Case: Tata Iron And Steel Co. Ltd Vs. The State Of Bihar (And Connected Appeals)

2. The three companies who are the appellants here own certain mines in Bihar. The Tata Iron and Steel Co. Ltd.appellants in Civil Appeals 587 and 588 oftaken on lease certainmines at Noamundi in the Singhbhum district from where it extractswhich it utilises in its factory at Jamshedpur for making iron and steel. Similarly, the Indian Iron and Steel Co. Ltd. which is the appellant in Civil Appeals Nos. 590 and 591 of 1961 holds mining concessions for iron andmanganese ore at Gua and Monoharpur in the district of Singhbhum and the ore extracted by it is utilised for the manufacture of iron and steel and steel products at the companys factories at Burnpur and Kulti in the district of Burdwan. In the same manner the Indian Copper Corporation Ltd. which is the appellant in Civil Appeals Nos.of 1961 hastaken on lease certainmines in the district of Singhbhum and the ore mined by it is manufactured into copper and copper products at its factory at Moubhandar in the same district. The question raised for decision is whether the three appellants could be said to have derived "annual net profits from the mines" when the ore mined by them is not sold as such but is utilised for the production of finished products which the appellants sell.

Court's reasoning:
The company was not assessed to the cess on the ore mined by it till 1926, when the company sold some quantity of iron ore extracted by it to the Bengal Iron and Steel Co. Ltd. and an assessment to cess under the Act was made against it in respect of that year. Even though it made no sales of iron ore in later years but utilised the ore extracted in its own factory, the company was assessed to and paid the cess on an assumed profit of 12 as per ton of iron ore mined by it uptoand from the next year onwards the profit was assumed to be a little higher, viz. at Re. 1/per ton. This basis of taxation was varied in the yearwhen it was raised to Rs. 1 4 /per ton by reason of an agreement between the company and the State Government. There were some variations in the basis of the rate at which the profit was computed during the succeeding years but it is unnecessary to detail them.4. Finally we come to the assessment in respect of the yearwith which the present appeals are concerned. For that year the company was assessed by the Cess Deputy Collector on the basis that it had made a profit of Rs. 4/7/per ton of iron ore extracted The company filed an appeal to the Deputy Commissioner and the ground urged by the company was that it was not at all liable to the levy of cess under the Act because it did not sell any ore as such and could not therefore be treated as having made "any profit from the mines" within the meaning of S. 6 of the Act. The Deputy Commissioner rejected this contention but considering that the Cess Deputy Collector had not adopted a proper basis for ascertaining the profits remanded the case for an enquiry as to the cost of extraction of iron ore and for the calculation of other working expenses. The company then filed a revision application to the Commissioner of the Chhota Nagpur Division raising the same point about itsto cess but when this was rejected, preferred a further revision to the Board of Revenue This application met with the same fate and thereafter the company moved the High Court of Patna by petitions under Arts. 226 and 227 of the Constitution for quashing the order of the Board of Revenue confirming the order of the Deputy Commissioner remanding the proceedings to the Cess Deputy Collector for enquiry for recomputing the net annual profits of the company for the year. The learned Judges of the High Court dismissed the Writ application but granted leave under Art. 133 of the Constitution. Civil Appeal 587 of 1961 is the appeal filed in pursuance of the certificate granted by the High Court. Civil Appeal 588 of 1961 is an appeal by special leave granted by this Court against the order of the Board of Revenue which was theof proceedings in the Writ Petition before the High Court. The material facts of the other appeals are similar and need not be set out. It is sufficient to add that the writ petitions of the other two appellants were dealt with by the High Court, along with the petition of the Tata Iron and Steel Co. Ltd. and disposed of by a common judgment. In the case of the other two appellants also the two appeals by each are one from the judgment of the High Court dismissing the relevant writ petition and the other from the order of the Board of Revenue.If return not furnished or incorrect, Collector to make valuation.If such return be not furnished within the period of two months from the date on which such notice was served, or within any extended time allowed by the Collector of the district or if such Collector shall deem that any return made in pursuance of such notice is untrue or incorrect, such Collector shall proceed to ascertain and determine by such ways or means as to him shall seem expedient the annual net profits of or the annual despatches of coal and coke from such property calculated asstated, the submission was this. Under S. 6, which has to be read with S. 72, the tax imposed by the Act is not a tax on the mine as a species of immovable property, but on the "annual net profits" derived from the mine. In order that a person may derive "profit" from a mine, the mine must be worked and the ore extracted, but even that by itself is insufficient. The extraction of the ore involves expenditure and "profits" could be said to be derived from the mine only when the extracted ore is sold and the amount realised by the sale of the ore is in excess of the cost of extracting the ore. A sale of the ore is thus an essential ingredient or a sine qua non for the emergence of a profit on which alone the cess is levied. Where, however, the ore extracted is not sold but is used by the owner in the production of other finished products there is no question of the owner of the ore realising a "profit" from the mine. In the case of an assessee like the appellants the business of winning the ore and of converting the ore won into a finished product is not by any means to be conceived of as made up of two distinct businesses conducted by them but only as a single integrated undertaking for the production of steel and steel products. Unless one could postulate first that the business of winning the ore was a separate business from that of converting the ore won into steel, and secondly could notionally treat the won ore as having been sold by the first business to the second, it would not be possible to conceive of any profit being derived from the working of the mine. He submitted that there was no factual basis for the first postulate, viz., that there were two separate businesses and secondly, even assuming that it were possible to separate the two activities in the course of which goods produced in one business were consumed in the other, still no "profit" can in law result by such use because "profits" could accrue only by the sale of the product and the consumption by the same individual of his own goods could not result in a "profit" because a person cannot sell to himself or trade with himself.8. A further submission that was made was that though the Act had made provision for the levy of a cess or rate based upon mere beneficial occupation without perception of rent from a third party occupier, in the case of "land", it had deliberately made no such provision for computing the beneficial occupation of mines such as the ones now under discussion and that this was itself an indication that without the actual receipt of "profit" a mere beneficial occupation of the mine was not sufficient to enable a charge to be imposed. There were a few other minor and ancillary points suggested, but we shall refer to them later.9. It would be convenient to deal with the above two submissions separately. So far as the main and the principal point which we have set out earlier is concerned, it is manifest that it hinges on the acceptance of the proposition that no "profit" accrues from a mine to an owner unless the ore extracted is sold by him to a third person and the somewhat related proposition that where a person carries on a multiple butan integrated activity that produces an entire profit,the total profits derived by him cannot be disintegrated and apportioned between the different activities unless the relevant statute under which the tax is imposed makes specific provision for suchconsider that the submission provides no answer to the problem before us. It matters little whether in technical language the charging section is S. 5 or Ss. 5, 6 and 72 read together. When once it is conceded, as it must be, that in the case of a mine there is no liability to pay the tax unless the mine were worked and the working produced a "profit", the question would still have to be answered as to whether the mine can be said to produce an "annual net profit" on the basis of which alone the cess could be levied when the ore won is not sold as such but it is converted into a finished product and is soldis not necessary to examine the scope of the maxim that a person cannot make a profit out of himself or ascertain whether the principle is subject to any exceptions. It might here be pointed out that it has been held by the House of Lords in Sharkey v. Wernher, 1956 Act 58, the, the general proposition that no one could trade with himself and make in its true sense or meaning taxable profit by dealing with himself and make in its true sense or meaning taxable profits by dealing with himself is not universally true and that there are situations in which a man could be said to make a profit out of the consumption of his own goods.However, as the principle underlying the decision of this Court in Kikabhai Premchands case, 1954 SCR 219: (AIR 1953 SC 509  ) runs counter to the decision of the House at Lords in 1956 AC 58, vice Commr. ofBombay v. Bai Shirinbai K. Kooka, C. A. No. 133 of 1958,(since reported in AIR 1963 SC 477  ), we are bound to proceed on the basis that on facts similar to those in Kikabhais case 1954 SCR 219 : (AIR 1953 SC 509  ) the principle applies and negatives the idea of a taxable profit emerging.17. It is, therefore, necessary to examine the precise scope of the decision in Kikabhais case, 1954 SCR 219: (AIR 1953 SC 509  ). The case arose under the IndianAct and the question related to the computation of the income and profits of a bullion merchant. The assessee had, during the accounting year, withdrawn some bullion from hisand transferred it to a trust which he had created. The assessee valued the bullion withdrawn at the price at which he had bought it, so that no profit was shown to have resulted to him by reason of the transfer of thistrade. This was objected to by Revenue whose contention was that the bullion withdrawn had to be valued at the market price of the commodity on the day of theus now analyse the concept underlying this situation. It could not, for instance, be that unless the mined ore was sold as it came out of the mine there could be no profit and that if the ore underwent any modification from the state in which it was when mined, say by being reduced to convenient sizes or by being broken up into small fragments or even pulverised, there could be no profit arising out of the sale of the ore so dressed. It is needless to add that in such a case the cost of the dressing or the pulverising for the market could be an item of expenditure which would have to be taken into account in ascertaining the profit from the sale of the ore. If one is right so far that profit could result from the sale of the mined ore so dressed up for the market, could there be any logic in the contention which denies the existence of profit from the mined ore when not the dressed ore but some product of the dressed ore is sold. No doubt where the mined ore undergoes some processing before it is marketed, the process being either cleaning or dressing etc., the processed product might continue to be commercially known as ore. But the question would then arise "Is it essential for a profit to result from the working of the mine that there should be an identity in a commercial sense between the commodity which is the subject of sale and the commodity which is won from the mine?" In other words, is it the position that if there is loss of that identity the concept of "a profit" arising from the production of that commodity also disappears? We find it difficult to appreciate the ratio behind the contention that if the mined ore is processed, and the processed product commercially goes under another name, because the processing results in extensive modifications of the raw material, then the sale of the finished product can in law yield no "profit " from the working of the mine.21. At this stage it is necessary to bear in mind a fact that what we have here is not a consumption in the sense of dissipation of the ore won as a result of which the commodity is entirely lost, as would be the case where, for instance, grain produced by an agriculturist is consumed in his ownbeing the very illustration referred to by Bose, J. in Kikabhai Premchands case, 1954 SCR 219: (AIR 1953 SC 509  ). The situation here is that there has been a sale of the end product and the contention is that notwithstanding the sale and the realisation of profit from the sale of that end product, there is no profit attributable to the product of the mine. In this connection the learnedreferred us to the decision of this Court in Dooars Tea Co. Ltd. v. The Commissioner of AgriculturalWest Bengal, C. A. No. 381 of 1960,(AIR 1962 SC 186  ). The question raised for decision was whether the value of bamboos, fuel timber, etc. grown by an assessee, but which were utilized by him for the purposes of his tea business could be taken into account in computing "his income, profits and gains" for the purposes of the Bengal AgriculturalAct. This Court held that it could be and that even if that item did not fall within the word "profits or gains", it was certainly "income "which was of wider import. It may be pointed out that the learned Judges did not expressly negative the item being "profits", and the decision is authority only in regard to the broad sweep of the expression "Income" in the statute theresupport of this submission, he drew attention to the parallel provisions of the Act in relation to the determination of " the annual value of lands" which was another item which along with the annual net profit from mines and quarries was brought to charge for the imposition of the cess under S.6. "Annual value" would, he said, have normally included only the profit derived from land, not the benefit accruing to the owner from his ownultimate analysis this merely means that in the case of an ambiguity in the construction of a taxing statute in according to one construction a tax is leviable, while on another it is not, the taxpayer is entitled to the benefit of the doubt. In the view, however, that we entertain regarding the construction of the relevant provisions of the Act we consider there is no scope for the application of this rule ofsupport of this proposition reliance was placed on the well known decision of the House of Lords in Colquhoun v. Brooks, (1889) 14 AC 493. We do not consider that there is force in this argument.We have already held on a construction of Ss. 5, 6 and 72 that where activities other than mere winning the ore are carried on by an assessee and there is a transaction of sale of the ultimate product and the profit, if any derived from the working of the mine is, so to speak, imbedded in the final realisation, a profit may accrue to the assessee from the mining operation which can be disintegrated and ascertained and a tax levied thereon. We are not here concerned with the manner in which this disintegration should take place or the components or items which would have to be taken into account in arriving at "the annual profit from the mine for the purpose of being brought to tax under Ss. 6 and 72. Those will be theof enquiry by the relevant competent authorities by virtue of the order of remand passed by the Board of Revenue in these cases. As we have pointed out earlier, what we are concerned with in these appeals is merely whether there could in law be an annual profit from the mine in cases where the ore produced from the mine is sold not as ore but is utilised as the raw material for the manufacture of other products which are sold. When once it is conceded, as it has to be, that in order that profit may result from the mining activity it is not necessary that the ore should be the subject of sale in the same condition as it was when it came out of the mine, but that even if the won ore is subjected to processes to make it more useful or attractive to a buyer and then sold, there would be a profit, and that in the latter event the expenses of processing would be a legitimate outgoing for computing the profit, it appears to us to follow that if the ore is so processed as to turn it into a different commodity and then sold there would be no negation of the concept of "a profit" from the mine and the question would be only as regards the elimination of the further expenses involved and principles on which these could be ascertained. It is the function of the relevant assessing authorities to determine the annual profits in case of dispute and besides there is a residuary provision contained in S. 76 of the Act under which in cases where the Collector is unable to ascertain the annual net profits he may determine it on the basis of 6 per cent of the value of the mine. It is for these reasons that we are unable to accede to the submission that the charging provisions should be rejected as inane because of the want of an express machinery for determining the basis of apportionment in cases where the ore is sold not as ore but is converted into other products which are the subject ofconsider it, however, unnecessary to deal with these since we are satisfied that, for the reasons stated already, the conclusion of the High Court that the case of the appellants was with the charging sections of the Act, is correct.We consider that this submission has no relevance in these appeals which are concerned not with ascertaining how the profit from a mining operation is to be determined, but solely with the legal point as to whether, where adoes not sell the ore as such but converts it into a finished product which he sells, there could in law be any profit from the mining operation. We therefore consider that the submission is not pertinent at the present stage and have refrained therefore from dealing with the merits of that contention.