THE NATIONAL STEEL WORKS LTD. versus COMMISSIONER OF INCOME-TAX, BOMBAY

2 s.c.n..

SUPREME COURT REPOR'l'S

93'1

had become futile. I, therefore, hold that the Regula tions in so far as they purport to· regulate the mines situate in West Bengal have not been validly made under the Act inasmuch as a. condition pre cedent imposed. by s. 59. of the Act on the exercise ofthe Government's power to make a regulation was not complied with.

1968

Kalipada Chowdhur,,11 ·

. v. U 11ion of India

Bubba Ra• J,

In the result, I direct the issue of a writ of prohibition against respondents 1 to 4 res training them from proceeding with · the criminal case launched against the petitioners. The petitioners will have their costs.

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BY ComtT : In view of the majority opinion of the Court the Writ Petition fails and is dis missed.

THE NATIONAL STEEL WlJRKS LTD. . v.

1968

M'!JI 3 •

COMMISSIONER OF INCOME-TAX, BOMBAY

(S. K. DAS, J. L. KAPUR,. A. K. SARKAR, M. HrnAYATlJLLAH and RAGHUBAR DAYAL, JJ.)

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Income-tax-Agreement by qunla·holder to aupply steel to manufacturer at a certain royalty fl'r to" -Receipt of lump aum in lieu of royaUy-Asaessm1mt on amounl received-'-!/ according lo Zaw-Oapital receipt and revenue receipt-Distinction-' Indian Income·tax Act, 1922,(11of1922), s, 66A (2).

The assessee company was receiving quota of coal and steel from the Government but had no factory. It entered into a partnership with a penon who had a factory but no quota. The latter agreed to pay a royalty of Rs. 50 per ton of steel supplied to the firm under the quota. A few years later,. .that agreement was modified and the assessee agreed to receive a lump sum of Rs. 60;000 in consideration of waiving the· roy- . ~~

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1967.

National Skf,l w ... ls Lid. v. Co ·mi1•ioner of lmome4CJJ1:, Bomb•'

R.glitd"' Dap J.

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038

SUPREME OOURT REPORTS [1963]

In as&essing the income-tu on the as1e5SCC, the Income tax Officer brought the amount of Rs. 60,000 to tax. When the matter went to the High Court, that court held that the amount was a revenue receipt, and hence liable to tax. On appeal to this Court,

Held, that the amount of Rs: 60,000 represented capital· ised profits of the assesscc company on account of its transfer ring or scllin&' the steel which the asscsscc company purchased under the authority given by the quota allowed to it. The asscsscc company purchased the goods In its own name and delivered them to the partnership. The sum of Rs. 60,000 represented the capitalised value of the profits the assesscc company was to have on supplying all the steel it had under the quota at net price. No right to the quota itself was transferred, and hence it could not be said that the sum of Rs. 60,000 was paid in lieu of the transfer of the rights in the quota of steel. The description of the amount as goodwill in consideration of waiving royalty from partnership account did not convey the real nature of the amount. There was no question of goodwill in waiving a royalty.

CIVIL APPELLATE JURISDICTION: Civil Appeal

No. 544of1961.

Appeal from the judgment and order dated July 1, 1959, of the Bombay High Court in Inoome tax Referenoe No. 58 of 1958.

C. B. Agarwala, A. D. Mathur for K. P. Gupta,

for the appellent.

K. N. Rajagopala 8a8tri a.nd D Gupta for ree

pondent.

1962. May 3. The Judgment of the the Court.

was delivered by

R.&GHUBAR DAYAL, J.-Thie is a.n appeal under

e. 66 A (2) of the Indian Income. Tax Aot.

The appellant, the Nations.I Steel Works Ltd., Bombay, a limited liability company, hereinafter referred to as the 888elleee, oarried on the bueineea of a •Rolling Mill' prior to the partition of the country in the territory now in Pakistan. It was a member of the Steel Rolling Mille Aasocia.tion 0f

1862

National Steel Works Ltd. v. Commissioner of L-:com~· Tax, 8Gmb1y

Raghuhar DaJal J.

2 s.o.R.

SUPREME OOURT REPORTS

939

India and as such was receiving a quota of coal and steel from the Government of India. After the Partition, its registered office was shifted to Bombay. It. had no factory there for carrying on the business of a rolling mill. Though possibly not .entitled to receive the quota of coal.and steel, it however continued its membership of the Steel Rolling Mills Association of India and continued to receive the quota of coal and steel. In order to u\ilise the coal and steel so received, it entered into a partnership with one K. l'. Irani who had put a factory in Bombay called the New Era Iron & Steel Works but had no quota of steel and coal. The agreement of ·partnership entered into between Irani and the assessee on September 29, 1948 provi ded that the partnership would continue so· long a.s the quota system regarding steel continued in the Dominion of . India qr till . the expiry of. ·the then lease of ·the factory premises; and that the capital of. the firm would be. subscribed by the partners in equ~l shares. Para.graphs 12 an·d· 13 of this agreement are ·of importance and are quoted below:

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"12.

In consideration of Company taking the said Mr. Irani as partner in the partnership it is agr; ed that a sum of Rs. 50/- per ton on all steel received by the partnership from the Company through the Steel Re,H1)lling Mills Al18ociation of India, Calcutta or Iron and Steel Controller, Calcutta shall be paid to the Company by this partnership oalt)ulated every month, and after deducting all the other expen . see incidental to the business of the partnership the net profit of the partnership after provi ding for outgoings and interest on the current loans, if any, shall be pa.id over to the partners in equal shares.

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13. All the quota of steel and coal that Company may receive from the . Iron & -Steel

11¥1

Nntional Stttl Work• Ud,

..

rornmissiafl4r oj /1u0Mt·lox, BH1ba'

Rag1uWaf' Do,10l J.

940

SUPREME OOUR.1 REPOR'l'S f 1963J

Controller, tho Government of India and from the Provincial Iron & Steel Controller, Bombay or from the ~tee! Re-Rolling Mille A88ociation of India, Calcutta or any such other body under tho quota. sy~tem that may be in force from time to time for Steel re-rolling mills of the company at Bombay shall be utilieed eolely for the purposes of the business of the part nership who shall pay for the same.

Thereafter, in 1954, the asse88ee and Irani entered into an agree111ent where by the terms of the agreement of September 29, 1954, were modified. The amendments to clause 12 are important and they are quoted below:

"IT IS HEREBY AGREED THAT in clause 1:1 of the Partnership Agreement dated 29.9.48, the Royalty by which is fixed at Ra. 50/- per ton shall be reduced in the manner following from lst October, 1953."

(a) Royalty of Rs. 25/· per ton shall be charged from 1/10/53 on all rollable materials reoeived up to 30.6.54 except semis and perfect billets on which royalty will be charged at Rs. IO/- per ton on all the said materials received upto 30/6/54.

(b) That ce88 charges payable to Steel Re

Rolling Mille Association of India, Calcutta, will be paid by the partnership till the partnership exists.

(o) Mr. K. R. Irani hereby agrees to pay a lump sum of Rs. 60,000/- a good-will in consideration of waivini the Royalty from the partnership Account on the re-rollable scrap materials quot~ of received after 30.5.54.

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1861

N otion1Jl Sl#eZ W01k" Ltd.

••

Commissionlf' of Intome..tax, B1m1hay

\

2 s.o.R.

SUPREME COURT REPORTS

941

(d) Mr. K. R. Irani here agrees that the said amount of Rs. 60,000/· be debited to his capital account in the books of partner ship, bearing interest at 6% per annum from let July, 1954.

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(e) No Royalty will be charged on any kind of rollable materials received after 30th June, 1954, by the Company from the partnership.

(£) The partnership shall pay to the Company Rs. 500/- per month as office allowance from 1/10/53 till the partnership exists.

In &SBeBBing the income-tax on the assessee, the Income-tax Officer brought the amount of Rs. 60,000/- mentioned in · sub-cl. (d) . of amended paragra:ph 12 of the agreement to tax. The assessee s appeal to the Appellate · Assistant Commissioner failed and so did its appeal to the Income-tax Appellate Tribunal. On an application by the assessee, the Income-tax Appellate Tribunal stated a case to the High Court for the decision of the question whether the sum of Rs. 60,000/ received by the asseBBee company from Irani is a revenue receipt and liable to Income-tax. The High Court decided that it was a revenue receipt and liable to tax. that thiS appeal bas been filed after obtaining the certificate of fitness from the High Court.

It ie against this order

The contention for the appellant is that the sum of Rs. 60,000/- was paid by Irani t0 the assessee company in view of the partnership getting the rights· under the quota which the aaaeaasee company po880BBed and that therefore the sum represented a capital receipt and not a revenue receipt. We d1J not agree.

It is clear from the facts stated in the state· ment of the caae that this amount represents capit alised prolita .of the IM!llessee company on account

National Ste•l Wwks Lt<l.

••

c.mmis•iont1' •f /r.CnM-l•x, Bombay

Ra1hulmDay.JJ.

, I

!!42 SUPREME COURT REPORTS [1963).

_ per ton on all steel it received -from

of its transferring or selling the steel which the ass essee company purchased under the :iuthority given It_ is the• assessee com· ·by the quota allowed to it. pany which purchases the goods - in its own name and delivers them to the partnership at cost price. 'Under the original agreement of 1948, the partner ship was to pay to the assessee company Rs. 50/· the assessee ·company.· Clearly, therefore, the sum of Rs. 50/· per .ton represented the profit which the assessee company was getting per ton from the partner ship. Under the terms of the amended agreement, no such profit was to he paid to the, assessee com pany for the steel received from it-after June 30, 1954, and ~t was to receive Rs. 60,000/· in a ·lump - sum. This amount, therefore, represents. the ca pit· -. alised value of the profits, the assessee company was to have on sµpplying all the steel it_ receives under its quota at net price. No right to the. quota itself has been transferred • to Irani or the partner· _ship under the agreement and therefore !here. could this . amount of be no basis for considering. that ' Rs. 60,000/· was paid in lieu of the transfer of - rights in the quota of steel to Irani or the partnel'.· ship. The description of the amount_ as gqqdwi)l in consideration of waiving royalty from the. p;:irtner ship account on the quota of re-rollable. scrap mater.· ials received after June 30, 1954, does not conviiy the real nature of this amount and is really an ex· pression which conveys no meaning. There is no _ - _ question of good will in w>iiving a rpyaJty.

- - - We are, therefore, of opinion that the' High - Court came to a correct conclusion that the sum of ·Rs. 60,000/· was a revenue receipt and liable to tax •. We accordingly dismiss the. appeal· with costs. Appeal dismissed.

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