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Judgment
Ramakrishnan, J.—This revision case against the order of the Agricultural income tax Tribunal raises a short question as to whether the sale-
proceeds of casuarina trees and charcoal by the Liquidator of the Assessee company, after the liquidation had commenced, is liable to be assessed
to Agricultural Income Tax under the Madras Act V of 1955 at the maximum rate of 45 nP. in the rupee fixed under the provisions of that Act for
the assessment of Agricultural income tax on Companies. The facts of the case as found by the authorities below, including the Appellate Tribunal,
can be briefly put down.
The company was found under its Memorandum of Association for raising casuarina plantation in the lands belonging to the company in
Chidambaram Taluk, South Arcot District and realizing the income from the sale of such casuarina plantations. Though it was not specifically
referred to in the Memorandum of Association, it is common ground that charcoal was also manufactured and sold by the company as part of its
activities. The company went into voluntary liquidation on 28th December 1958, and a Liquidator was in charge thereafter. During the periods
28th December 1958 to 31st March 1959, and 1st April 1959, to 30th September 1959, which are included in the accounting year with which we
are concerned, the company was found to have effected sales of casuarina trees and charcoal for Rs. 1,710-88 and Rs. 5,015 respectively.
Deducting certain items of expenditure, the net income came to Rs. 5,549-69. Subsequently, on appeal to the Appellate Assistant Commissioner,
the expenses for cultivation were enhanced on a proportionate basis, and the net income was assessed at 45 nP. It is also in evidence that the
Liquidator subsequently on 30th September 1959, sold away the lands.
The first contention urged by the Petitioner before us as well as before the Lower Appellate Tribunal was that a company which had gone into
liquidation cannot thereafter be assessed in respect of its realizations at the higher rate applicable to companies. Reliance was placed upon the
decision of the Supreme Court in the Liquidators of The Liquidators of Pursa Limited Vs. Commissioner of Income Tax, Bihar, . But that decision
did not lay down the proposition canvassed by the Petitioner''s Counsel. It dealt mainly with the manner in which Section 10(2)(vii) of the Income
Tax Act had to be applied. At page 776 of the report, the Supreme Court observed that.
The machinery and plant which ware sold had not at all been used for the purposes of the business carried on in the accounting year and
consequently the second proviso to Section 10(2)(vii) could have no application to the sale proceeds of such machinery and plant.
It is also necessary to state that in the Supreme Court case, the machinery and plant were sold during the proceedings of winding up, and in the
accounting year it was found that the company never had used the machinery and plant for the purposes of manufacturing sugar, which was the
business for which the company had been formed, except to keep them in trim and in running order. But, apart from this, there are certain other
observations of the Supreme Court in the self-same decision at page 778 of the report, which lend support to an inference that even after winding
up had commenced, there can be occasions where the Liquidator can carry on the business of the company. It is observed.
Even if the sale of the stock of sugar be regarded as carrying on of the business by the company and not a realization of its assets with a view to
winding up, the machinery or plant not being used during the accounting year at all and in any event not having had any connection with the carrying
on of that limited business during the accounting year, Section 10(2)(vii) can have no application to the sale of any such machinery or plant.
The next decision cited before us was a decision of this Court in Ajax Products Limited v. Commissioner of income tax ILR (1961) mad. 472
which also dealt with the interpretation of Section 10(2)(vii) of the Indian income tax Act, namely, the manner in which the profits by the sale of
machinery during the winding up should be construed for the purpose of assessment. That followed the decision in The The Liquidators of Pursa
Limited Vs. Commissioner of Income Tax, Bihar, . That has also no relevancy for the present purpose. However, the decision of the Supreme
Court in COMMISSIONER OF Income Tax, KERALA Vs. WEST COAST CHEMICALS AND INDUSTRIES LTD. (IN
LIQUIDATION)., ) lays down principles which are of relevancy for this case. At page 138 of the report, the Supreme Court extracts what
Halsbury has to say on this point (third edition, volume XX, pages 115-117).
Mere realization of assets is not trading ; but the completion of outstanding contracts after the dissolution of a firm, the commencement of
liquidation of a company, or the winding up of the affairs of a trader, has been held to be trading....
The cases illustrating the questions arising in such circumstances can be divided into two categories, first, those where the sales formed part of
trading activities, and second, those where the realization was not an act of trading.
As pointed out by the Supreme Court, the difficulty in deciding whether a particular case involves a mere realization of assets by the Liquidator
or a trading activity has to be decided on the facts of each case. It is not as if, after the commencement of liquidation, all trading activity should be
considered to have ceased. There could be trading activity and whether a transaction was a trading activity must depend on the facts of each case.
The Supreme Court on the decision last cited, at page 141, referred to an English case J. & R.O. Kane and Co. v. The Commissioners of Inland
Revenue (1922) 12 T.C. 303 where a company dealing in wine and spirit went into liquidation. During the year of account they sold their whole
stock to diverse customers, and the question arose whether they were still carrying on their trade during that period, and whether the profits were
thus made in the ordinary course of trade. The Court of Appeal pointed out that though the tax payer had retired from business and had decided
not to purchase any more stock he was still carrying on the business of trading in wines and spirits till his existing stocks were exhausted, and,
therefore, the excess obtained by him represented profit. The principles laid down in COMMISSIONER OF Income Tax, KERALA Vs. WEST
COAST CHEMICALS AND INDUSTRIES LTD. (IN LIQUIDATION)., ) show that from the facts of each case one has to decide whether the
sale by the Liquidator was entered into for the purpose of realization of the assets or was only a continuation of the previous activity of the
company. The first point to note is that in effecting the sales of casuarina and charcoal the Liquidator in this case carried on the same activity as the
company had been doing before its liquidation. There seems to be absolutely no difference in the pattern of the sales effected after liquidation from
that of the sales before the liquidation. When the assessing authority estimated the deduction for cultivation expenses at a certain figure the
Assessee on appeal succeeded in getting a determination in his favour a higher figure for cultivation expenses in the year of account on the
proportion basis. The Assessee did not attempt to show that the sale of charcoal and casuarina was for a slump price, nor did he attempt to show
that casuarina seedlings even of immature growth were all plucked up and sold at the sales, which would be indices to prove that it was a
liquidation sale and not a trading sale. Had these additional factors been placed before the Tribunal, the conclusion might have been different. The
position before us is that to all intents and purposes the present sales were of the same pattern as of those previous to the liquidation, and therefore
there is no basis for drawing the inference that it was a realization sale and not a sale in the usual pattern of the company''s activities. Even the
subsequent sale of the lands on 30th September 1959, could not make any difference. As pointed out by the House of Lords in J. & R.O. Kane
and Co. v. The Commissioners of Inland Revenue (1922) 12 T.C. 303.
For, in truth, it is quite plain that, right up to the end of 1917, they were engaged in trading which, so far as the external world is concerned, was
the ordinary method of carrying on trade-modified only by arrangements which were merely part of the machinery of business dealing adopted to
effect their intention to retire. It may well be accepted that they did so intend; yet the intention of a man cannot be considered as determining what
it is that his acts amount to, and the real thing that has to be decided here is what were the acts that were done in connection with this business and
whether they amount to a trading which would cause the profits that accrued to be profits arising from a trade or business.
Any possible intention on the part of the Liquidator to wind up the concern by disposing of the land at a subsequent date, will have no relevancy
for showing that the sales in this case, were realization sales, and not trading sales.
Learned Government Pleader urged that principles under the income tax Act cannot be imported for the purpose of assessing agricultural
income u/s 2(a) of the Act of 1955, and that, under the definition in that Act, agricultural income would include whatever is realized by a cultivator
or the receiver of rent-in-kind of any land by the sale of the produce raised or received by him. He argued that since the sale proceeds of casuarina
and charcoal fall in this definition, they would automatically be assessable as agricultural income, without any question whether as to whether they
were received in the process of winding up as a result of a realization sale, or after a sale partaking the nature of a trading activity. But, in the view
we have taken, of the scope of the Official Liquidator''s sales in the present case, being of a pattern which followed the same pattern as the sales
before liquidation and consequently, that there was nothing to infer that they were, realization sales and not sales in the course of the normal activity
of the company, it appears to us to be unnecessary to give any decision on this point raised by the Government Pleader regarding the scope of
Section 2(a) of the Agricultural income tax Act. We, therefore, hold that the order of the Tribunal is right and calls for no interference in revision.
The revision case is dismissed. There will be no order as to costs.