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PETITIONER: TATA IRON AND STEEL CO.  LTD.

       Vs.

RESPONDENT: THE STATE OF BIHAR (And connected appeals)

DATE OF JUDGMENT: 24/09/1962

BENCH: AYYANGAR, N. RAJAGOPALA BENCH: AYYANGAR, N. RAJAGOPALA SHAH, J.C. SINHA, BHUVNESHWAR P.(CJ) IMAM, SYED JAFFER SUBBARAO, K. WANCHOO, K.N.

CITATION:  1963 AIR  577            1963 SCR  Supl. (1) 199  CITATOR INFO :  R          1970 SC1298  (8)  F          1976 SC2452  (3)  RF         1977 SC1134  (3A)  R          1985 SC 840  (7)  D          1992 SC 959  (17)

ACT: Cess--Annual  net profits from mines--Levy of cess  thereon- Mine--owner extracting ore and manufacturing products there- from--Legality  of cess on ore extracted--Bengal  Cess  Act, 1880 (Ben. 9 of 1880), as amended in Bihar, ss. 5,6, 72.

HEADNOTE: The  appellant  company was the owner of  certain  mines  in Bihar from where it extracted iron ore which it utilised  in its factory at Jamshedpur for making iron and steel.   Under ss.  5  and 6 of the Bengal Cess Act, 1880,  as  amended  in Bihar,  all  immovable property situate in any part  of  the State of Bihar was liable to payment of local cess which, in the  case  of mines, was to be assessed on  the  annual  net profits  from  them.  For the assessment year  1954-56,  the company  was  assessed by the Cess Deputy Collector  on  the basis that it had made a profit of Rs. 4-7-0 per ton of iron ore extracted.  The appellant claimed that it was not 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 question was whether the appellant  company could in law be said to have derived "Profit" from the  mine when  the ore extracted was not sold by it as such  but  was utilised  by  it for the purpose of  manufacturing  finished products which it sold. Held, that on the true construction of ss.5, 6 and 72 of the Bengal Cess Act, 1880, as amended in Bihar, where activities 200 other  than  mere  winning  the ore are  carried  on  by  an assessee  with  a view to convert the ore  into  a  finished product  and there is a transaction of sale of the  ultimate

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product, the profit derived from the working of the mine  is imbeded  in  the  final realisation, and  the  profit  which accrues  to  the assessee from the mining operation  can  be disintegrated and ascertained, and a tax levied thereon. Kikabhai  Premchand v. Commissioner of  Income-tax,  Bombay, [1954] S.C.R. 219, distinguished. Commissioner  of Income-tax, Bombay v. Ahmedbhai Umerbhai  & Co., Bombay, [1950] S.C.R. 335 and Anglo-French Textile  Co. Ltd.  v. Commissioner of Income-tax, Madras,  [1950]  S.C.R. 523, relied on: Commissioner  of Income-tax, Madras v. Dewan Bahadur  S.  L. Mathias.  (1938)  L.  R. 66 I. A.  23  and  Commissioner  of Income-tax, Bombay City I, Bombay v. Bai Shirinbai K. Kooka, [1962] Supp. 3 S. C. R. 391, considered.

JUDGMENT: CIVIL APPELLATE, JURISDICTION : Civil Appeals Nos. 587, 588, 590, 591 600 and 601 of 1961. Appeals  by special leave from the resolution dated May  12, 1959, of the Board of Revenue’, Bihar in Cases Nos. 49,  233 and  234  of  1958 and from the  judgment  and  Order  dated February  18, 1960, of the Patna High Court in  Misc.  judl. Cases Nos. 529, 530 and 531 of 1959. M. C. Setalvad, Attorney-General for India,N. A.  Palkhivala and P. K. Chatterji, for the appellant (In C. As.  Nos.  587 and 588 of 1961.) Lal  Narayan Sinha and D. P. Singh, S.C. Agarwala, R.K  Garg and M.K. Ramamurthi, for the respondent (In C. As.  Nos. 587 and 588 of 1961). M.   C. Setalvad, Attorney-General for India, A.   V. Viswanatha Sastri, B. Choudhri and D. N.  Mukherjee, for the appellant (In C. As.  Nos. 590 and 591 of 1961). Lal  Narayan Sinha, D.P. Singh, S. C. Agarwala, R.  K.  Garg and  M. K. Ramamurthi, for the respondent (In C.  As.   Nos. 590 and 591 of 1961).  201 B.   C. Ghosh and P. K. Chatterjee for the appellant (In  C. As.  Nos.600 and 601 of 1961). Lal Narayan Sinha and S. P. Varma, for the respondent (In C. As.  Nos.600 and 601 of 1961). 1962.   September  24.   The  judgment  of  the  Court   was delivered by AYYANGAR J.These three sets of appeals raise a common  point relating  to the validity of the imposition of a cess  under ss.  5  & 6 of the Bengal Cess Act, 1880 (Bengal Act  IX  of 1880,  as amended in Bihar), hereinafter referred to as  the Act.   These  provisions whose interpretation  is  the  only point for consideration in these appeals run in these terms:               "5.  All  immovable property to be  liable  to               local  cess.  From and after the  commencement               of  this  Act  in any district or  part  of  a               district,   all  immovable  property   situate               therein,  except as otherwise in section  2(2)               provided,  shall be liable to the  payment  of               local cess.               6.  Cess  how to be assessed.-The  local  cess                             shall be assessed on the annual value of  land s               and until provision to the contrary is made by               the  Central  Legislature on the.  annual  net               profits  from mines and quarries,  other  than               notified mines and from tramways, railways and               other    immovable    property,    ascertained

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             respectively as in this Act prescribed;               and the rate at which the local cess shall  be               levied for each year shall-               (a) in the case of such annual net profits, be               one anna on each rupee of such profits; and               (b)   in  the  case  of the  annual  value  of               lands, be such rate as shall be determined for               such year in the manner-in this Act prescribed 202               Provided that the rate at which the local cess               shall be levied for any one year on the annual               value  of  lands shall not be less  than  the.               rate of one anna and six pies or more than the               rate of two annas on each rupee of such annual               value.  " The three companies who are the appellants here own  certain mines in Bihar.  The Tata Iron & Steel Co.,  Ltd.-appellants in  Civil  Appeals  587 & 588 of 1961  has  taken  on  lease certain iron-ore mines at Noamundi in the Singhbhum district from  where  it extracts iron-ore which it utilises  in  its factory  at Jamshedpur for making iron & steel.   Similarly, the Indian Iron & Steel Co., Ltd., which is the appellant in Civil   Appeals  Nos.  590  &  591  of  1961  holds   mining concessions for iron and manganese ore at Gua and Monoharpur in the district of Singhbhum and the ore extracted by it  is utilised  for  the  manufacture of iron &  steel  and  steel products at the company’s 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.  600-601 of 1961, has taken on  lease  certain mines  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. In view of the nature of the question raised it would not be necessary to set out in detail the facts of each one of  the cases and we will content ourselves with narrating a few  of the salient facts which preceded the proceedings culminating in  the  appeals now before us relating to the Tata  Iron  & Steel Co. Ltd.appellants in Civil Appeals 587 & 588 of  1961 to 203 appreciate   generally  the  antecedent  history   and   the proceedings giving rise to the appeals.  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 lion 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 upto  1939- 40 and 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 year 1950-51 when it was  raised to Rs. 1/4/- per toil 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. Finally  we  come to the assessment in respect of  the  year

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1954-55  with 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 to 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 Chota Nagpur Division raising the same point 204 about its non-liability to 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 the subjectmatter of  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& 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. It  will be seen from the above narration that the  question for  decision  is whether a person could in law be  said  to derive  "profit" from a mine when the ore extracted  is  not sold  by him as such but is utilised by him for the  purpose of manufacturing a finished product which he sells.   Before setting  out  the  argument  on  the  basis  of  which   the appellants   raise  the  contention  regarding  their   non- liability  to the cess it would be convenient to read a  few of  the provisions of the Act which bear upon the  point  in controversy. 205 The long title of the Act reads               "’An  Act  to amend and  consolidate  the  Law               relating  to  rating  for  the   Construction,               Charges    and   Maintenance    of    District               Communications  and  other  Works  of   Public               Utility, and of Provincial Public Works."               The relevant portion of the Preamble reads               "’Whereas   it  is  expedient  to  amend   and               consolidate the law relating to rating for the               construction,   charges  and  maintenance   of               district    roads   and   other    means    of               communication, and of provincial public works,

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             within  the  territories administered  by  the               Provincial  Government of Bengal, and  to  the               levy  of  a local cess on  immovable  property               situate  therein, and to the  constitution  of               local  committees  for the management  of  the               proceeds  of the said local cess, and also  to               provide  for the construction and  maintenance               of  other works of public utility out  of  the               proceeds  of the said local cess It is  hereby               enacted as follows" The Act consists of three Parts of which Part 1 is concerned with  the  imposition and application of the cesses  and  we have  already  extracted ss. 5 & 6 which impose  the  charge with which these appeals are concerned.  Part 11 deals  with the  mode  of assessment.  Chapter V of Part  11  is  headed "Valuation, Assessment and levy of Cesses on Mines, Railways and  other Immovable Property" and of these those  that  are material for the point arising for decision and to which  we were  referred during the course of the arguments  were  ss. 72, 72A, 73 to 76 and these run in these terms :               "72.   Notice  to return profits.-(1)  On  the               commencement of this Act in any district,  and               thereafter before the close of each year,  the               Collector of the district shall cause a notice               to               206               be served upon the owner, chief agent, manager               or occupier of every mine or quarry other than               a notified mine and of every tramway,  railway               and  other  immovable  property  not  included               within  the provisions of Chapter II, and  not               being a tramway or railway on which local cess               is not leviathan.  Such notice shall be in the               form  in  Schedule (2)  contained,  and  shall               require  such owner, chief agent,  manager  or               occupier  to  lodge  in  the  office  of  such               Collector  within two months a return  of  the               net   annual   profits   of   such   property,               calculated  on the average of the  annual  net               profits  thereof for the last three years  for               which accounts have been made up.               (2)......................................................... ..               (3)   The  Collector  may  in  his  discretion               extend the time allowed for lodging any return               referred. to in this section.               72A.  Penalty for omitting to make a  return.-               (1)   Any  owner.,  chief  agent,  manager  or               occupier  who, without sufficient cause  being               shown  to the satisfaction of  the  Collector,               refuses or omits to lodge the required  return               in  the  office of the  Collector  within  two               months  from the date of the service upon  him               of  a notice under section 72 or,  within  any               extended  time which may have been allowed  by               the  Collector for lodging such return,  shall               be liable to a fine which may extend to  fifty               rupees for every day after expiration of  such               time  or  extended time until such  return  is               furnished  or until the annual net profits  of               or the annual dispatches of coal and coke from               the  property in respect of which  the  notice               has  been  served shall  have  been  otherwise               ascertained and determined by the Collector as               hereinafter provided.

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              207               (2)   The  amount  of such fine  accruing  due               from  time  to  time  may  be  levied  by  the               Collector as provided in section 98 or section               99,  and  the fact of an appeal  against  such               fine being pending shall not avail to  prevent               the levy of any such fine pending the disposal               of   the  appeal,  unless   the   Commissioner               otherwise directs.               (3)   Whenever the amount levied in respect of               any such fine exceeds five hundred rupees, the               Collector  shall report the case specially  to               the Commissioner; and no further levy for such               default  shall  be  made  otherwise  than   by               authority of the Commissioner.               73.   When   property   lies   in    different               districts.Whenever  any  property   assessable               under  this  Chapter  lies  in  two  or   more               districts,  the  notice to  furnish  a  return                             under section 72 shall be served on the  owner ,               chief  agent,  manager  or  occupier  of  such               property  by or through the Collector  of  the               district in which such owner,               chief agent, manager or occupier may reside or               have  his  chief place of  business,  and  one               return  for the whole of such  property  shall               suffice.               74.   When a property is partly in and  partly               outside    Bengal.-Whenever    any    property               assessable under  this  Chapter  lies   partly               within and partly    outside  the  territories               administered  by  the  Lieutenant-Govemor   of               Bengal,  the return furnished as  required  by               section  72 shall state the total  annual  net               profit  accruing  from, and the  total  annual               despatches  of coal and coke  despatched  from               such  property, calculated as  aforesaid,  and               also  the  proportion  of  such  profits   and               despatches which may- reasonably be calculated               to  accrue  in or to be  despatched  from  the               territories  administered by  the  Lieutenant-               Governor of Bengal.               208               75.   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 as aforesaid.               76.   Valuation on value of property.-If  such               Collector  be unable to ascertain  the  annual               net  profits,  or the  annual  despatches,  as               aforesaid, of or from any property  assessable               under  this  Chapter, he may by such  ways  or               means   as  to  him  shall   seem   expedient,               ascertain  and  determine the  value  of  such               property,  and shall thereupon  determine  six

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             percents  on such value to be the  annual  net               profits thereon or, in the case of the  annual               dispatches,  shall determine such quantity  as               having regard to all the circumstances of  the               case  he considers just and proper to  be  the               annual despatches therefrom." The form of notice prescribed under s. 72 is set out in Sch. E to the Act. The material words of the notice run               "The owner is required to lodge in the  office               of  the Collector of the district of a  return                in  the form hereunto annexed, showing the  net               profits  of the calculated on the  average  of               the profits of the last three years for  which               accounts have been made up... "Form of Return. Detail  of yearly profits of mines,, quarries, railways  and tramways, or other immovable property  209 in  the  possession  or  under the  control  of  the  person submitting the return. ------------------------------------------------------------- 1            2             3            4 ------------------------------------------------------------- District  Parganas                          Name of    Annual net pro-                         holder or   fits per annum In which the property    manager     on the average      lies                           of the last three                                     years of which                                     accounts     have                                     been made up. ------------------------------------------------------------ The argument addressed to us by the learned Attorney-General for  the  appellants was substantially the same as  was  put forward  before  the learned judges of the  High  Court  and which  they  rejected.  Briefly stated, 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 these 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 210 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 nationally  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

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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. 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. 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 but 211 nonetheless  an 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 such purpose. Before  entering  on  a discussion of this  question  it  is necessary  to notice an argument advanced before us  by  Mr. Sinha, the learned Government Advocate who appeared for  the respondent.  His submission was that it was s. 5 of the  Act which created the charge and imposed the liability and  that s.  6  and  the  other related provision  in  s.  72  merely provided  the  yardstick or the measure of that  charge  and that as the mine was immovable property within the  district it was subject to the cess at the rates specified in ss. 6 & 72.   We consider 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 sold thereafter The learned Attorney-General concentrated on the meaning of’ the  expression "profit" occurring in s. 6 and  the  related provisions  of the Act.  "Profit" according to  him,  arises only when a commodity produced, obtained or acquired is  the subject  of a commercial transaction of sale and  represents the difference between the expense or cost of production  or acquisition  and  the amount realised on the sale,  and  the main  submission  was  that  as there was  no  sale  by  the mine-owner of the product of the mine as such, no "’Profit" 212 could in law be deemed to have accrued to him from the mine.

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In further elaboration of this point, reliance was placed on the fact that what was brought to charge-or rather what  was taken  to be the taxable event-was "the annual net  profit," and this computed on the basis of the average of "annual net profit for three years" (vide ss. 6 & 72 of the Act).   This last  circumstance  however does not obviously  advance  the case far, because, if it is possible to conceive in law of a profit  or a net profit being derived when the mined ore  is utilised  by a mine-owner in his factory, neither  in  logic nor  on principle is there any difficulty in there being  an "annual net profit", particularly seeing that the  operation of  mining  is  a continuous  process  extending  for  years together. In  support  of his basic submission the  learned  Attorney- General  called in aid the principle laid down by the  House of  Lords in Styles v. The New York Lift, Insurance  Company (1) that no-one can make a profit out of himself’.  He  also referred  us  to the following passage in the  judgment  of. Rowlatt, J., in Thomas v. Richard Evans & Co., Ltd. (2) :               "It  is  true to say a person  cannot  make  a               profit  out  of himself, if what is  meant  is               that he may provide himself with something  at               a lesser cost than that at which he could  buy               it,  or  if  he  does  something  for  himself               instead  of employing somebody to do  it.   He               saves  money  in those circumstances,  but  he               does not make a profit." He further invited our attention to Ostime v. Pontypridd (3) and  to the passage in the speech of Viscount Simon  in  the House of Lords : "The identity of the source with the recipient prevents  any question of profits arising." His  next  submission  was  that  this  principle  had  been accepted by this Court in Kikabhai Premchand v. Commissioner of Income Tax, Bombay (4) and that (1) (1889) 2 T. C. 460.   (2) (1927) 11 T. C. 790, 822. (3) (1946) 28 T. C. 261, 278.  (4) [1954] S. C. R. 219.  213 the   reasoning  underlying,  this,  decision  compelled   a decision in his favour. It is 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  (1)  that  the  general proposition that no one could trade 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  1 out  of the consumption of his own goods.  However,  as  the principle underlying the decision of this Court in  Kikabhai Premchand’s  case  (2) runs counter to the decision  of  the House  of Lords in Sharkey v. Wernher (1) vide  Commissioner of   Income-tax, Bombay City 1, Bombay v. Bai  Shirinbai  K. Kooka  (3)  we  are bound to proceed on the  basis  that  on facts similar  to those in Kikabhai’s case () the  principle applies  and  negatives  the  idea  of  ’a  taxable   profit emerging. It is, therefore, necessary to examine the precise scope  of the  decision in Kikabhai’s case (2).  The case arose  under the  Indian Income-tax Act and the question ’related to  the computation of the income and profits of a bullion merchant. The assessor had, during the accounting-year, withdrawn some ’bullion  from  his stock-in-trade and transferred it  to  a trust which he had created.  The assessee valued the bullion

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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 this stock-in-trade.  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  the transfer.  This Court, accepting the contention  of the assessee, allowed his appeal and the ratio of this (1) [1956] A.C. 58.          (2) [1954] S.C.R. 219. (3)  [1962] Supp. 3 S.C. R. 391. 214 decision  is  to be found in the following  passage  in  the judgment of Bose, J., who spoke for the. majority :               "We are of opinion that it is unreal and arti-               ficial to separate the business from its owner               and  treat  them  as  if  they  were  separate               entities  trading with each other and then  by               means   of  a  fictional  sale   introduce   a               fictional profit which in truth and in fact is               non-existent.   Cut away the fictions and  you               reach the position that the man is supposed to               be  selling  to himself and thereby  making  a               profit out of himself which on the face of  it               is  not only absurd but against all canons  of               mercantile and income-tax law." This  was slightly expanded in the illustration given  of  a trader  in rice withdrawing rice from his stock-intrade  for the purpose of consumption by his family.  The learned judge added that if the trader in rice transferred some stock to a private godown:               "What  he chooses to do with the rice  in  his               godown is no concern of the Income-Tax Depart-               ment provided always that he does not sell  it               or otherwise make a profit out of it.  He  can                             consume  it,  or give it away, or just  let  i t               rot......  How can he be said to have made  an               income  personally or his business  a  profit,               because he uses ten bags out of his godown for               a feast for the marriage of his daughter ?" It would be seen from the above that the stock withdrawn was not the subject of any commercial transaction but was, so to speak,  lost to the business.  But that is not the  position here.  Though the mined ore was not itself the subject of  a sale,  it  was  converted into a  commodity  which  was  the subject of a sale. The  question,  therefore, arises whether when a sale  or  a commercial transaction which might result  215 in  a profit takes place not of the commodity itself but  of something into which it is transformed, "a profit" could  be said  to  accrue by reason of the acquisition of  the  basic commodity.   Let us 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

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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 Yaw material, then the  sale  of  the finished  product  can  in law yield no  "Profit"  from  the working of the mine. 216 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  own family-this’ being the very illustration  referred to  by  Bose,  J.,, in Kikabhai  Premchand’s  case(1).   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 learned  Attorney-General referred  us to the decision of this Court in Doors Tea  Co. Ltd.  v.  The Commissioner of Agricultural  Income-tax  West Bengal(2) . The question raised for decision was whether the value of bamboos, fuel timber etc. grown by an assessee, but which  were  utilised 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 Agricultural Income Tax Act.  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  there interpreted. It could not be disputed that factually the profit from  the mining operation and the winning of the mineral is  embedded in the profit realised from the sale of the end product.   A simple  illustration would demonstrate this.  Let us  assume that  the cost of winning the ore is Rs. 50/- a ton and  the market price of similar ore which would have to be  used in the  absence  of the ore mined is Rs.  60/-per  ton.   There could not be any doubt that this difference of Rs. 10/-  per ton of ore would be reflected in the (1) [1954] S.C.R 219. (2) (1962) 3 S.C.R. 157.  217 profit or loss resulting from the sale of the steel.  It  is needless  to add that if in a given case the  mined  product costs  more  than the market price of the  commodity,  there would be a loss on the mining operation notwithstanding that there is a profit realised from the sale of the end product-

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steel, but these are matters of calculation not relevant  at the  present  stage,  for we are  endeavoring  to  ascertain whether there could in law be a profit when the mined ore is converted into steel in the mills of the mining-company,  If thus  factually the profit from the mine or from the  mining operation  is  imbedded in the profit from the sale  of  the steel  is there any principle of law which  prevents  effect being given to this factual position ? The learned Attorney- General submitted that in such. a situation the "’Profit" is not  a real or an actual profit but is one which  is  merely notional, and that when the Act spoke of a "profit" it meant an  actual,  real  and realised profit  and:  not  a  merely notional "profit".  We find ourselves unable to accept  this submission.   We start with the premise that by the sale  of the  end product a real "’Profit" has been  realised.   When analysed  it  is  found  that profit  is  the  aggregate  or resultant  of the profits from different lines of  activity. if  arithmetically  that  total  represents  the   resultant aggregation  of different items of activity we fail  to  see how  it could be said that the profit from each  item  which results  in  that total is a notional and not an  actual  or real  profit.   In the interests of clarity,  we-should  add that  the principle would be the same when the sale  of  the end product yields no profit, but results in a loss, only in such a case, the relevant component, viz, the  disintegrated profit  or  loss resulting from the mining  operation  would diminish the loss if that were a profit, or add to the  loss if  that  were also a loss.  No doubt, there was  a  further contention  urged that you cannot dissect that final  profit in  order  to ascertain its. components, but it is  quite  a different  one  from  that now under  consideration  and  we shall’ deal with it ’in its proper place. 218 But what we are now concerned to point out is that if it  is capable   of  dismemberment  or  disintegration   into   its components,  it  would  not be correct use  of  language  to designate  the  profit  so apportioned  and  ascertained  as attributable to each line of activity any the less real than the aggregate profit realised from all the ventures.  In the way  in which we have approached the problem there could  be no  question  involved of any departure from  the  principle that a man cannot trade with himself.  In fact, the  princi- ple  of  dichotomy is brought in by  the  learned  Attorney- General   by  first  disintegrating  the  business  of   the appellant into two-first as a mine-owner winning the ore and later  by a Steel Manufacturing Co., consuming the  won  ore and  then posing the question as to whether the transfer  of the  ore  from the mining section to the  manufacturing  one could in law involve a sale of the product so as to yield  a "profit".  It would be apparent that if one proceeded on the basis of treating the businesses as a single and  integrated one, as the learned Attomey-General desired us to do, as one unbroken chain from the start of the mining operation to the sale of the finished steel or steel products by the company- no  question of a person trading with himself  would  arise, but  the very different one as to whether there could  be  a disintegration  of  the profits of an  integrated  business, between  the component constituents which go to make it  up. Undoubtedly, in order to ascertain the profits from the mine there would have to be a disintegration of the gross profits which finally emerge from the sale of the finished steel  or steel  products.  What we desire to point out is  that  this involves  no disintegration of the business affording  scope for  the contention based upon the principle that  a  person cannot trade with himself, but the one far removed from  it,

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viz.,  whether  when a profit has-been made  as  a  conjoint result  of different but integrated operations, the  profits so  derived  could  be  broken  up  so  as  to  permit   the attribution of 219 specific  amounts  of profit to each or any of  the  several operations or activities. This  takes to the point as to whether there is anything  in law  to preclude the disintegration of profits in  order  to ascertain  the profit or loss attributable to each  line  of activity where the sale of the final end product results  in a  profit or loss for the entire venture.  It was  submitted by  the learned Attorney-General that there was  no  general principle  of  law that profits resulting from a  series  of integrated activities could be dismembered or  disintegrated for ascertaining the profit or loss from each of the several activities from whose total operation an ascertained  profit accrued  to  an individual.  The argument was that  for  the disintegration  of profits in such a situation there  should be  express  statutory provision therefor and  that  in  its absence  there  could be no "artificial" cutting up  of  the businesses  for the purpose of ascertainment of the  profits from each of the activities. For  the position that there could be a disinter gration  of profits for ascertaining the quantum, if any attributable to one  of the related and constituent activities, the  learned Counsel  for the respondent placed reliance particularly  on two  decisions  of this Court: Commissioner of  Income  Tax, Bombay  v. Ahmedbhai Umarbhai, & Co. Bombay(1),  and  Anglo- French  Textile  Co.  Ltd. v. Commissioner  of  Income  Tax, Madras (2), where the Court effected an apportionment of the income  for  the  purpose  of  levying  income-tax.   It  is unnecessary  to  go  into the  details  of  those  decisions because,  as  was  correctly  pointed  out  by  the  learned Attorney-General,  the Court was concerned in them not  with the  general principle of apportionability of "the  incomes, profits  or  gains" accruing from connected  activities  but with  the interpretation of the specific provisions  of  the Excess  Profits  Act, 1940, and the Indian  Income-tax  Act, 1922.  On the other hand, in support of his submission (1) [1950] B.C.R. 335,353. (2) [1954] S.C.R. 523. 220 that  in the absence of statutory provision  therefor  there could be no disintegration of profits the learned  Attorney- General  relied on a passage from the judgment of  Patanjali Sastri  J., as he then was, in the first of these  decisions where the learned judge said :               "While  it may well be a ’fallacy’,  while  in               applying a taxing statute which directs atten-               tion to the situation of the source of  income               as  the test of chargeability, to  ignore  the               initial stages in the production of the income               and fasten attention on the last stage when it               is  realized  in  money, it  may  be  open  to               question  whether  it is  in  consonance  with               business   principles  or  practice,  in   the               absence  of any statutory requirement to  that               effect, to cut business operations arbitrarily               into two or more portions and to apportion, as               between  them, the profits resulting from  one               continuous process ending in a sale." He sought further support for his submission in a passage to a like effect in Commissioner of Income Tax, Madras v. Diwan Bahadur S. L. Mathias(1) where Sir George Rankin stated :

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             "But   the  green  coffee  itself  cannot   be               regarded  as income, profits or  gains  within               the  meaning  of  the Act-  it  is  grown  for               purposes of sale and in order that profit  may               be earned.  The business operations cannot  be               arbitrarily cut into two portions, but must be               regarded as a whole." We  are  unable  to agree that  these  two  passages  afford assistance to the contention urged before us by the  learned Attomey-General.  It is sufficient to take up the second  of the above quotations as it typifies the principle’ it  would be seen that it was directed to pointing out that where  the profits  arising from the sale of-an end, product or as  the result of an ultimate (1)  (1938) L.R. 66 I.A. 23, 34.  221 activity are brought to tax, there is no principle of law by which  there  could be a disintegration for the  purpose  of confining the taxable profit to that which resulted from the ultimate  activity  alone.  The assessee in that  case  grew coffee  on his own lands in the State of Mysore and the  raw coffee  was  brought into Mangalore, then in  the  State  of Madras, where it was cured and processed and then sold,  the saleproceeds being received within the "’taxable territory". The  assessee contended that as he had already received  the raw  coffee  in the Mysore State the value of  that  product should be excluded in computing the profit made by the  sale of  the  cured  coffee.  It was  this  contention  that  was rejected  and  the  reasoning  in  the  passage,   extracted earlier, was directed to that purpose. Cases where the profit resulting from sales of end  products are brought to tax, could be divided into broad groups.  The first would comprise those where the entirety of the  profit is liable to tax, i. e., without the elimination of  income, profits  etc.,  derived at any earlier  intermediate  stage. The  Mathias Case (1) dealt with by the Privy Council is  an illustration of this class.  The other group would  comprise those  in which there is either non-liability or a  specific exemption of the "income, profits and gains" accruing up  to a defined stage, and this class which is really the converse of  the  one  we  are now dealing with,  we  shall  have  to consider  in  more detail.  We are saying that this  is  the converse,  because,  whereas  in ’the case  before  us,  the profit  from  the  later or manufacturing  activity  is  not brought  to  tax  by the Act but only the  profit  from  the earlier  mining  operation,  in the  second  of  the  groups mentioned  before,  the profit from the  later  activity  is alone  brought to tax there being either non-liability or  a statutory  exemption  in  favour of  the  income  or  profit derived at an antecedent stage from an earlier activity.  In this latter group, there is necessarily implicit a (1)  (1938) L. R. 66 1. A. 23, 34. 222 dichotomy  brought about by the manner in which the  statute operates and brings to charge only that attributable to  the later  activity.   This  was  precisely  the  principle  of’ commercial  accountancy on which the decision of this  Court in Commissioner of Income Tax v.   Kooka (1) rests. It  is in the same ratio that underlies r. 23 of the  Income tax  Rules  to  which we shall  advert  later.   The  taxing enactment  now  under consideration having  brought  to  tax solely  the profit derived from a single activity there  has necessarily   to  be  an  apportionment  between   what   is attributable to that activity and that which is attributable to  the further processes which result in the conversion  of

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the ore won, into steel and allied products. That  even  in  cases where the  profit  resulting  from  an ultimate  activity  is  brought to tax  there  could  be  an apportionment  if there were an exemption in respect of  the profits resulting from distinct activities at earlier stages is  illustrated by the provisions of the  Indian  Income-tax Act  itself.  Thus in the case of, say, a sugar  mill  which grows its own cane, in the absence of any exemption for  the  income deriv ed from agriculture i. e., from the production of the cane, the entire profit of the mills from the sale of the  sugar would have to be included in the taxable  profits under s. 10 of the Income-tax Act.  But s. 4 (3)  (viii) exempts agricultural income as defined in s. 2   (1).    The result  therefore  is  that there  is  a  disintegration  or dichotomy of the "incomes, profits or gains" of the business and  of  agricultural  income, so that there has  to  be  an apportionment  between  the two in order  to  determine  the taxable  income  of an assessee.  It is on account  of  this situation that s. 59 (2) of the Income-tax Act provides  for rules  being made- for prescribing the manner in  which  and the  procedure  by  which  incomes  derived  in  part   from agriculture  and in part from business shall be arrived  at. In exercise of the rule-making power thus (1)  [1962] Supp. 3 S.C. R. 391,  223 conferred  r. 23 has been framed laying down the  principles on which the apportionment should take place whose terms we shall set out merely for illustrating this principle :               "23.  (1)  In  the case  of  income  which  is               partially  agricultural income as  defined  in               section  2 and partially income chargeable  to               income-tax  under  the  head  "Business,"   in               determining  that part which is chargeable  to               income-tax    the   market   value   of    any               agricultural produce which has been raised  by               the  assessee  or received by him as  rent  in               kind  and  which  has  been  utilised  as  raw               material in such business or the sale receipts               of  which are included in the accounts of  the               business  shall  be deducted, and  no  further                             deduction  shall  be  made in  respect  of  an y               expenditure  incurred  by the  assessee  as  a               cultivator or receiver of rent in kind.               (2)   For the purposes of sub-rule (1) "market               value" shall be deemed to be :-               (a) where  agricultural produce is  originally               sold in the     market  in  its raw  state  or               after application    to  it  of  any   process               ordinarily   employed  by  a   cultivator   or               receiver  of rent in kind to render it fit  to               be  taken  to  market,  the  value  calculated               according to the average price at which it has               been so sold during the year previous to  that               in which the assessment is made;               (b)   where agricultural produce is not  ordi-               narily  sold in the market in its  raw  state,               the aggregate of               (1)   the expenses of cultivation;               (2)   the  land revenue or rent paid  for  the               area in which it was grown; and               (3)   such  amount as the  Income-tax  Officer               finds, having regard to all the  circumstances               in               224

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             each  case, to represent a reasonable rate  of               profit on the sale of the produce in  question               as agricultural produce." In  our  opinion therefore the  principle  of  apportionment resting  on  the  disintegration  of  the  ultimate  profits realised  by  the assessee is implicit in a  provision  like that in s. 6 of the Act under which the profit derived  from an  initial  activity  is brought to  charge  where  further activities  are undertaken by an assessee with reference  to the ore won and a profit is realised by the sale of the  end product. The  second  principal submission of the  learned  Attorney- General  was  that  the  Act  by  its  provisions  contained unmistakable  indications that the expression  "Profit"  was used  in ss. 6, 72 and the other relevant provisions in  the narrow sense and confined it to profit from the sale of  the won  ore  as such.  In support 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 own occupation.   In order to include the latter category also, the Act contained a definition of ’annual value’ which ran:               "4. Interpretation clause.-In this Act, unless                             there be something repugnant in the subject or               context,-               ’Annual value of land, etc.’-"Annual value  of               any  land, estate or tenure’ means  the  total               rent  which  is  payable, or  if  no  rent  is               actually   payable,  would  on  a   reasonable               assessment  be payable during the year by  all               the cultivating raiyats of such land,  estate,               or  tenure, or by other persons in the  actual               use and occupation thereof..                225               Explanation.  For the purposes of the  forego-               ing  definition, whatever is lawfully  payable               or  deliverable,  or  would  on  a  reasonable               assement be lawfully payable or  deliverable..               in   money  or  in  kind,  directly   to   the               Government,-               (a)   by raiyats cultivating land in a Govern-               ment  estate-on account of the use or  occupa-               tion of the land, or               (b)   by  other persons in the actual use  and               occupation of land in such an estate, shall be               deemed to be "’rent"." The position of a mine owner who consumes the ore won in his factory  was  it was  submitted analogous to the case  of  a land-owner  in  beneficial occupation of his  own  land  who thereby  though  undoubtedly obtains a benefit,  derives  no "profit"  from  the  land.  On this line  of  reasoning  the argument was that in the absence of a Specific provision  as regards  those  mine-owners who did not sell  the  ore  won, there  was  no liability to charge under the Act.   We  feel unable  to  accede to this argument.  The fact that  in  the case  of other immovable property beneficial occupation  by the  owner is treated as on a par with the receipt of  rents and  profits,  is some indication that the  former  was  not outside  the contemplation of the framers.  It is  no  doubt possible  that at the date when the statute was enacted  its framers  might not have had in mind cases such as  those  of

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the  appellants  before  us, but that by  itself  is  hardly sufficient  for  the inference that they  were  outside  the scope of the charging section.  What is crucial and of  sole relevance  are  the  words and the width and  scope  of  the charging  provision%  and if the appellants  are  within  it matters little that cases such as" these might not have been actually envisaged by the framers of the enactment. The  learned  Attorney-General sought aid from the  rule  of construction that there was no equity in a 226 taxing  statute and that unless the tax-payer  was  squarely brought  within  the,charging  section,  no  tax  could   be imposed.   In ultimate analysis this, merely means  that  in the  case  of an ambiguity in the construction of  a  taxing statute if according to one construction a tax is  leviable, while on another it is not, the tax-payer 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 of construction. It was further submitted to us that the Act was defective in that it did not provide any specific machinery for the type of  cases  now  on  hand and that  owing  to  this  lack  of machinery  there could be no imposition of the  charge.   In support of this reposition reliance was placed on the  well- known decision of the House of Lords in Colquboun v.  Brooks (1).   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, embedded  in the final realisation, a profit may  accrue  to the  assessee  from  the  mining  operation  which  can   be disintegrated  and ascertained and a tax levee 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  the subject-matter   of  enquiry  by  the   relevant   competent authorities  by vitue 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 (1)  (1889) 14 App.  Cas. 493.  227 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 o "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

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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 of sale.  The   learned   Attorney-General   directed    considerable criticism  towards  the  reasoning of the  judgment  of  the learned  judges of the High Court on which they based  their conclusions  and particularly the decisions upon which  they relied  in  support of their conclusions.  We  consider  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 228 case  of the appellants was within the charging sections  of the Act is correct. Mr.,  B.  C. Ghose-learned Counsel for   the  appellants  in Civil Appeals Nos. 600-601 of 1961-while adopting the submissions of the learned Attorney-General  on   the   main part of the case, submitted that as     there was no, market for  copper-ore  which was the product won by  his  clients, there could be no determination of the market. price for the ore  and  hence no possibility of  ascertaining  the  profit derived  from the mining operation.  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 a mine-owner does 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, The  appeals fail and are dismissed with costs. One  set  of hearing fees. Appeals dismissed.  229