JUDGMENT
1. These are references under Section 256(1) of the Income-tax Act, 1961. These references relate to the assessment years 1970-71 and 1971-72. The moot question involved in these references is whether the fixed minimum guaranteed income received by the assessee constituted income from business or whether it was income from “other sources”. The question referred to us for our opinion is as follows :
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the income of the assessee which was received from the managing contractors, M/s. Sinha Coal Syndicate, on the basis of the agreement dated June, 8, 1969, for extraction of coal was assessable under the head ‘Business’ and not under the head ‘ Other sources’ relating to the assessment years 1970-71 and 1971-72?”
2. The assessee is a company. It owned a colliery known as Dobery Colliery. In June, 1969, the assessee entered into an agreement with M/s. Sinha Coal Syndicate. In terms of the agreement, the assessee was to receive a fixed minimum guaranteed sum as royalty. The agreement has been described by the Revenue as an agreement of lease. It was contended that that was not a lease but was an agreement of managing contract entitling M/s. Sinha Coal Syndicate to run the colliery as managing contractor for 10 years with an option of renewal for a further period of 10 years. Clause 18 of the agreement read as follows :
“That irrespective of the fact whether the mines be worked or not or any coal or coke be raised or manufactured or not, the managing contractors shall be bound to pay to the principal commission for the first three years from the date of the commencement of this contract, a minimum
sum of Rs. 75,000 (Rupees seventy-five thousand) per year payable in twelve monthly instalments of Rs. 6,250 (Rupees six thousand two hundred fifty) per month on or before the 21st day of each month and thereafter an annual sum of Rupees one lakh payable in twelve equal monthly instalments of Rs. 8,333.33 (Rupees eight thousand three hundred thirty-three and paise thirty-three only) per month on the 21st day of each following month. The managing contractors shall pay to the principal commission on despatches of coal at the following rates :
(a)
Steam and slack coal
:
@ Rs. 1.40 (Rupees one and paise forty) per tonne.
(b)
Soft coke
:
@ Rs. 3 (Rupees three) per tonne.
(c)
Hard coke
:
@ Rs. 4.50 (Rupees four and paise fifty) per tonne.
3. The principal reserves the right to review the rate of commission payable to the principal after completion of five years and if they so desire, fix the commission at a flat rate of Rs. 1.80 per tonne on all kinds of coal and coke despatched excepting hard coke for which the rate of commission will remain the same.
4. That in case the amount payable to the principal for coke, etc., shall exceed annually the sum of Rs. 75,000 or Rupees one lakh hereinbefore provided for, the managing contractors shall be bound to pay such excess amount that may be due to the principal within the 28th day of February each year and all such accounts shall be adjusted at the end of each English calendar year within the 15th day of January of every following year. It is further agreed and understood that if there shall be a complete stoppage of work due to fire, inundation or for any other reasons beyond human control or on account of lock-out or strike, then from after the expiry of the first thirty days of such stoppage of work, the managing contractors shall pay to the principal at the rate of Rs. 1,500 per month for such further period of stoppage of work instead of the monthly minimum as mentioned hereinabove. But nevertheless the managing contractors shall continue to be liable to pay the commission on despatch to the principal, during the relevant period.”
5. The agreement is annexure C to the statement of the case. A perusal of the agreement shows clearly that the assessee had completely withdrawn himself from exercising any control over the colliery. The management was to be by the contractor. The finances also were to be provided by the contractor. In short, the assessee had no say in the business of the colliery and that he was only entitled to receive a minimum sum of royalty at the rates stated above. The assessee had executed a power of
attorney in favour of the managing contractor. The agreement in this case was on the same terms as in the case of Khas Benedih Colliery v. CIT [1974] BBCJ 440 (Pat). In similar circumstances, Untwalia J. held in that case that the use of the words “managing contractor” was a misnomer and that the agreement, in fact, was an agreement of lease. The decision in Khas Benedih Colliery has been affirmed by a Full Bench of this court in Taxation Cases Nos. 249 and 251 of 1976 disposed of on 12-5-1987 (CIT v. S. K. Sahana & Sons Ltd. [1988] 169 ITR 617 (Pat)).
6. Having looked at the deed of agreement, we are of the view that the agreement entered into is a lease of the colliery. In that view of the matter, the income received by the assessse in the form of minimum guarantee could not be income from business. It was clearly income from “other sources” : The Income-tax Officer assessed the said income as income from “other sources”. His verdict was set aside by the Appellate Assistant Commissioner. The Tribunal affirmed the order of the Appellate Assistant Commissioner relying upon a decision of this court in Ray Talkies v. CIT [1974] 96 ITR 499. Subsequently, this court in the case of CIT v. S. K. Sahana and Sons Ltd. [1976] 102 ITR 437 held that the income from leasing out of a colliery was income from business. The two decisions of this court were considered by a Full Bench in CIT v. S. K. Sahana & Sons Ltd. [1988] 169 ITR 617 (Taxation Cases Nos. 249 and 251 of 1976). The Full Bench overruled the earlier decisions of this court in Ray Talkies [1974] 96 ITR 499 and S. K. Sahana & Sons Ltd. [1976] 102 ITR 437 (Pat). The earlier decisions of this court having been overruled, it follows that the income in the present case also must be held to be income from other sources and not income from business.
7. Following the law laid down by the Full Bench, we hold that the Tribunal was not justified in holding that the income of the assessee which was received from the managing contractors, M/s. Sinha Coal Syndicate, on the basis of the agreement dated June 8, 1969, was assessable under the head “Business” and not under “Other sources”. The question is thus answered in the negative, in favour of the Revenue and against the assessee.
8. Since the assessee had valid grounds for agitating the matter relying upon the two Bench decisions of this court, we do not consider that this is a fit case for awarding costs against them. The references are thus answered.
9. Let a copy of this judgment be transmitted to the Assistant Registrar, Income-tax Appellate Tribunal, “B” Bench, Patna, under Section 260 of the Income-tax Act.
