COMMISSIONER OF INCOME-TAX, WEST BENGAL versus CALCUTTA NATIONAL BANK LIMITED (IN LIQUIDATION)

Citation: [1959] SUPP. 2 S.C.R. 660 · Decided: 20-04-1959 · Supreme Court of India · Bench: BHUVNESHWAR PRASAD SINHA · Disposal: Appeal(s) allowed

Judgment (excerpt)

r959 
Ap,.il 20. 
660 
SUPREME COURT REPORTS [1959] Supp. 
COMMISSIONER OF INCOME-TAX, WEST 
BENGAL 
v. 
CALCUTTA NATIONAL BANK LIMITED 
(IN LIQUIDATION) 
(B. P. SINHA, J. L. KAPUR and 
M. HIDAYATULLAH, JJ.) 
Excess Profits Tax-Rental income-Banking Company letting 
out a part of its own premises-Liability-Excess Profits Tax Act, 
I940 (XV of I940), s. 2(5). Sch. I, r. 4(4). 
The respondent was a banking company and the question 
was whether it was liable to pay excess profits tax on a sum of 
Rs. 86,ooo received by it as rent in respect of the major part of 
a six-storeyed building owned and constructed by it, which it 
had let out, the rest being occupied by its headquarters in Cal-
cutta. The Department and the Income-tax Appellate Tribunal 
found against the respondent but the High Court, on a reference 
under s. 66(r) of the Income Tax Act, reversed their decision. 
The Memorandum of Association of the Company provided as 
one of its objects as follows,-
" (e) To purchase, take on lease or in exchange or other-
wise acquire any moveable or iinmoveable property, .............. . 
which the company may think necessary or convenient for the 
purpose of its business, and to construct, maintain and alter any 
buildings or works necessary or convenient for the purpose 
of the Company." 
The question referred to the High Court for decision was 
\vhether the said income was part of the business income taxable 
under s. 2(5) read with r. 4(4) of the Sch. I to the Excess Profits 
Tax Act, 1940. The High Court held that although the income 
was derived from the holding of property, since the functions of 
the assessee company did not consist wholly or mainly in the 
holding of investments or other rroperty as required by the first 
proviso to s. 2(5) of the Act, no question of the application of 
r. 4(4) could arise. 
Held, (Per Sinha and Hidayatullah, JJ., Kapur, J., dis-
senting), that the question must be answered in the affirmative. 
Per SINHA, J.-The High Court was fundamentally in error 
in overlooking the main provision of s. 2(5) of the Act, for even 
though the first proviso might not apply, that by itself would 
not render the main provision of the definition, which was wider 
than that under the Indian Income-tax Act inapplicable. 
Commissioners of Inland Revenue v. Desoutter Bros. Ltd., 
(r945) 29 T. C. r58, applied. 
(2) S.C.R. SUPREME COURT REPORTS 
661 
The term 'business' was of wide import and each case had 
to be determined with reference to the particular kind of acti-
vity or occupation of the person concerned. Though ordinarily 
it implied a continuous activity in carrying on a particular trade 
or avocation, it might also include an activity which might be 
called 'quiescent•. 
The Commissioners of Inland Revenue v. The South Behar 
Railway Co., Ltd., (1923) 12 T. C. 687 and Commissioners of In-
land Revenue v. The Korean Syndicate, Ltd., (1921) 12 T. C. 181, 
referred to. 
The Memorandum of Association of a company provided the 
key to its business objects and the relevant clause in the instant 
case clearly showed that the managing of property and realisa-
tion of rents therefrom were within the objects of the company, 
and, therefore, such rents musf be included in calculating its pro-
fits under r. 4(4) of the Sch. I to the Act. 
It was not correct to suggest that the rule, in substituting, 
the word "partly" for "mainly" occurring in the first proviso to 
s. 2(5) exceeded the provisions of the statute. Rule 4(4) did not 
derive its operative force from that proviso, limited to an incor-
porated body of a particular type, and was of wider application 
as evident from its own terms as also from the second proviso to 
s. 2(5) of the Act. 
Punjab Co-operative Bank Ltd. v. Commissioner of Income-tax, 
Punjab, (1940) A.C. 1055; [1940] 8 I.T.R. 636 and Sardar Indra 
Singh and Sons, Ltd. v. Commissioner of Income-tax, West Bengal, 
[1954] S.C.R. 167, referred to. 
It was not correct to say that if rental income were to be 
covered by the main clause of s. 2(5), the first proviso to that 
section would become redundant. 
Commissioners of Inland Revenue v. The Tyre Investment 
Trust, Ltd., (1924) 12 T. C. 646, ·referred to. 
Nor was it correct to say that "business" could not be said 
to include-rental income. 
The United Commercial Bank Ltd., Calcutta v. The Commis-
sioner of Income-tax, West Bengal, [1958] S.C.R. 79, held inapplic-
able. 
Per KAPUR, J.-The word 'business' could: either mean 
what was con

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