LexVIBHUTI GLASS WORKS versus COMMISSIONER OF INCOME TAX, LUCKNOW
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
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VIBHUTI GLASS WORKS
v.
COMMISSIONER OF INCOME TAX, LUCKNOW
APRIL 28, 1989
[R.S. PATHAK, CJ AND RANGANATH MISRA, J.]
Income Tax ;I.ct, 1961: Section 28-Income-Accrual of-
Factory owned by assessee-State Government allowed to manage for
20 years as condition for grant of loan-Profits earned-Applied by
managing State Government for paying assessee's debts-Whether
assessee assessable.
The assessee Company had a glass factory besides other bnsiness.
Since the glass factory business had, been suffering losses for several
years, resulting in increasing debt, the assessee took loans from the
State Government and mortgaged the land, buildings and machinery.
Later, under a deed executed by it the assessee allowed the State
Government to take over running of the glass factory for a period of 20
years and permitted it to have a share of the business, if and when they
exceeded a prescribed limit, as conditions for guaranteeing repayment
of a loan of Rs.20 lakhs granted by the Industrial Finance Corporation.
During assessment proceedings for the assessment year 1962-63,
the assessee contended that the profits earned by the glass factory
business during that period were not assessable in its hands, but in the
hands of the State Government, which had taken over the factory and
was running the business, and that, in any event, only half of the profit
could be included in its assessment as the State Government was en-
titled to SO per cent of profits under the deed. Rejecting the contentions,
the Income-tax officer held that the assessee was liable to be assessed in
respect of the entire profits earned by the glass factory.
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The assessee's appeals were dismissed hy both the Appellate
Assistant Commissioner and the Appellate Tribunal. On a reference
made at assessee's instance, the High Court affirmed the Tribunal's G
finding that the entire profits of the factory, and not half of them
accrued to the assessee. It also rejected assessee's contention that the
income was diverted through an overriding title before it reached the
assessee.
Dismissing the appeal of the assessee, this Court,
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797
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SUPREME COURT REPORTS
(1989] 2 S.C.R.
HELD: The present case is one where the income accrued to th~ }.
assessee directly and was merely, upon such accrual, applied to dis-
charge an obligation of the assessee. [80IB]
Although the Deed executed by the assessee is described as a
lease-deed and provides that the glass factory is demised to the State
Government, in substance possession of the factory was transferred ta {. -
the State Government only for the purpose of enabling it to manage a5'
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run the business. (800 F]
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The entire income earned during the year under consideration
was the income of the assesee and was merely applied hy the managing
State Government for the payment of the assessee's debt, and there was
no over-riding title. The profits earned during the year under consid-
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eration were not sufficient for the State Government to enjoy a share in r
the profits in accordance with t~e terms of the Deed, and therefore, no
part of the profits could be regarded as assessable in the hands of the
State Government. In point of fact, no part of the profits was actually
taken by the State Government. [801C-D]
Commissioner of Income-tax, Bombay City II v. Sitaldas Tirath-
das, (1961] 41ITR367, relied on.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1442
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(NT) of 1975.
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From the Judgment and Order dated 14.3.1974 of the Allahabad
High Court in I.T.R. No. 437of1971.
E.C. Agarwala for the Appellant.
S.C. Manchanda, Ms. A Subhashini and M.B. Rao for the ;..
Respondent.
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The Judgment of the Court was delivered by
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PATHAK, CJ. This appeal by certificate granted by the Allaha-
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bad High Court is directed against a judgment of the.High Court
answering the following questions in favour of the Revenue and
against the assessee in an income tax reference:
· "(l) Whether on the facts and in the circumstances of the
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case, and on a correct interpretation of the leasedeed
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VIBHUTI GLASS WORKS v. C.I.T. [PATHAK, CJ.) .
dated 22.8.1960, the Tribunal was right in holding the
profits of the Glass factory during the relevant A
accounting year accrued to the assessee-company?
(2) If the answer to the question no. 1 is in the affirmative,
whether the Tribunal was right in holding that the en-
tire profits and not one halfExcerpt shown. Read the full judgment & AI analysis in Lexace.