UKHARA ESTATE ZAMINDARIES (PVT.) LTD. versus COMMISSIONER OF INCOME-TAX, WEST BENGAL, CALCUTTA

Citation: [1980] 1 S.C.R. 711 · Decided: 19-09-1979 · Supreme Court of India · Bench: P.N. BHAGWATI · Disposal: Appeal(s) allowed

Judgment (excerpt)

) 
'~ 
' 
UKHARA ESTATE ZAMINDARIES (PVT.) LTD. 
v. 
COMMISSIONER OF INCOME-TAX, WEST BENGAL, 
CALCUTTA 
September 19, 1979 
711 
[P. N. BHAGWATJ, V. D. TULZAPURKAR AND R. S. PATHAK, JJ.J 
l11co111e Tax Act, 1961-Assesseie incorporated to take ol'er Ceriain r.an1i11dari 
properties-Gave sub-leases and receh·.ed sala1ni-Also roceiv-ed coJJ1pe11sa1ion 
for land acqrdrcd-A1nou11ts received whrther inconte 
or capital-Tests for 
.deciding wh"!tlter a reCT.'ipt is i11con1e or capital. 
The assessee was incorporated for the purpose of takin£- over cf certain 
:i:amin<lari properties. By an indenture the assessee took a lease of extensi\'e 
zamindari properties for. a term of 999 years and also took an assignment of 
moveables. In consideration of the lease and assignment, fully paid shares \vorth 
Rs. 4.08 lakhs were issued in the new company to the lessors. The quit rent 
.receivable by the lessors \Vas a nominal amount of Rs. 100 per annum. Clause 
.(3)(a) of the 1iimorandum of Association showed that the assessee was 
primarily incorporated for the purpose of taking over the assets of the lessor's 
family, while cl. (b) empowered th'! assessee to purchase, take 
on lease or 
-0therwise acquire and to traffic in land and generally to deal in or traffic by lFOY 
of sub-lease With land and house property. 111.e asscssee thereafter started givin~ 
()Ut on sub-lease various parcels of land to colliery companies for various terms 
of long duration. 
· 
Rejecting the assessce's contention that the total amount of salanzi premia 
and compensation received by the assessee in three assessment years were of a 
capital nature, the Income Tax Officer treated the amounts as income from 
business and taxed them. The Appellate Assistant Commissioner as \VCll as the 
Appe11ate 1'ribunal held in favour of the assessee on the ground that ihe trans-
actions of granting sub-leases were by way of management of thl! property by 
the assessee and receipts on account of sa1 ami pre mi a and compensation on 
acquisition of land were of. cap.ital nature not liable to be· taxed as income. 
On reference the High Court ,was of the view that the assessee could not he 
regarded as a purely family concern incorporated for the preservation and 
management of the family assets but was a trading concern which dealt with 
the leasehold rights in the lands as trading assets by using them to earn income 
and, therefore, safciJni, premia and compensation were trading receipts. 
Allowing the appeal, 
HELD : 1. Having regard to the nature of the various transactions it is clear 
that the rectipts on account of salami etc., must be regarded ns receipts of a 
capital nature. Similarly the amounts of compensation received by the assessee 
for compulsory acquisitions of portions of land partake the character of capital 
receipt inasn1uch as compulsory acquisition could not be said to be a voluntary 
transaction, and compe0sati.n received would be a substitute for the 
capital 
asset lost by the assessee. C722 Dl 
A 
B 
c 
D 
E 
F 
G 
H 
,-
-A 
• 
c 
D 
E 
F 
G 
B 
• 712 
SUPREME COURT REPORTS 
[1980] 1 S.C.R • 
I 
2. Ownership of property and leasing it out may be done as part of a bust· 
ness or it may_ be done as land owner. Whether it is the one or the other must 
necessarily depend upon the object with which the act is 
done. 
Where a 
company is formed with the specific object of acquiring properties not with the 
view to le:asing them as property but to selling them or turning them to account 
even by way of leasing them out as an integral part of its business, it can be 
said that the company has treated them as trader and not as land owner. In 
deciding wheiher a company dealt with its properties as owner one must see not 
to the form which it gave to the transactions but to the substance of the matter. 
[717 H] 
3. On the other hand incidental sale of uneconomic or inconvenient plots of 
land could not convert what was essentially an investment into a business 
transaction in real estate. The purposes or objects for which a limited company 
was incorporated has no decisive bearing on the question whether the income 
is of capital nature or a revenue receipt. The circumstance that a single plot of 
land was acquired and was thereafter sold as a whole or in plots is not decisive 
either. Nor is profit motive in entering into a µ-ansaction decisive. The question 
whether in purchasing and selling land the tax payer entered into . a business 
activity has to b

Excerpt shown. Read the full judgment & AI analysis in Lexace.