred. With plausibility, it was contended that where either of these two crucial tests, namely, control and direction of running business and appropriation or sharing of profits or losses thereof is absent, it may well be said that persons are not carrying on business. In any case, where both tests are lacking, namely, where there is neither control over actual conduct of day-to-day business nor any direct nexus with profits or losses of business, there can be no question of business or profession carried on by assessee in terms of section 28 and case, therefore, must fall within ambit of section 56 as income from other sources. submission of learned counsel appears to me both impeccable and acceptable. As their Lordships of Supreme Court have repeatedly observed in this context, issue has to be decided on ordinary common sense principles. plain dictionary meaning of word " business " relevant in this context is given in Chambers 20th Century Dictionary as (at p. 175): "trade, profession, or occupation; commercial activity; commercial or industrial concern"; and again in New Oxford Illustrated Dictionary as- " habitual occupation, profession, trade; commercial transactions; commercial house, firm." It is thus somewhat plain that word " business " in this context implies commercial transactions with view to making profit and gain therefrom. Therefore, nexus with profit of commercial activity, to my mind, is essential ingredient of business. What has then to be borne in mind is that section 28 does not use word " business " in isolation but in express terms talks of profits and gains from such business which has been carried on by assessee. Therefore, carrying on business connotes some substantial, essential, systematic and organised activity with object of making gain or profit therefrom, with inevitable control and direction of such activity or business. Consequently, two faces of coin of carrying on business imply control or direction of business activity with direct or indirect nexus with profits or losses therefrom, of course, subject to any express terms of contract. In converse, it necessarily follows that if there is neither control nor direction of activity of business nor direct nexus with its gain or profit, then person or assessee cannot possibly be said to have carried on such business. Perhaps, it is somewhat unnecessary to over elaborate this aspect because it appears to me well borne out by binding and unbroken precedent of final court itself. Way back in Narain Swadeshi Wvg. Mills v. CEPT [1954] 26 ITR 765 (SC), Constitution Bench had observed (at p. 773); " word'business' connotes some real, substantial and systematic or organised course of activity or conduct with set purpose. " aforesaid view was reiterated again by their Lordships in CIT v. A. Dharma Reddy [1969] 73 ITR 751 (SC) in following terms (at p. 755): " word ` business' has been defined in section 2(4) of Act as including any trade, commerce or manufacture or any adventure or concern in nature of trade, commerce or manufacture. These words are of wide import, underlying idea being of continuous exercise of activity. As pointed out by S. R. Das J. (as he then was) in Narain Swadeshi Weaving Mills v. CEPT [1954] 26 ITR 765 (SC), word 'business' connotes some real, substantial and systematic or organised course of activity or conduct with set purpose. systematic or organised course of activity of assessee, in present case, consisted of dealings or taking of contracts in bidi leaves. " commercial object of gain or profit of business was then highlighted by their Lordships of Supreme Court in following words in CIT v. Lahore Electric Supply Co. Ltd. [1966] 60 ITR 1, 5: "The question whether company was carrying on business arises only because, if it was, it would be entitled under section 10 to deductions from its business income in regard to certain expenses incurred by it for purpose of that business. Business as contemplated by that section is activity capable of producing profit which can be taxed..." [Emphasis supplied] It would be wasteful to multiply authorities since it is undisputed that aforequoted binding views of their Lordships have not thereafter been deviated from and, in fact, have been reiterated times out of number. Therefore, to my mind, core of matter on binding Supreme Court judgments in this context is that word " business " implies " some real, substantial and systematic or organised course of activity or conduct with set purpose ". However, where, in terms of section 28, such business must be carried on by assessee not in abstract but at any time during previous assessment year for profits and gains thereof, then what has been said by their Lordships above would become applicable even with greater rigour. issue may perhaps be also examined from different yet refreshing angle. Another test which would be relevant, if not crucial, in this context is position (as in present case) of proprietor vis-a-vis managing contractor which carries on business of colliery for fixed term lease or its renewal thereafter. It would seem somewhat axiomatic that both proprietor and managing contractor cannot be said to be carrying on identical business of said colliery for relevant assessing years. terms of agreement leave no manner of doubt, that it is managing contractor who carries on real, substantial, systematic and organised activity of working colliery. Assuming, as would not be unusual, that herein both proprietor and managing contractor are income-tax assessees, issue would naturally arise as to which one of them is carrying on business of colliery and making profits and gains therefrom during previous assessment years. Obviously, both proprietor and managing contractor would not come within ambit of section 28 and plainly enough on litmus test laid down by their Lordships of Supreme Court, it is only managing contractor who would come within label of carrying on business of colliery and proprietor having only fixed term guaranteed rental per year and royalty on quantum of coal raised and manufactured irrespective of profits or gains of colliery business cannot possibly be said to be carrying on said business. Perhaps, second thing which deserves repetition is that if proprietor was not appropriating or sharing profits of business nor was concerned with losses thereof, then it appears somewhat illogical for me to hold Here printed in italics. that such proprietor was nevertheless actively carrying on business of colliery. I would wish to refrain from over elaborating matter on principle because I am firmly inclined to view that now issue is governed and squarely concluded on all fours by watershed case of New Savan Sugar & Gur Refining Co. Ltd. v. CIT [1969] 74 ITR 7 (SC). However, before one examines in depth facts and clear ratio of that judgment, it seems apt to clear cobwebs created by misreading or misapplication of ratio of earlier judgment of their Lordships in CEPT v. Shri Lakshmi Silk. Mills Ltd. [1951]20 ITR 451 (SC). It appears to me that welter of confusion has been created by somewhat misapplication of ratio and observations in said case. Therein, during period of Second World War (January 1, 1943, to December 31, 1943), assessee, Shri Lakshmi Silk Mills Ltd., found that part of its mill, namely, its dyeing plant, had become redundant for its business of dyeing silk because of non-availability of silk yarn. Consequently, for temporary and trifling period of five months, assessee-mills let out said plant for dyeing of jute as it could not be advantageously used by itself and had become, for that limited period, redundant to company's business of dyeing and manufacture of silk. On these facts, their Lordships observed as under (at p. 459): " We are, therefore, of opinion that it was part of normal activities of assessee's business to earn money by making use of its machinery by either employing it in its own manufacturing concern or temporarily letting it to others for making Profit for that business when for time being it could not itself run it. " [Emphasis supplied] To my mind, above observations cannot even remotely be warrant for proposition that leasing or renting out whole business for fixed period of ten years with renewal terms would still make proprietor or lessor person carrying on business for profit or gain for previous assessment year. There is, however, no gainsaying fact that observations in Shri Lakshmi Silk Mills Ltd.'s case [1951] 20 ITR 451 (SC) were misconstrued in some jurisdictions till matter was finally set at rest by authoritative interpretation of its ratio in New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC) later. However, it is worth recalling that even earlier in Narain Swadeshi Wvg. Mills' case [1954] 26 ITR 765 (SC), Constitution Bench had distinguished and explained ratio of Shri Lakshmi Silk Mills Ltd.'s case [1951] 20 ITR 451 (SC), as under at (p. 773 of 26 ITR): Here printed in italics. " case of CIT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451, decided by this court is clearly distinguishable. There, respondent company which was formed for purpose of manufacturing silk cloth installed plant for dyeing silk yarn as part of its business. During relevant chargeable accounting period, owing to difficulty in obtaining silk yarn on account of war, it could not make any use of this plant and it remained idle for some time. In August, 1943, plant was let out to another company on monthly rent. question arose whether income received by respondent company in chargeable accounting period by way of rent was income from business and assessable to excess profits tax. It should be noted that in that case respondent company was continuing its business of manufacturing silk cloth. Only part of its business, namely, that of dyeing silk yarn, had to be temporarily stopped owing to difficulty in obtaining silk yarn on account of war. In such situation, this court held that that part of assets did not cease to be commercial assets of that business since it was temporarily put to different use or let out to another and accordingly income from assets would be profits of business irrespective of manner in which that asset was exploited by company. This court clearly indicated that no general principle could be laid down which would be applicable to all cases and that each case must be decided on its own circumstances according to ordinary common sense principles. " [Emphasis supplied] Yet again, in New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC), their Lordships distinguished case of Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC), in following terms (at p. 15): "...The material facts of Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC) are that only Part of machinery was let out on lease and rest of machinery was worked by assessee. letting out of machinery was for short Period of five months. There was also no letting out of premises of factory by assessee. ratio of decision in Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC) is, therefore, not applicable to present case. " [Emphasis supplied] Now, once ratio of Shri Lakshmi Silk Mills Ltd.'s case [1951] 20 ITR 451 (SC) is correctly understood and, in fact, when it has been authoritatively interpreted later by final court itself to be so, there appears to me no manner of doubt that issue herein is conclusively covered by ratio in New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC). Therein, appellant company was carrying on business of crushing sugarcane and gur refining. managing Here printed in italics. agents, for variety of reasons, advised acceptance of offer of lease of factory as running concern. After approval at extraordinary general meeting, lease was executed for period of five years with three options to renew for similar period on part of lessee. consideration for lease was royalty payable on manufacture of sugar and gur at rate specified therein subject to minimum royalty of Rs. 65,000 per annum. lessee was entitled to use railway siding during period of lease and was responsible for all running expenses of factory and excise duty on sugar, etc. On these premises, question was whether income which arose to appellant for assessment year 1955-56 should be assessed under sections 10 and 12 of 1922 Act. On behalf of assessee, main plank was contention resting on observations in case of Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC). Repelling such contention and distinguishing said case, their Lordships affirmed High Court's view that case fell clearly within section 12 of old Act and holding in favour of Revenue, observed as under (p. 14): " Mr. Choudhury referred to clause 6 which entitled lessee to use railway siding during period of lease. But right of use of railway siding by lessee under this clause cannot in any way be construed as exercise of control over business of assessee. provision for minimum royalty of Rs. 65,000 per annum indicates that assessee had no direct interest in production of factory. cumulative effect of clauses 11, 12, 13 and 14 is that lessor will have no concern with production of factory which is principal part of business, previously carried on by lessor. provisions in clause 17 are that lessors shall keep demised premises insured to full value and to repair and replace machines which are of capital nature. On scrutiny of all clauses of indenture of lease, our conclusion is that intention of assessee was to part with entire machinery of factory and premises with obvious purpose of earning rental income. It was not intention of assessee to treat factory and machinery, etc., as commercial concern during subsistence of lease. primary condition for application of section 10 of Act is that tax is payable by assessee under head'Profits and gains of business' in respect of business carried on by him. When assessee does not carry on any business at all, section 10 cannot be applicable and income that he receives cannot bear character of profits of business. As we have already shown, there is no direct nexus between income of assessee and Production of factory. royalty payable to assee was not paid under c;aise 7 of indenture of lease for production in factory. production was only measure of royalty to be paid and, in any event, measure of Payment had nothing to do with character of Payment as receipt from business or from other sources. It follows that, in circumstances of this case, income of assessee cannot be characterised as income from activity of assessee carrying on any business. High Court was, therefore, right in holding that income of assessee was liable to be assessed under section 12 and not under section 10 of Act. " [Emphasis supplied] To my mind, aforesaid observations, therefore, cover and conclude identical and similar cases of fixed long term leases (with option to renew or otherwise) of whole business which is to be carried on by lessee during said term and where there is no direct nexus between income of lessor and production of leased factory, colliery or any other business. aforesaid view has been taken and consistently adhered to within this jurisdiction barring case of S. K. Sahana & Sons Ltd. [1976] 102 ITR 437. Division Bench of this court presided over by Untwalia C.J. in Khas Benedih Colliery's case [1974] BBCJ 440 (Pat), first rightly observed that use of phraseology in terms of contract cannot in any way be conclusive and what one has to look for is substance and not form thereof and, secondly, mere use of words " principal " and " agent " employed in agreement would not necessarily mean that principal was carrying on business through his agent, if basic elements of control and carrying on business and sharing of profits and losses were absent. Division Bench further categorically held in almost identical situation that colliery having been let out on fixed income (including rates of royalty on raising and manufacture of coal), such income would become income from other sources and not from business. Mr. Rajgarhia, learned counsel for Revenue, rightly contended that present case was on much stronger footing than foregoing one. Again in CIT v. Selected Jharia Colliery Co. (P.) Ltd [1980] 125 ITR 670, Division Bench of this court in context of colliery, relying on New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC), and distinguishing case of Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC), held that as there was no direct nexus between income of assessee and production of colliery because of fixed term royalty on coal raised from colliery and manufactured and despatched therefrom, such income did not constitute business income and assessee was not entitled to claim deduction on that basis. Yet again, in similar context of colliery, Division Here printed in italics. Bench of this court presided over by my learned brother, Uday Sinha J., in Kuya & Khas Kuya Colliery Co.'s case [1985] 156 ITR 206, has taken identical view. In light of above, it appears to me that both on principle and even more so on binding precedent of their Lordships in New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC) and consistent view within this jurisdiction thereafter (barring some isolated discordant notes), issue herein is concluded in favour of petitioner-Revenue. Mr. Rameshwar Prasad No. 11, learned counsel for opposite partyassessee, when faced with stonewall of principles and precedents against him, first attempted finical objection that since for previous year, Division Bench had held in S. K. Sahana & Sons Ltd.'s case [1976] 102 ITR 437, that income fell within section 28(i) and said judgment having not been appealed from, matter had become final and was res judicata between parties even for subsequent years. It was contended that even larger Bench considering correctness of its ratio cannot go into issue. To this submission, there is conclusive answer provided by Full Bench in CIT v. Syed Saddique Imam [1978] 111 ITR 475 (Pat), wherein, relying upon long line of Supreme Court decisions, it has been held as under (at p. 486): Thereafter, matter went up to Supreme Court at instance of Commissioner of Income-tax and Supreme Court held as follows (See [1972] 84 ITR 273, 277): fact that in earlier proceedings Tribunal took different view of those deeds is not conclusive circumstance. decision of Tribunal reached during those proceedings does not operate as res judicata. Therefore, earlier decision in Tax Case No. 10 of 1968 will not operate as res judicata and estop this court from considering true import of transaction, whether transfer of house by husband to wife in lieu of dower debt was gift or sale, every year's assessment being based on separate cause of action... " In view of above, within this jurisdiction, to my mind, issue stands concluded in favour of Revenue and it is wasteful to refer to earlier judgments by way of analogy on which learned counsel for opposite party- assessee had attempted to rely. submission in this context must necessarily fail. Yet again, Mr. Prasad attempted to go off at tangent by contending on basis of Sudhansu Kanta v. Manindra Nath, AIR 1965 Pat 144, that very agreement between parties was wholly void because, according to him, it amounted to sub-lease or transfer thereof and rule 37 of Mineral Concession Rules rendered it void in absence of consent by Government. This submission has only to be noticed to be rejected. It is patent that Sudhansu Kanta's case, AIR 1965 Pat 144, has not remotest analogy to income-tax reference and judgment was rendered in appeal from original order. In present context, we are narrowly confined to question duly referred to us and statement of facts in said reference. There is hardly any hint in any of proceedings in courts below of any issue of validity or otherwise of contract of managing contractorship. At no stage whatsoever right from Income-tax Officer to Tribunal-was execution or validity of contract assailed by either of parties and it is not even remotely function of this court in this reference under section 256(1) to deviate from question on which opinion of this court has been sought and to act as if it was civil appellate court in suit on analogy of Sudhansu Kanta's case, AIR 1965 Pat 144. Mr. Prasad, learned counsel for assessee, had then attempted to submit somewhat innocuously that business may be either carried on by person himself or through agent. There can possibly be no quarrel with such generic proposition. However, core issue herein is whether on totality of terms of contract, managing contractor is merely agent of proprietor or is it independent contractor carrying on business itself whilst proprietor is merely securing rental income as minimum guaranteed payment irrespective of loss or profit in business and additional pro rata royalty on quantum of coal raised or manufactured. Once it is found that fact situation is latter one, no question of principal and agent arises and mere use of such terminology is in no way conclusive and may, in fact, be misleading. On precedent, sheet-anchor of Mr. Prasad was yet again observations in case of Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC). This has again to be noticed only to be rejected because in earlier part of judgment, I have pointed out that their Lordships of Supreme Court themselves have explained and distinguished Shri Lakshmi Silk Mills Ltd.'s case [1951] 20 ITR 451 (SC) in Narain Swadeshi Wvg. Mills' case [1954] 26 ITR 765 (SC) and more pointedly in New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC). Once that is so, it is inapt and incongruous on part of High Court to hold to contrary and to read ratio of Shri Lakshmi Silk Mills Ltd.'s case [1951] 20 ITR 451 (SC), contrary to how it has been authoritatively interpreted and thus to override and skirt considered view in New Savan Sugar & Gur Refining Co. Ltd.'s case which, to my mind, is directly applicable to and governs present case and those akin thereto. Mr. Prasad had then attempted to rely on passing observations of Division Bench of Delhi High Court in Addl. CIT v. Rajindra Flour & Allied Industries (P.) Ltd. [1981] 128 ITR 402. That case, in my view, does not in any way advance stand of opposite party. Therein, Division Bench, as issue of fact, merely affirmed finding of Tribunal that as temporary and compelling measure, in order to tide over business difficulty unforeseenly arising from sudden death of its managing director, his widow had to take over as such in difficult circumstances and to overcome same she was forced to let out factory for period of 5 years. On expiry of lease, flour mill was restored to assessee and assessee started working mill itself after receiving necessary permission and licence for running same. One fails to see how any such consideration arises in context of present kind in which there is express fixed time lease with option to renew and complete abdication of control of business by proprietor on its own volition irrespective of any compelling circumstances. Indeed, in said case, learned Chief justice at page 419 himself observed it to be borderline issue in which Bench declined to differ from Tribunal in following terms: " Keeping all these circumstances in view, it cannot be said that inference drawn by Tribunal is not based on any material. When two views are possible, and this is case which stands on borderline, court should accept Tribunal's view. So, it would follow that we would have to concur with Tribunal." aforementioned case does not in any way aid or advance case of opposite party-assessee. There is, however, no gainsaying fact that there appears streak of opinion prior to New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC) which now seems to run plainly contrary to its ratio. It is unnecessary to individually distinguish these cases and suffice, it to mention that earlier view of Punjab and Haryana High Court in Dal Chand & Sons v. CIT [1968] 69 ITR 247 and of Madras High Court in G. R. Narasimier & Co. v. CIT [1969] 73 ITR 257, appears to be now in headlong conflict with view of their Lordships in New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC). However, it appears to me that even subsequent to New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC), there is line of authority in Calcutta High Court taking view that if asset is commercial one, then, whether business therewith is carried on by owner himself or it is merely let out or rented to another, it would make little difference and income therefrom would continue to be income from business under section 28. This line of reasoning is typified by CIT v. Prem Chand jute Mills Ltd. [1978] 114 ITR 769 (Cal) and CIT v. Katihar Jute Mills (P.) Ltd. [1979] 116 ITR 781 (Cal). In these two cases, case of New Savan Sugar & Gur Refining Co. Ltd. [1969] 74 ITR 7 (SC) was referred to but with deepest respect, its true import and ratio seems to have been missed. With deepest deference, I feel compelled to record dissent from such line of reasoning after watershed case of New Savan Sugar & Gur Refining Co. Ltd. [1969] 74 ITR 7 (SC). To my mind, issue herein is not character of commercial asset. salient question under section 28 is as to who has derived profit and gain by carrying on business with that commercial asset during previous assessment year. In aforesaid section, carrying on business or exploitation of commercial asset, in my view, means such exploitation by person who actually carries on such business by employment of such commercial asset. It cannot be construed as carrying on business therewith if it is merely let out or rented to another on rental or with fixed minimum guaranteed amount or royalty therefrom irrespective of losses or profits of that business. view that even long-term lease of 10 years renewable for same period is temporary phase is directly contrary to New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC), where, in fact, period was only 5 years. It is somewhat plain that with same commercial asset, two persons cannot be said to be carrying on business thereof within meaning of section 28. If person to whom commercial asset, has been let out or rented and he, in form and substance, is carrying on business thereof, then it is that person who must be deemed to be exploiting commercial asset and carrying on business therewith within language employed in section 28. New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC) is clear authority for that proposition. Therein, leased sugar factory had not lost its character of commercial asset and was rented out as going concern which was not dismantled but was obviously so worked by lessee for lease term. intention of proprietor (lessor) was clearly to continue sugar factory as sugar factory, i.e., as commercial asset. Nevertheless, their Lordships held in no uncertain terms in that case that proprietors or owners after letting it out were not carrying on business of said sugar factory despite fact that it continued to be commercial asset and was exploited as such and there was not remotest intention of proprietors to make any change in its nature. With profound respect, view taken in Prem Chand jute Mills Ltd.'s case [1978] 114 ITR 769 and Katihar jute Mills (P.) Ltd.'s case [1979] 116 ITR 781 and other judgments following that tenor cannot be reconciled with authoritative and undeviated ratio of New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC). So long as pole-star rule and ratio of said case remains intact and undiluted by final court, it cannot and should not be whittled down or bypassed by any abstract theory of commercial asset continuing as such despite fact that business-thereof is being carried on not by proprietors or its owners but by altogether different person, as lessee thereof, for long fixed term. Within this jurisdiction, Calcutta High Court's view plainly runs counter to long line of Patna High Court cases which have been referred to above. Perhaps, reasoning therein is well countered by following observation in Kuya & Khas Kuya Colliery Co.'s case [1985] 156 ITR 206, 209: " On authority of Supreme Court case in New Savan Sugar & Gur Refining Co. Ltd. [1969] 74 ITR 7 and CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451, it must be held that letting out of business as whole is distinct from letting out commercial assets of firm. If business as whole is let out, income (i.e., rent) would not be liable to be assessed as income from business..." What has been said above applies equally to case of CIT v. Vikram Cotton Mills Ltd. [1977] 106 ITR 829, Division Bench judgment of Allahabad High Court which again adumbrated theory of commercial asset and there being no intention to dismantle or discontinue business, even though long-term lease of 10 years with option for renewal for another 10 years had been executed after letting it out to another concern on rent of rupees two lakhs per year. It would appear that New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC) was not even brought to their Lordships' notice and finds no reference in judgment. With deference, it is not possible to subscribe to view in aforesaid Allahabad High Court case. Yet again to my mind, aforesaid judgments of Calcutta and Allahabad High Courts seem to miss salient feature of carrying on business, namely, some nexus or connection with at least profits or gains of business or its losses. Where there is no direct nexus either with profits and gains therefrom irrespective of fact whether lessee actually loses heavily in carrying on same, it is not easy to plump for proposition that in absence of such nexus, person unconcerned with profits or gains of such business is nevertheless carrying on such business within language, meaning and intent of section 28. Inevitably, one must come to strongly discordant note within this court in S. K. Sahana & Sons Ltd.'s case [1976] 102 ITR 437, which had primarily necessitated this reference to Full Bench. Undoubtedly, that case helps opposite party, assessee, and deserves highlighting in that it turns on construction of very same terms of agreement of managing contractorship in one of present cases. However, with deepest respect, it appears to me that it runs patently counter to view of final court in New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC) and equally to earlier precedents of this court noticed above. salient ground for holding in favour of assessee therein was that agreement betwixt parties along with general power of attorney executed by assessee indicated relationship of principal and agent between assessee and other company. This holding appears to me to run counter to terms of deed itself because deed of agreement used no such phraseology of " principal and agent " and expressly designated it as contract betwixt proprietor and managing contractor. Merely because power of attorney was necessitated to be executed in favour of lessee because business had to be carried on in old name (primarily because same was not transferable or capable of being sublet) could not make patently different agreement as one between principal and agent. Even otherwise, such rationale runs counter to Khas Benedih Colliery's case [1974] BBCJ 440, where it was expressly said that mere use of terminology of principal and agent, far from being conclusive, may actually be misnomer. Perhaps, at this very stage, it may be noticed that learned judges of Division Bench failed to take notice of earlier authoritative view of coequal Bench in Khas Benedih Colliery's case [1974] BBCJ 440 which could only be deviated from by larger Bench. As noticed earlier, Mr. Rajgarhia, learned counsel for Revenue, was right in contending that present case was on much stronger footing than even Khas Benedih Colliery's case [1974] BBCJ 440. As has been often repeated and as virtually hackneyed legal adage, one has to go to root and substance of contract and not merely to its form and name because, otherwise, it would be open to parties to camouflage substance of agreement by merely employing labels of principal and agent. Yet again, Bench attempted to rely on tenuous ground that despatches from colliery were to be made from railway siding only and this would imply control over running of business. Such view is in headlong conflict with New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC), wherein also their Lordships of Supreme Court noticed that there was term for use of railway siding and despatches therefrom and held that it was in no way relevant for determination of issue of carrying on business. Yet another ground for holding in favour of assessee was fact found that lessee was carrying on business in its old name. It has to be kept in mind that licence to run colliery being not transferable, such term was elementary and by very nature of things business had to be run in same name. That was identical situation in Khas Benedih Colliery's case [1974] BBCJ 440, which nevertheless held that proprietor was not carrying on business within meaning of statute. Lastly, maintenance of books of account by lessee and right of proprietor to inspect same was sought to be read as indicative of control. With respect, it is not easy to agree to such proposition. Maintenance of books of account is elementary rule of any substantial business and inevitably where amount of royalty rested upon coal raised, same could only be determined by proprietor on inspection of books of account in possession of concern. Therefore, any term requiring maintenance of books of account and their inspection was too insignificant, if not irrelevant, for inference that proprietor, in fact, was carrying on business. What seems to have been significantly missed altogether is fact that admittedly on date of agreement itself, proprietor itself was not carrying on business of colliery at all. It is not in dispute that colliery was, in fact, lying closed and burden was put on managing contractor to secure permission for reopening same and in case of its failure to get permission, whole contract was of little or no validity. It seems difficult to hold that even though at time of execution of contract, proprietor was not carrying on any business of closed colliery, yet by mere factum of execution of agreement of managing contractorship, passing on whole of control of business to such managing contractor, proprietor would itself come in category of carrying on such business, which admittedly it was not doing even earlier. It seems unnecessary to delve into further detail and I am constrained to hold with deepest respect that S. K. Sahana & Sons Ltd.'s case [1976] 102 ITR 437 (Pat) does not lay down law correctly and, in fact, runs contrary to binding precedent in New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC) and equally so to earlier Division Bench judgment of this court in Khas Benedih Colliery's case [1974] BBCJ 440. What has been said above applies mutatis mutandis to earlier Division Bench judgment of this court in Ray Talkies v. CIT [1974] 96 ITR 499 which had been relied upon. Therein also assessee had let out cinema premises along with all apparatus, machineries, furniture and building appurtenant thereto to Jharia Talkies and Cold Storage Ltd., for consideration under deed of lease at annual rent of Rs. 50,000. lease was to be effective for period of 10 years. Reversing decisions of authorities below and Tribunal, Division Bench held that annual rent aforesaid was income from business and not from other sources. Primal reliance was placed by Bench on case of Shri Lakshmi Silk Mills Ltd.'s case [1951] 20 ITR 451 (SC) which, as already shown above, is distinguishable and not attracted to situation of kind aforesaid. It seems learned counsel for Revenue was sorely remiss in not bringing to notice of Division Bench landmark case of New Savan Sugar & Gur Refining Co. Ltd. [1969] 74 ITR 7 (SC). Therefore, oblivious of binding precedent of said case, Division Bench seems to have arrived at conclusion directly contrary thereto. With deepest respect, Ray Talkies' case [1974] 96 ITR 499 cannot possibly be reconciled with authoritative enunciation of final court in that case and, therefore, is not good law. It suffices to mention that later judgment in Pure Dhansar Coal Co.'s case [1985] 154 ITR 857 (Pat) merely chose to follow and adhere to earlier view of S. K. Sahana & Sons Ltd.'s case [1976] 102 ITR 437 (Pat). For identical reasons, all three judgments aforesaid have to be necessarily overruled. In fairness to Mr. N. K. Jain, learned counsel for other opposite party- assessees, it may be noticed that he rested himself content with adopting arguments of Mr. Prasad. He had also attempted to raise ghost of what appears to me as wholly irrelevant issue of validity or otherwise of concluded agreement between parties because of its violation of Minor Mineral Concession Rules, which has already been laid at rest in earlier part of judgment. He further attempted to contend that terms of agreement showed that colliery continued to be commercial asset and its exploitation by letting it out was consistent with intent of proprietor to continue to treat it as such. To reiterate, I am unable to appreciate in this context alleged theory of commercial asset and intent of continuing same in sense of not wishing to dismantle it or to close down business. There is and can possibly be no dispute, as for instance, in present case that colliery would be commercial asset. But core issue under section 28 is as to who is carrying on business with that commercial asset: proprietor who has merely rented or let it out or managing contractor who actually works and runs business thereof. answer seems to be plain that on terms of contract, where unhindered conduct of business had passed on to managing contractor, it is managing contractor which is exploiting commercial asset and not its proprietor which is merely deriving rent or royalty therefrom, irrespective of profits or losses and of actual working of business by managing contractor. To finally conclude, both on principle and on binding precedent of New Savan Sugar & Gur Refining Co. Ltd.'s case [1969] 74 ITR 7 (SC), answer to question posed at very outset is rendered in negative and it is held that proprietor of colliery, by abdicating all control of its business in favour of its managing contractor by renewable fixed term lease of ten years on terms of annual minimum guaranteed amount and royalty on quantum of coal raised and manufactured, cannot be said to be carrying on business of said colliery within meaning of section 28(i). In light of above, common question referred to High Court for all three assessment years in all these cases is answered in negative and it is held that, on facts and circumstances of cases, income of assessees received from managing contractor was not income from business, i. e., in favour of Revenue and against assessees. In view of intricacies of question and conflict of precedent involved, there will be no order as to costs. UDAY SINHA J.-I entirely agree. ASHWINI KUMAR SINHA J.-I agree. *** COMMISSIONER OF INCOME TAX v. H.D. AGARWALA & SONS
Report Error