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PETITIONER: NATIONAL CEMENT MINES INDUSTRIES, LTD.

       Vs.

RESPONDENT: COMMISSIONER,OF INCOME-TAX, WEST BENGAL, CALCUTTA.

DATE OF JUDGMENT: 17/01/1961

BENCH: SHAH, J.C. BENCH: SHAH, J.C. KAPUR, J.L. HIDAYATULLAH, M.

CITATION:  1961 AIR 1032            1961 SCR  (3) 502

ACT: Income-tax-Conveyance with reservation of rights-Category of-Receipts under the conveyance, if income or capital.

HEADNOTE: The  appellants were carrying on the business of cement  and lime manufacture and supply thereof.  By a deed dated May 7’ 1935, the appellants conveyed to the Associated Cement  Ltd. the  rights  which  had  vested in  them  under  an  earlier conveyance  made  in  their favour by  a  company  known  as Karanpura  Cod  Under the deed the  appellants  reserved  to themselves  the right to receive from the Associated  Cement Company  a sum equal to thirteen annas in respect  of  every ton of cement sold by it which shall have been  manufactured from the limestone won by it from the lands transferred  and comprised in the leases and agreements. Pursuant  to  this stipulation in the year of  account,  the appellants  I received from the Associated Cement Ltd.   Rs. 77,820.  The Income-tax Officer included this amount in  the total  assessable income of the appellants in the  assesment year and his order was confirmed by the Appellate  Assistant Commissioner and by the Income-tax Appellate Tribunal.   The contention  of  the appellants before the High  Court  in  a reference under s. 66 of the Indian Income-tax Act that on a proper  construction  of  the  deed and  on  the  facts  and circumstances  of  the case the sum of Rs’  77,820  did  not represent  receipt of a revenue nature in the hands  of  the appellants and was not assessable as such, was negatived. Held,  that  the deed did not incorporate a  transaction  of either sale or lease.  The conveyance was subject to several restrictions and the appellants retained in part, rights  in the  land  conveyed.  The transaction  was  substantially  a transaction  for  sharing  the  profits  of  the  commercial activities  of  the Associated Cement Ltd. and  the  receipt under cl.  1 of the deed was of the nature of income and not capital and as such assessable to tax. 503 Foley v. Fletcher, (1858) 3 H. & N. 769, Secretary of  State in  Council  of  India v. Andrew Scoble,  [1903]  A.C.  299, Oswald   v..   Kirkcaldy  Magistrates,  [1910]   S.C.   147, Commissioners of Inland Revenue v. N Ramsay, (1935) 20  T.C.

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79, State of Bihar v. Sir Kameshwar Singh, [1952] 21  I.T.R. 382,  Captain  Maharajkumar Gopal Saran v.  Commissioner  of Income-tax,  Bihar & Orissa, [1935] 3 I.T.R. 237 (P.C.)  and Chadwick  v.  Pearl Life Assurance CO., [1905] 2  K.B.  507, considered and applied. In  assessing  the  true character of the  receipt  for  the purpose  of the Income-tax Act, inability to ascribe to  the transaction  a definite category is of  little  consequence. It  is not the nature of the receipt under the  general  law but in commerce that is material.  It is often difficult  to distinguish whether an agreement is for payment of a debt by instalments  or for making annual payments in the nature  of income.  The court has, on an appraisal of all the facts, to assess  whether  a transaction is  commercial  in  character yielding  income or is one in consideration of parting  with property for repayment of capital in instalments.  No single test of universal application can be discovered for solution of the problem.  The name which the parties may give to  the transaction  which  is  the source of the  receipt  and  the characterization  of  the  receipt by  them  are  of  little moment, and the true nature and character of the transaction have to be ascertained from the covenants of the contract in the light of the surrounding circumstances.  The decision of the  question is however not left to the application of  any arbitrary  standards.   There are certain  broad  principles which  guide  the  determination of  the  character  of  the receipt.   The  distinction between a  capital  receipt  and revenue receipt though fine is real.  The dividing line  may be thin, and often at first sight imperceptible.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 84 of 1958. Appeal  by special leave from the judgment and  order  dated December  22/23, 1955, of the Calcutta High Court in  I.T.R. No. 24 of 1953. N.   C.  Chatterjee, D. P. Pal and D. N. Mukherjee  for  the appellant. Hardayal Hardy and D. Gupta, for the respondent. 1961.  January 17.  The Judgment of the Court was  delivered by SHAH,  J.-Messrs.  National Cement  Mines  Industries  Ltd.- hereinafter  referred  to  as the  appellants-are  a  public limited company incorporated to " carry on the 65 504 business  of  cement  and  lime  manufacture  and  also   of limestone supply and for the purposes of such businesses  to acquire rights and concessions pertaining to limestone, coal and surface lands from the Dewar  khand Karanpura Mines  and Industries Ltd." and also to " work mines or quarries and to find,  win, get, work, etc. or otherwise deal with clay  and bauxite." Dewarkhand Karanpura Mines and Industries Ltd. hereinafter called  the " Karanpura Company "-had obtained three  leases on  November  29,  1930, first  for  mining  limestone  from Maharaja  Pratap  Narain Udai Nath Shah Deo  from  limestone beds in certain villages in Dewarkhand, second from  Maharaj Kumar  Nand  Kishore  Nath Shah Deo of  the  surface  rights neces. sary to exercise the powers and privileges in respect of  the  first lease and the third from  Maharaj  Kumar  Raj Kishore Nath Shah Deo of surface rights in respect of  Hoyer village.  The period in each of the three leases was  thirty years.   On March 17, 1932, the Karanpura  Company  conveyed

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the  rights  and  options  under the  three  leases  to  the appellants.  On September 30, 1934, the appellants  acquired the  limestone  and surface rights in respect  of  limestone beds  in village Umedanda for 95 years from Maharaja  Pratap Narain Uday Nath Shah Deo and Maharaj Kumar Raj Kishore Nath Shah Deo.  On the same date, the appellants entered into two agreements,  one with Maharaja Pratap Narain Uday Nath  Shah Deo which is called the ,bauxite option agreement "  thereby acquiring the first option to take a lease or leases of  any area  or areas of bauxite deposits in certain villages,  and another from the said Maharaja for the first option to  take a  lease or leases of limestone beds in the  Tori  District. By a fourth agreement also dated September 30,1934,  between the Karanpura Company, Maharaja Pratap Narain Udai Nath Shah Deo  acting with the consent of Maharaj Kumars  Raj  Kishore Nath Shah Deo and Nand Kishore Nath Shah Deo, the  royalties reserved  under the original deeds dated November 29,  1930, were reduced and the periods of the leases were extended  to 99 years from the date of the original leases, 505 By  deed  dated  May  7,1935,  the  appellants  conveyed  to Dewarkhand Cement Company Ltd. (which later came to be known as   Associated  Cement  Ltd.  and  will  be   referred   to hereinafter  by that name) the benefits of the  four  leases and  the two agreements for the unexpired periods.  By  this deed,  for  a  present consideration of  Rs.  25,000  "  for trouble and expenses in obtaining the leases and  agreements " and for further payment under several covenants which will be  presently  set out, the appellants conveyed  the  rights vested in them subject to certain reservations.  In the year of  account  June 1, 1944, to May 31, 1945,  the  appellants received  from  the Associated Cement Ltd. under  the  first covenant  of the deed, Rs. 77,820 being the amount  computed at the rate of 0-13 As. per ton of cement manufactured  from limestone  won from the lands and sold by the company.   The Income-tax Officer, Companies District 1, Calcutta, included this amount in the total assessable income of the appellants in the assessment year 1946-47.  This order was confirmed in appeal  by the Appellate Assistant Commissioner and  by  the Income-tax  Appellate  Tribunal.   At the  instance  of  the appellants,  the  Tribunal referred the  following  question with another not material for this appeal to the High  Court of Judicature at Calcutta:               " Whether on a proper construction of the Deed               of  Assignment dated 7th of May, 1935, and  on               the  facts  and in the circumstances  of  this               case, the Tribunal was right in holding  that,               the sum of Rs. 77,820 represented a receipt of               a revenue nature in the hands of the Applicant               and assessable as such The  following facts were held proved by the Tribunal.   The principal objects of incorporation of the appellants were to carry  on the business of manufacturing cement and lime  and sale  of limestone and the appellants were formed  with  the object  of  acquiring  the rights  and  concessions  of  the Karanpura Company.  By their Memorandum of Association,  the appellants  were  authorised  to  sell  or  dispose  of  the undertakings or any part thereof as they thought fit, 506 and to sell, lease, mortgage, dispose of, turn to account or otherwise  deal with all or any part of their  property  and rights  and  in pursuance of these objects  the  rights  and concessions  of  the  Karanpura Company  were  acquired  and extension  of leases and concessions were obtained and  were transferred  to the Associated Cement Ltd.   The  appellants

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were  therefore carrying on in the year of  account  1944-45 the business for which they were incorporated. After  reciting the prefatory clauses, it was stated in  the deed:               "WHEREAS  it  was agreed inter alia  that  the               Purchaser should pay to the Vendor the sum  of               Rupees  twenty five thousand for  trouble  and               expenses   in   obtaining   the   leases   and               agreements   dated   the  thirtieth   day   of               September one thousand nine hundred and thirty               four  hereinbefore  recited  and   hereinafter               expressed to be hereby transferred and Whereas               the Purchaser hath paid to the Vendor the said               sum  of  rupees twenty five  thousand  as  the               Vendor   doth  hereby  acknowledge  NOW   THIS               INDENTURE  WITNESSETH that in con.  sideration               of the covenants on the part of the  Purchaser               hereinafter contained the Vendor hereby grants               assigns  and transfers unto the Purchaser  and               the  Karanpura Company at the request  and  by               the  direction  of the  Vendor  hereby  grants               assigns   transfers  and  confirms  unto   the               Purchaser:". The  deed  then proceeds to set out the description  of  the various  leases  and  concessions  and  agreements  and  the covenants  which  the Associated Cement  Ltd.  undertook  in favour of the appellants.  These covenants are: (1)  That it will pay to the Vendor a sum equal to  thirteen annas  in  respect of every ton of cement sold by  it  which shall  have been manufactured from the limestone won  by  it from  the  lands  hereby transferred and  comprised  in  the hereinbefore recited leases and agreements. (2)  That it will not sell any Fluxstone won by it from  the said  lands  to the Tata Iron and Steel Company Ltd.,  at  a price less than Rupees one and annas 507 fourteen  per ton F. O. R. the siding nearest to the  quarry or  place from which it shall be won without the consent  of the Vendor. (3) That it shall pay to the Vendor one-half the profit(  if any)  which it shall make by selling Fluxstone to  the  Tata Iron  &  Steel  Company Ltd.,or to  any  other  person  such profits  to  be ascertained after deduction from  the  price received  all  costs,  charges and  expenses  including  the royalty  payable  to  the Maharaja in  respect  thereof  but before  educting  overhead  charges.  Such  accounts  to  be closed  and  adjusted on the thirtieth day of June  and  the thirty-first day of December in each and every year. (4)  That it will not grant to the Tata Iron & Steel Company Ltd.,  the  right to quarry and remove  Fluxstone  from  the lands hereby transferred at a royalty of less than ten annas per ton, and will pay to the Vendor one-half of any  royalty so charged and received. (5)  That  in the event of the payments made  under  clauses one,  three and four above in any one year not amounting  to the  minimum hereinafter set out the Purchaser shall pay  in lieu and in full discharge there for the following minimum:               (a) During the first year to be computed  from               the first  day  of January one  thousand  nine               hundred and thirty-five, rupees ten thousand.               (b)   During  the  second year  rupees  thirty               thousand.               (c)   During  every  subsequent  year   rupees               fifty thousand. Out  of the above minimum payment of rupees fifty thousand

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per  year  for the purposes of account, the  sum  of  rupees twenty thousand shall be deemed to have been paid in respect of payment under clause three above. (6)  That the Purchaser or the persons deriving title  under the  Purchaser will at all times from the date  hereof  duly pay all rents, royalties and payments becoming due under the (four) hereinbefore recited Indenture of Lease (,subject  as regards the Limestone lease to the modifications effected by the agreement for 508 reduction  of royalty dated the thirtieth day  of  September one  thousand  nine  hundred  and  thirty-four   hereinabove recited)  in  respect  of the  premises  agreements  options rights  or  benefits  hereby assigned  and  transferred  and observe  and perform the covenants  agreements  stipulations and conditions therein contained and henceforth on the  part of  the  Lessee or grantee to be observed and  performed  in respect of the aforesaid premises or under the said  Bauxite agreement  or under the said Tori Option agreement or  under the said agreement for reduction of royalty And also will at all  times  from  the date hereof  save  harmless  and  keep indemnified  the Vendor its successors and assigns from  and against all proceedings costs claims and expenses on account of any omission to pay the said rent, royalty or payments or any   breach  of  any  of  the  said  covenants   agreements stipulations and conditions. (7)  That  the Purchaser will not work raise remove  or  use stone or clay in the properties comprised in the leases  and agreements hereby transferred to it for making lime. (8)  That  the Purchaser shall not by any of its actions  or omissions  cause leases and agreements, mentioned above  and in   respect  of  properties  hereby  transferred,   to   be determined, or the rights thereunder, including the right of renewal, to be prejudiced. (9)  That in areas comprised in the leases and agree.  ments hereinabove   expressed  to  be  hereby  assigned  and   not containing  limestone the Vendor’s rights under  leases  and agreements from the Maharaja of Chotanagpur or Maharaj Kumar Nand  Kishore  Nath  Shah’ Deo other  than  the  leases  and agreements  above  referred to shall not be  jeopardised  or affected by this Indenture. (10) That  the clay and shales lying within areas, which  do not  contain Limestone, can be removed and utilised  by  the Vendor for all purposes except that of cement manufacture. The  deed  then proceeded after setting  out  certain  other covenants: 509               "  AND  IT  IS  HEREBY  EXPRESSLY  AGREED  AND               DECLARED  that  if the  Limestone  within  the               areas   comprised   in   the   Leases   hereby               transferred available for manufacturing cement               is exhausted the Purchaser will be entitled to               determine  this  Indenture on  giving  to  the               Vendor six months’ notice in writing in  which               case  the  Purchaser,  if  so  required,  will               retransfer    the   leases   and    agreements               aforesaid." By  clauses  (1), (3) and (4), the  Associated  Cement  Ltd. undertook  to make certain payments to the  appellants.   By cl. (1) they agreed to pay 0-13 As. for every ton of  cement manufactured from the limestone won from the lands and sold; by  el. (3), the Associated Cement Ltd. agreed to  pay  half the profits which they made by selling Fluxstone to the Tata Iron  & Steel Co., or to any other person; and by  el.  (4), they  agreed to pay half the royalty received from the  Tata

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Iron  &  Steel Company for the right to  quarry  and  remove fluxstone from the lands.  By clause (5), provision was made for minimum payment in the event of the aggregate under cis. (1),  (3) and (4) not reaching the sums  specified  therein. Clauses  (2),  (4), (7), (8) and (9) were in the  nature  of restrictive  covenants.  By cl. (2), the  Associated  Cement Ltd. were prohibited from selling any fluxstone won from the lands to the Tata Iron & Steel Company for less than Re.  1- 14  As.  per ton F. O. R. By cl. (4), an obligation  not  to convey the right to quarry and remove fluxstone for  royalty less  than  0-10 As. per ton was imposed.  By  el.  (7)  the Associated  Cement  Ltd. undertook not to remove or  use  or allow any one to raise work, remove or use stone or clay  in the lands.  By cl. (8), the Associated Cement Ltd. undertook not  to  do  any acts or omissions causing  the  leases  and agreements  to be determined or the rights thereunder to  be prejudiced.   By  cl.  (9), rights of  other  persons  under leases and agreements in lands not containing limestone were not to be affected. By el. (10), the right of the appellants to  utilise  clay  and  shale lying  within  the  areas  not containing limestone except for the purpose of manufacturing cement was retained, There were certain exceptions 510 to  this and the ninth clause whereby the Associated  Cement Ltd.  were entitled to excavate, use or remove all kinds  of clays in and from the areas within the boundary lines marked in the plan and they were also authorised to make  permanent structures and use certain strips of lands.  By el. (6)  the Associated  Cement Ltd. agreed to pay rent stipulated  under the  original  leases and agreements and also  undertook  to keep  indemnified  the  appellants  from  and  against   all proceedings,  costs, claims and expenses on account  of  any omission  to pay the rent royalty or payments or any  breach of any of the covenants agreements and the leases. There  was  also  the covenant  authorising  the  Associated Cement Ltd. to terminate the deed in the event of  limestone in  the land comprised in the leases being  exhausted.   The appellants undoubtedly did not part with all their rights in favour of the Associated Cement Ltd. by this deed dated  May 7,  1935.  The consideration under the deed consisted  of  a fixed  component  and annual payments fluctuating  with  the business  activity  of the Associated Cement Ltd.   A  fixed amount of Rs. 25,000 was paid " for trouble and expenses  in obtaining  the  leases  and  agreements  "  and   additional payments were to be made under cls. (1), (3) and (4) subject to  the minimum prescribed by el. (5).  It is  difficult  to categorise  a  transaction of this character.  It is  not  a conveyance of all the rights of the appellants nor can it be regarded  as a sale even of the rights which were  conveyed. Numerous  restrictions  were imposed by the  deed  upon  the rights  of the transferee which were inconsistent  in  their very  nature with the character of a sale, and the  covenant authorising  termination  of the deed in the  event  of  the limestone being exhausted removes all doubt in that  behalf. Nor is it a lease : it is not a transfer of a right to enjoy property  for a certain time in consideration of  periodical payments.   It also does not evidence a transaction  in  the nature  of  a joint venture between the appellants  and  the Associated Cement Ltd.  Cement was to be manufactured by the Associated  Cement Ltd, out of limestone to be won from  the lands 511 and  in  consideration of the rights conveyed,  payments  at specified  rates were agreed to be made out of the price  to be obtained by sale of cement, fluxstone and limestone.  The

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appellants  had no control over the production of  limestone and  manufacture of cement, or on the sale of fluxstone  and limestone.   But  in  assessing the true  character  of  the receipt for the purpose of the Income-tax Act, inability  to ascribe to the transaction a definite category is of  little consequence.  It is not the nature of the receipt under  the general  law but in commerce that is material.  It is  often difficult to distinguish whether an agreement is for payment of  a debt by instalments or for making annual  payments  in the nature of income.  The court has, on an appraisal of all the facts, to assess whether a transaction is commercial  in character  yielding  income or is one  in  consideration  of parting   with   property  for  repayment  of   capital   in instalments.  No single test of universal application can be discovered for solution of the problem.  The name which  the parties  may give to the transaction which is the source  of the receipt and the characterization of the receipt by  them are  of little moment, and the true nature and character  of the transaction have to be ascertained from the covenants of the contract in the light of the surrounding  circumstances. The  decision  of the question is however not  left  to  the application  of any arbitrary standards.  There are  certain broad  principles  which  guide  the  determination  of  the character of the receipt.  The distinction between a capital receipt  and  revenue  receipt though  fine  is  real.   The dividing  line  may  be  thin,  and  often  at  first  sight imperceptible. Where capital is repaid in instalments, it is not liable  to income-tax;  for instance when a person sells  his  property and  agrees to receive the price stipulated in  instalments, by  whatever name such instalments are called, they are  not liable to income-tax-see Foley v. Fletcher (1), Secretary of State  in Council of India v. Andrew Scoble (2),  Oswald  v. Kirkcaldy Magistrates and Commissioners of Inland Revenue v. Ramsay (4). (1)  (1858) 3 H. & N. 769? (2)  [1903] A.C. 299 (3)  [1919] S.C. 147. (4)  (1935) 20 T.C. 79. 66 512 But  where property is conveyed in consideration of what  in truth  is  annuity  payable for a definite  or  a  definable period, the annuity is not payment on capital account and is taxable-see  State  of  Bihar v. Sir  Kameshwar  Singh  (1), Captain Maharajkumar Gopal Saran v. Commissioner of  Income- tax, Bihar and Orissa (2), Chadwick v. Pearl Life  Assurance Co. (3). Again,   if  property  is  conveyed  in   consideration   of periodical payments, the payment being a share of profits of a   business   or   profession-(William   John)   Jones   v. Commissioners  of  Inland Revenue(4), or a  mineral  royalty depending upon the quantity of minerals raised Raja Bahadur Kamakshya Narain Singh of Ramgarh v. Commissioner of Income- tax,  Bihar  and  Orissa  (5),  or  computed  on  sales   of manufactured  articles-Commissioners  of Inland  Revenue  v. 36149  Holdings, Ltd. (6), or a percentage of gross  profits made  in  the  exploitation of a  secret  process-Delage  v. Nugget Polish Co., Ltd. (7), is income and taxable. Counsel for the appellants submitted that the receipt  under clause  (1) of the terms of the deed dated May 7, 1935,  was in  the  nature of capital payment and relied  upon  certain decisions in support of that submission. In  Minister  of National Revenue v.  Catherine  Spooner(8), decided by the Judicial Committee of the Privy Council in an

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appeal  from  the Supreme Court of  Canada,  the  respondent Catherine Spooner had sold her rights, title and interest in land owned by her in freehold to a company in  consideration of a certain sum in cash, besides shares of the company, and an agreement to deliver 10% of oil produced from the land on which  the company covenanted to carry out drilling and,  if oil was found, pumping operations.  These were described  as royalties.   Oil was struck in the lands and the  respondent was  paid  10 of the gross proceeds of the oil  produced  in lieu of oil.  The (1) [1952] 21 I.T.R. 382.  (5) (1943) L.R. 70 I.A. 180. (2)  [1935] 3 I.T.R. 237 (P.C.). (6) (1943) 25 T.C. 173. (3) [1905] 2 K.B. 507.  (7) (1906) 2r Times Law Reports 454. (4) (1919) 7 T.C. 3 10  (8) [1933] A.C. 684. [1920] 1 H.B. 711, 513 Supreme  Court of Canada held that the sum so  received  was not  an annual profit or gain within the meaning of s. 3  of the  Income War Tax Act, but a receipt of a  capital  nature and  therefore  not  chargeable to tax.   According  to  the Judicial Committee, there was between the respondent and the company no relation of lessor or lessee: the transaction was one of sale and purchase, and the transaction had taken  the form  which  it did because of the uncertainty  whether  oil would  be found by the purchaser.  As the value of the  land depended on this contingency, the price, not unnaturally was made  to  depend in part on the event of oil  being  struck. The judgment lays down no new principle; it proceeded merely upon  interpretation  of the document in the  light  of  the circumstances. In Trustees of Earl Haig v. Commissioners of Inland  Revenue (1), the question which fell to be determined was whether  a share of the royalties received in consideration of allowing the use of the diaries of the late Earl Haig for writing his biography were, in the hands of the trustees under the  will of Earl Haig, capital receipts.  That was undoubtedly a case in  which payments received by the trustees  were  dependent upon  the  professional  activities of the  author  and  the proceeds  derived from the sales of the biography he  wrote. By  the agreement, the author was authorised to extract  and publish  from the diaries what he thought fit.  The  diaries were  undoubtedly an asset, and after they were used by  the author  for publication of the biography, their value as  an asset was, if not wholly, largely exhausted and their future value was negligible.  The agreement was therefore  regarded as  conveying  an  asset in its entirety to  the  author  in consideration of a share in the royalties and the receipt of this  share  was  regarded  as  receipt  of  capital.   That decision  proceeded  upon  the  special  character  of   the agreement  and the nature of the asset transferred  and  did not seek to lay down any general principle. In  Nethersole v. Withers (2), N who had acquired  under  an agreement the exclusive right to dramatise (1) (1939) 22 T.C. 725. (2) (1948) 28 T.C. 501. 514 a novel of Rudyard Kipling received under an agreement  with the  widow  of the author, a third share of a lump  sum  for which the sound and film rights were granted exclusively  to a film company for a period of ten years.  The film right of a  comprehensive character having been granted by the  legal representative  of  the author against payment  of  the  sum stipulated, the question arose whether the payment  received by  N was taxable under the Income Tax Act under Case II  of Schedule D or under case VI of Schedule D. It was held  that

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N  having  ceased  to be the owner of  the  portion  of  the copyright  she  had assigned, the proceeds were  not  annual profits or gains within the meaning of Schedule D, Case  VI. That was a case in which N had wholly sold and disposed of a part of the property and the amount received by her was  the price  paid  in lump and was not in the  nature  of  income. That  case also proceeded upon the special character of  the transaction. The  case  of  The Commissioners of Inland  Revenue  v.  The Marine  Steam  Turbine Co., Ltd. (1) on which  reliance  was sought  to be placed by counsel for the appellants needs  no detailed  consideration.  In that case, a company which  was on  the facts found not carrying on a trade or business  was held  not  assessable to Excess Profits  Duty,  because  the condition  of  liability  was the carrying on  of  trade  or business. The  appellants  had however not sold the  entirety  of  the rights  acquired  by them from the Karanpura  Company.   The conveyance  was  subject  to several  restrictions  and  the appellants  retained  in part rights in the  land  conveyed. The  transaction was substantially a commercial  transaction for sharing the profits of the commercial activities of  the Associated  Cement Ltd.  The High Court was therefore  right in  holding  that the transaction dated May 7, 1935,  was  a commercial transaction and the payment under cl. (1) thereof at the rate of 0- 13 as.  ’per ton of cement sold was of the nature of income and not capital. In that view of the case, the appeal fails and is  dismissed with costs. Appeal dismissed. (1)  (1919) 12 T.C. 174; [1920] I K.B. 193. 515