Case: New Savan Sugar &amp; Gur Refining Co. Ltd Vs. Commissioner Of Income-Tax, Calcutta

behalf of the assessee to the decision in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profit Tax, 1954-26 ITR 765 = (AIR 1955 SC 176 ), in which the assessee firm carrying on a manufacturing business consisted of three partners, N and his two sons R and G. In April, 1940, a public limited company was incorporated with the object of taking over the business of the assessee firm. This company was director-controlled and the directors were N, his three sons R, G and S and a brother-in-law of G. The company purchased only the building and leasehold rights from the assessee firm but took over from it on lease at an annual rent the plant and machinery. The assessee firm did not there, after manufacture anything and it had accordingly no further trading or commercial activity. In the circumstances, it was held that letting out of the plant and the machinery by the assessee to the company could not fall within the definition of "business" under Section 2 (5) and as the assessee firm had no business during the relevant period to which the Act applied, Section 10-A could not be invoked by the Excess Profit Tax Authorities. It was however pointed out that whether a particular activity amounts to any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture is always a difficult question to answer and no general principle can be laid down which would be applicable to all cases and each case must be decided in the setting and background of its own facts. It is evident that the material facts in the present case are somewhat different from those of Narain Swadeshi Weaving Mills case, 1954-26 ITR 765 =(AIR 1955 SC 176 ) (supra) for there is no outright sale of the building of the factory but only a lease of the factory premises together with the machinery for a long period of years.8. For the reasons already expressed our conclusion is that the intention of the assessee was not to treat the factory, etc., as a commercial asset during the subsistence of the lease. In other words, the intention of the assessee was to go out of the business altogether so far as the factory and the machinery was concerned with effect from 1st June, 1945 and the intention was to use the income arising from the royalty in its capacity as the owner of the factory.It follows therefore that the first question was rightly answered by the High Court in favour of the Commissioner of Income-tax.9. As regards the second question the argument was stressed by Mr. Choudhury that clauses (vi-a) and (vi-b) of Section 10 (2) are ancillary to clause (vi) and should be taken to be included within Cl. (vi) as mentioned in sub-section (3) of S. 12. It appears that clause (vi-a) was inserted by Section it of the Taxation Laws (Extension to Merged States and Amendment Act, 1949). Clause (vi-b) was inserted by Section 8 of the Finance Act, 1955 with effect from 1st April, 1955. At the time of making the amendment under the said Acts, no amendment was made to Section 12 (3) of the Act. It was argued by Mr. Choudhury that although this was not done specifically it followed by implication that additional depreciation allowance in respect of new assets and development rebate would come within the ambit of Section 12 (3).It appears to us that clauses (vi-a) and (vi-b) are not ancillary to clause (vi) because the scheme of clauses (vi-a) and (vi-b) is somewhat different.Clause (vi-a) which was inserted in 1949 gives additional depreciation allowance over and above the initial allowance which was formerly available under the second paragraph of clause (vi) in respect of buildings newly erected and new machinery and plant but not furniture installed after the 31st March, 1948. The additional allowance under this clause is confined to not more than five successive assessments falling within the period from 1-4-1949 and 31-3-1959. Further, it is deductible in determining the written down value, unlike the initial allowance granted under the second paragraph of clause (vi), Clause (vi-b) was inserted by the Finance Act, 1955. It grants development rebate in respect of machinery and plant provided that the machinery or plant is new and has been installed after the 31st March, 1954; and provided further that it is used wholly for the purpose of the assessees business and the particulars prescribed for the purpose of clause (vi) have been furnished. It is manifest that clauses (vi-a) and (vi-b) introduce a new scheme and cannot be treated as an integral part of clause (vi) by implication. Apart from this consideration it appears to us that these clauses were not specifically engrafted by Parliament in S. 12 (3) and Section 12 (4) while amending Section 10 (2) of the Act.It is therefore not permissible for the Court to read these same clauses by implication in Section 12 (3) and Section 12 (4) of the Act.The duty of the Court is to interpret the words that Parliament has used, it cannot supply the gap disclosed in an Act or to make of the deficiencies."If", said Lord Brougham, in Gwynne v. Burnell, (1840) 7 CL F 572, 696 "we depart from the plain and obvious meaning on account of such views (as those pressed in argument on 43 Geo. 3, c. 99) we do not in truth construe the Act, but alter it. We add words to it, or vary the words in which its provisions are couched. We supply a defect which the legislature could easily have supplied, and are making the law, not interpreting it". (Cf. Kamalaranjan Roy v. Secretary of State, 66 Ind App 1 at p. 10 = (AIR 1938 PC 281 at p. 283).Accordingly, we are of opinion that the assessee is not entitled to additional depreciation and development rebate and the second question was rightly answered by the High Court in the negative.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]In order to examine the validity of this argument it is necessary to set out the relevant clauses of the indenture of lease.Clause (1) of the lease provided that the lease was for a term of five years commencing from 1st June, 1945, with an option to continue for a further term of five years and thereafter two further options of five years in each case on the same terms and conditions subject to higher payment of rates of royalties.Clauselessee shall be entitled to run the said sugar factory and all other machinery annexed to the same and use all the tools and implements, buildings and premises, offices, and erections and utensils and all other things which are now in or upon the said premises and which may be added from time to time thereto provided always that the lessees shall not at any time remove the plant and/or machinery, etc., hereby demised or any part thereof from the said premises elsewhere for the purpose of or in connection with the lessees othere lessees shall at the time of taking over possession of the factory from the lessors be entitled free of payment to the goods already manufactured during the current crushing season, i.e., 1945-46 or in the process of manufacture and/or to be hereafter manufactured by the lessees and the lessees shall have absolute discretion to sell and deal with the same in such manner as they think fit ande lessees shall also be entitled to erect, construct and maintain any other machinery as the lessees may think fit and proper. All machinery brought in and erected by the lessees would remain the lessees property and after the termination of the lease the lessees shall be entitled to remove the same provided always that the lessees shall forthwith repair and make good all damage caused to the demised premises by such removal of the lesseese 7 provides for the payment of royalty. The royalty on sugar was to be computed at the rate of Rupees Seventyfive per 100 maunds of sugar manufactured for the first five years as well as next five years then at the rate of Rupees eighty-two and annas eight per l00 maunds of sugar manufactured for the third five years and Rs. 90 for the fourth five years. The royalty on molasses was computed at three pies per maund on all molasses sold during each year of the original lease period and any renewals thereof subject to the payment of a minimum royalty of Rs. 6,500 pers clause provides that the lessee shall in addition to the royalty reserved be responsible for all the running expenses of the factory including salaries and wages and all factory staff and labour and shall pay all sugar excise duty, etc. excepting the ground rents payable to the landlords and taxes on income chargeable to the lessors and shall fully reimburse the lessors in respect of such expenses which have already been incurred by the lessors since the first day of one thousand nine hundred and forty five and property) The lessors will keep the demised premises insured to the full value thereof and shall pay all expenses which will be incurred for insuring the demised premises.(b) The lesson shall pay all expenses of running the lessors company e.g., Directors fees, Audit fees, Ground rents, etc., but not the running expenses of the factory and premises hereby demised and shall also pay for all the expenditure for additions, alterations, breakdown and/or renewals and replacement of capital nature (i.e., debitable to block account) to buildings and machineries, etc. and other similar expenses of a capital nature on the demised premises.It appears from clauses 2 and 5 that the existing machinery which was owned by the lessor could not be removed and that the lessee would be entitled to set up additional machinery without interference from the lessor and that on the termination of the lease the lessee would be entitled to remove the same without causing any damage to the property demised. Clause 3 contemplates that if during the period 1945-46 the lessors sell the commodity manufactured the price thereof should go back to theorder to examine the validity of this argument it is necessary to set out the relevant clauses of the indenture of lease.Clause (1) of the lease provided that the lease was for a term of five years commencing from 1st June, 1945, with an option to continue for a further term of five years and thereafter two further options of five years in each case on the same terms and conditions subject to higher payment of rates of royalties.Clauselessee shall be entitled to run the said sugar factory and all other machinery annexed to the same and use all the tools and implements, buildings and premises, offices, and erections and utensils and all other things which are now in or upon the said premises and which may be added from time to time thereto provided always that the lessees shall not at any time remove the plant and/or machinery, etc., hereby demised or any part thereof from the said premises elsewhere for the purpose of or in connection with the lessees othere lessees shall at the time of taking over possession of the factory from the lessors be entitled free of payment to the goods already manufactured during the current crushing season, i.e., 1945-46 or in the process of manufacture and/or to be hereafter manufactured by the lessees and the lessees shall have absolute discretion to sell and deal with the same in such manner as they think fit ande lessees shall also be entitled to erect, construct and maintain any other machinery as the lessees may think fit and proper. All machinery brought in and erected by the lessees would remain the lessees property and after the termination of the lease the lessees shall be entitled to remove the same provided always that the lessees shall forthwith repair and make good all damage caused to the demised premises by such removal of the lesseese 7 provides for the payment of royalty. The royalty on sugar was to be computed at the rate of Rupees Seventyfive per 100 maunds of sugar manufactured for the first five years as well as next five years then at the rate of Rupees eighty-two and annas eight per l00 maunds of sugar manufactured for the third five years and Rs. 90 for the fourth five years. The royalty on molasses was computed at three pies per maund on all molasses sold during each year of the original lease period and any renewals thereof subject to the payment of a minimum royalty of Rs. 6,500 pers clause provides that the lessee shall in addition to the royalty reserved be responsible for all the running expenses of the factory including salaries and wages and all factory staff and labour and shall pay all sugar excise duty, etc. excepting the ground rents payable to the landlords and taxes on income chargeable to the lessors and shall fully reimburse the lessors in respect of such expenses which have already been incurred by the lessors since the first day of one thousand nine hundred and forty five and property) The lessors will keep the demised premises insured to the full value thereof and shall pay all expenses which will be incurred for insuring the demised premises.(b) The lesson shall pay all expenses of running the lessors company e.g., Directors fees, Audit fees, Ground rents, etc., but not the running expenses of the factory and premises hereby demised and shall also pay for all the expenditure for additions, alterations, breakdown and/or renewals and replacement of capital nature (i.e., debitable to block account) to buildings and machineries, etc. and other similar expenses of a capital nature on the demised premises.It appears from clauses 2 and 5 that the existing machinery which was owned by the lessor could not be removed and that the lessee would be entitled to set up additional machinery without interference from the lessor and that on the termination of the lease the lessee would be entitled to remove the same without causing any damage to the property demised. Clause 3 contemplates that if during the period 1945-46 the lessors sell the commodity manufactured the price thereof should go back to thematerial facts of Lakshmi Silk Mills Ltd., 1951-20 ITR 451   = (AIR 1951 SC 454  ) (supra) are that only a part of the machinery was let out on lease and the rest of the machinery was worked by the assessee. The letting out of the machinery was for a short period of five months. There was also no letting out of the premises of the factory by the assessee. The ratio of the decision in Lakshmi Silk Mills Ltd., 1951-20 ITR 451   = (AIR 1951 SC 454  ) (supra) is therefore not applicable to the presentFor the reasons already expressed our conclusion is that the intention of the assessee was not to treat the factory, etc., as a commercial asset during the subsistence of the lease. In other words, the intention of the assessee was to go out of the business altogether so far as the factory and the machinery was concerned with effect from 1st June, 1945 and the intention was to use the income arising from the royalty in its capacity as the owner of the factory.It follows therefore that the first question was rightly answered by the High Court in favour of the Commissioner ofappears that clause (vi-a) was inserted by Section it of the Taxation Laws (Extension to Merged States and Amendment Act, 1949). Clause (vi-b) was inserted by Section 8 of the Finance Act, 1955 with effect from 1st April, 1955. At the time of making the amendment under the said Acts, no amendment was made to Section 12 (3) of thesaid Lord Brougham, inGwynne v. Burnell, (1840) 7 CL F 572, 696"we depart from the plain and obvious meaning on account of such views (as those pressed in argument on 43 Geo. 3, c. 99) we do not in truth construe the Act, but alter it. We add words to it, or vary the words in which its provisions are couched. We supply a defect which the legislature could easily have supplied, and are making the law, not interpreting it". (Cf. Kamalaranjan Roy v. Secretary of State, 66 Ind App 1 at p. 10 = (AIR 1938 PC 281   at p. 283).Accordingly, we are of opinion that the assessee is not entitled to additional depreciation and development rebate and the second question was rightly answered by the High Court in the negative.