Ex-Soldiers' Motor Transport Co. v. Commissioner Of Income-Tax, U.P

Jagdish Sahai, J.:— At the instance of the Ex-Soldiers' Transport Co., Dehra Dun (hereinafter referred to as the assessee), the Income-tax Appellate Tribunal, Allahabad (hereinafter referred to as the Tribunal), has submitted a statement of case and referred to us the following question of law for our opinion under section 66(1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act):

“Whether the sum of Rs. 10,000 received by the assessee by the sale of permits granted by the Regional Transport Authority authorising the assessee to ply vehicles on certain ‘routes’ was revenue income liable to tax under the Income-tax Act?”

2. The assessee carries on the business of plying motor-buses, trucks and lorries and was assessed to tax for the assessment year 1950-51 in the status of an individual. In the accounts of the assessee for the relevant year there were credit entries of Rs. 10,000. The Income-tax Officer called upon the assessee to explain those entries. The assessee explained by saying that that amount represented the sale proceeds of the sale of permits to third persons granted to the assessee under the provisions of the Motor Vehicles Act. The case set up by the assessee was that this amount did not represent revenue receipts but income of a capital nature. The Income-tax Officer rejected the plea of the assessee holding that the receipt of Rs. 10,000 was incidental to the business of transport carried on by the assessee and was thus revenue income liable to tax. He, therefore, added the sum of Rs. 10,000 to the other income of the assessee and made an assessment of the tax on the total. The assessee filed an appeal before the Appellate Assistant Commissioner who allowed the same on the finding that the purchasers of the permit who had paid Rs. 10,000 to the assessee had acquired a trading licence which is an advantage for, an enduring benefit to the trade and thus the sum of Rs. 10,000 was in the nature of a capital receipt. Against the order of the Appellate Assistant Commissioner, the Income-tax Officer filed an appeal before the Tribunal which was allowed on the finding that the sum of Rs. 10,000 was in the nature of revenue receipt liable to be taxed. The assessee then made an application under section 66(1) of the Act which was allowed and in this manner the reference has been made to us and the question of law referred for our opinion.

3. Admittedly, there is no direct authority on the point are us and the case has got to be decided on first impressions. It is trite that it is not the nomenclature but the pith and the substance of a transaction which matters and that in order to determine the real nature or the essential quality of a transaction, the court has to scrutinise it with greatcare. The assessee has called the amount of Rs. 10,000 as sale consideration. Under the provision? of the Motor Vehicles Act, nobody can ply a.stage carriage or a public carrier except under a permit granted under the provisions of the Motor Vehicles Act. In the present case, what actually happened was that the assessee, instead of plying the vehicles itself, transferred the permits with the permission of the authorities to third persons from whom it realised a sum of Rs. 10,000 as consideration. In other words, it sold the right of plying the vehicles granted to it under the Motor Vehicles Act to a third party for consideration. A permit is not in the ordinary sense of the term a marketable commodity., No one has a legal right to obtain it and it is in the discretion of the authorities functioning under the Motor Vehicles Act to issue or not to issue a permit (see Veerappa Pillai v. Raman and Raman Ltd. [1952] S.C.R 583). It is true that under certain circumstances and with the approval of the Regional Transport Authority, a permit can be transferred. It will, however, be a mistake to treat the transfer of the permit, with the approval of the Regional Transport Authority, as a sale of the permit. In our judgment, all that the assessee did was that, by transferring the permit, he kept himself.back from earning profits in lieu of the sum of Rs. 10,000. The assessee did not actually sell anything. All that it did was that it kept back or stayed away from carrying on the business itself and allowed the so-called purchasers to earn profits against a sum of Rs. 10,000 received by the assessee from them. That being so, in our judgment, it is not possible to hold that this sum of, Rs. 10,000 was in the nature of capital investment or a capital receipt. The grant of a permit did not and could not increase the capital of the assessee. The circumstance that the permits were transferred did not operate to increase or diminish the capital of the assessee and that what was transferred was a right to ply the vehicles. In that view of the matter, the payment of Rs. 10,000 cannot be treated to be one of an enduring nature. It appears to us that the substance of the transactions between the assessee and the so-called purchasers was that the assessee changed the mode of his business and of earning profits. Instead of plying his own vehicles on the routes specified in the permits, he allowed third parties to do so and received Rs. 10,000 in lieu thereof. That being so, this sum of Rs. 10,000 is not capital receipt but the profit or the income which the assessee made in connection with the business. Our attention is invited to Maheshwari Devi Jute Mills Ltd. v. Commissioner of Income-tax [1961] 43 I.T.R 254.. In that case the assessee company was a member of the Jute Mills Association formed for the protection and regulation of jute mills industry. Between its various members, an agreement took place which restricted the hours of working the looms in respect of each member. The number of hours of working allotted to the different mills depended upon their loomage capacity. In the accounting years 1949-50 and 1950-51 the Maheshwari Devi Jute Mills did not utilise the loom hours allotted to it and taking advantage of the provisions in the agreement, it transferred surplus loom hours, with the permission of the association, to other mills of the same group in lieu of a consideration of Rs. 53,460 and Rs. 1,85,230 respectively. R. N Gurtu and B. Upadhya JJ. who decided that case, took the view that the sums were receipts in consideration of the transfer of capital assets. With great respect to our learned brothers, we are unable to agree with them. In any case that authority is clearly distinguishable and need not detain us for the simple reason that it does not apply to the facts of the case before us. There, under the agreement, the jute mills had a legal right to the loom hours and the same could be transferred. In the instant case, as we have already said above, the assessee had no legal right to the permits. The case which in our judgment is nearest to the facts before us is Commissioner of Excess Profits Tax v. Shri Lakshmi Silk-Mills-Ltd. In that case the assessee, being itself unable to use the dyeing plant, allowed another to run it against a certain amount received as consideration. Mahajan J. held that that amount was a revenue receipt liable to assessment of tax. In the case of Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, it was observed by the Supreme Court that the income of the company would be considered from the particular facts in each case.

4. Having considered the facts of this case, we have, for reasons already mentioned above, come to the conclusion that the sum of Rs. 10,000 was in the nature of revenue receipt liable to assessment of tax.

5. We, therefore, answer the question referred to us in the affirmative and against the assessee. The assessee shall pay the costs of the department, which we assess at Rs. 200. The fee of the learned counsel for the parties is also fixed at the same figure.

6. Question answered in the affirmative.