NATIONAL CEMENT MINES INDUSTRIES, LTD. versus COMMISSIONER OF INCOME-TAX, WEST BENGAL, CALCUTTA

Citation: [1961] 3 S.C.R. 502 · Decided: 17-01-1961 · Supreme Court of India · Bench: J.L. KAPUR · Disposal: Dismissed

Judgment (excerpt)

Cl•lral Talkies 
Ltd., Kpnpur 
v. 
Dwarha Prasad 
Hidayatullah ], 
January z7. 
502 
SUPREME COURT REPORTS 
(1961] 
Criminal Procedure gave ample powers to Mr. Brijpal 
Singh Seth to accord permission for bringing the suit, 
a.nd the order of the District Magistrate, even if 
treated as a. transfer, was valid. 
In the result, the appeal fails, and is dismissed with 
costs. 
Appeal dismissed. 
NATIONAL CEMENT MINES INDUSTRIES, LTD. 
v. 
COMMISSIONER OF INCOME-TAX, 
WEST BENGAL, CALCUTTA. 
(J. L. KAPUR, M. HrnAYATULLAH and J.C. SHAH, JJ.) 
Income-tax-Conveyance with reservation of rights-Category 
of-Receipts under the conveyance, if income or capital. 
The appellants were carrying on the bnsiness of cement and 
lime manufacture and supply thereof. By a deed dated May 7, 
1935, the appellants conveyed to the Associated Cement Ltd. 
the rights which had vested in them under an earlier conveyance 
made in their favour by a company known as Karanpura Co. 
Under the deed the appellants reserved to themselves the right 
to receive from the Associated Cement Company a sum equal to 
thirteen annas in respect of every ton of cement sold by it which 
shall have been manufactured from the limestone won by it 
from the lands transferred and comprised in the leases and 
agreements. 
Pursuant to this stipulation in the year_ of account, the 
appellants received from the Associated Cement Ltd. Rs. 77,820. 
The Income-tax Officer included this amount in the total assess-
able income of the appellants in the assesment year and his order 
was confirmed l>y the Appellate Assistant Commissioner and by 
the Income-tax Appellate Tribunal. The contention of the 
appellants before the High Court in_ a reference under s. 66 of 
the Indian Income-tax Act that on a proper construction of 
the deed and on the facts and circumstances of the case the sum 
of Rs. 77,820 did not represent receipt of a revenue nature 
in the hands of the appellants and was not assessable as such, 
was negatived. 
Held, that the deed 1iid not incorporate a transaction of 
·either sale or lease. The conveyance was· subject to several 
restrictions and the'appellants retained in part, rights in the 
land conveyed. The transaction was substantially a transaction 
for sharing the profits of the commercial activities of the Associ-
ated Cement Ltd. and the receipt under cl. I of the deed was of 
the nature ·of income and not capital and as such assessable 
to tax, 
· 
3 S.C.R. 
SUPREME COURT REPORTS 
503 
Foley v. Fletcher, (1858) 3 H. &N. 769, Secretary of Statein Coull-
r96r 
cil of India v. Andrew Scoble, [1903] A.C. 299, Oswald v. KirkcaJdy 
Magistrates, [1919] S.C. 147, Commissioners of Inland Revenue v. National Cement 
Ramsay, (1935) 20 T.C. 79, State of Bihar v. Sir Kameshwar Singh, Mines Industries, 
[1952] 21 l.T.R. 382, Captain Maharajkumar Gopal Saran v. 
Ltd, 
Commissioner of Income-tax, Bihar & Orissa, [1935] 3 I.T.R 237 
v. 
(P.C.) and Chadwick v. Pearl Life Assurance Co., [1905] 2 K.B. 507, Commissioner of 
considered and applied. 
Income-tax, 
In assessing the true character of the receipt for the purpose 
Ww Bengal 
of the Income-tax Act, inability to ascribe to the transaction a 
definite category is of little consequence. It is not the nature 
of the receipt under the general law but in commerce that is 
material. It is often difficult to distinguish whether an agree-
ment is for payment of a debt by instalments or for making 
annual payments in the nature of income. The court has, on an 
appraisal of all the facts, to assess whether a transaction is 
commercial in character yielding income or is one in considera-
tion of parting with property for repayment of capital in 
instalments. No single test of universal application can be 
discovered for solution of the problem. The name which the 
parties may give to the transaction which is the source of the 
receipt and the characterization of the receipt by them are of 
little moment, and the true nature and character of the transac-
tion have to be ascertained from tbe covenants of the·contract in 
the light of the surrounding circumstances. The decision of the 
question is however not left to the application of any arbitrary 
standards. There are certain broad principles which guide the 
determination of the character of the receipt. The distinction 
between a capital receipt and revenue receipt though fine is 
real. The dividing line may be thin, and often at first sight 
imperceptible. 
CIVIL APPELLATE 

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