HAIDER ALI PIRZADA, J. -The assessee, Messrs Mustafa, Pres--tressed R. C. C. Pipe Works Limited, Karachi, has filed this application under section 66(l) of the Inc, me-tax Act, 1922, stating therein that the following questions of law arise out of the order of the Tribunal in Income tax Appeal No. 74(Y. B.) of 1972-73.
"(1) Whether in the facts and circumstances of the case 5 % receipts from subletting were not of capital or casual nature and, therefore, exempt?
(2) Whether in the facts and circumstances of the case benefit of section 15-BB of the Act, was available to these receipts also?
(3) Whether in the facts and circumstances of the case 5% receipts were taxable under the Income tax Act?
(4) Whether in the facts and circumstances of the case receipts of Rs. 1,08,500 also form part and parcel of tax-holiday concern and activity; and, therefore, exempt under section 15-BB in the alternate a casual income?"
2. The assessee is a private limited Company and carries on business of manufacturing prestressed concrete pipes. It has been granted tax-holiday under section 15-BB as an industrial undertaking in respect of manufacturing of prestressed concrete pipes. Apart from the manufacturing of prestressed pipes, the Company also undertook and executed works con-- tracts. The assessee filed return of income showing income Rs. 14,12,646 for assessment year 1967-
68. During the year, the assessee-Company's activities were two-fold (1) manufacture and supply of prestressed R. C. C. Pipes and (ii) C. D. A. Works contracts. Separate trading account, manufacturing account, and profit arid loss account have been furnished in respect of the manufacture of prestressed R. C. C. Pipes. The assessee assigned the contract to Messrs Muhammad Rasool Khan on five per cent commission basis vide agreement, dated 5-9-1964. The Income-tax Officer by his order held that Messrs Muhammad Rasool Khan were the agents of the assessee-Company and not the assignees or contractors and the income from that source also assessed in the hand of the assessee-Company.
3. The assessee took up the matter to the Income-tax Appellate Tribunal. The Tribunal accepted the assessee's contention that Messrs Muhammad Rasool Khan were assignees or sub-contractors front whom the assessee was receiving only five pre cent. Commission. The Tribunal relied on their own earlier derision in income-tax Application No. 2529 of 1971-72. A Bench of this Court by a judgment, dated 7-12-1983 upheld the above decision of the Tribunal. 'Me claim of the awes that even five per cent commission receipts could not be assessed because of section 15-BB or because those were of capital nature. But the claim of the assessee was negatived on the ground that the five per cent commission was not exempted and it was not of capital nature. The Tribunal followed their earlier order and held that the five per cent commission would continue to rem liable to tax in the hands of the assessee.
4. Mr. Hassan Inamullah Advocate on behalf of the assessee has contended that, the assessee has been granted tax-holiday under section 15-BB as such the assessee is also entitled to exemption on this 5 --commission income. The word "profit" implies that the industry should be the direct source of profit ; it does not cover profit from the business of contract carried by the assessee- Company. The scheme of the Income-tax Act would be very relevant. Section 4 clearly indicates that the total income of any previous year of a person who is resident includes all income from salary, interest from shares and securities, income from property, profits an gains of business and income from other sources and each category has it own rules of computation and deductions and having regard to this scheme of the Act it would be reasonable to construe the expression "profits" an gains derived from industrial undertaking occurring in section 15-BB a meaning profits and gains derived directly from the undertaking, that is to say, the undertaking must be the direct source of income and not a industrial undertaking when it is used as instrument for carrying on business activity which produces the income. If profits and gains derived from the business activity like contracts, commission and designing fees are to regarded as profits and gains derived from undertaking simply because the undertaking is used for contracts, then profits and gains from a business carried on by using the building where the business is housed will have be regarded as profits and gains derived from the house property. We are therefore, of the view that the construction arrived by the Tribunal is t proper construction. We are of the opinion that the benefit under the section is confined only to the profit from the industrial undertaking an does cot extend to the profits of any other business activity even thou closely connected with the industrial undertaking.
In these circumstances, the answer to question No. 2 is in the negative.
5. Mr. Hassan Inamullah, the learned counsel for the applicant, has contended that the income is of a capital nature or casual nature. We are of the opinion that the receipt or income which is foreseen known anticipated and provided by an agreement cannot be regarded as casual an the assessee is not entitled to an exemption. The income is also not of a' capital nature. The Tribunal has, therefore, correctly concluded that the agreement with Messrs Muhammad Rasool Khan in the instant case was entered into by the assessee in the ordinary course of the assessee's business and what the assessee was entitled to get under the agreement with the sub-contractors was what normally get from the business. Therefore, these amounts are receipts arising in the normal course of the assessee's business. So these receipts cannot be taken to be revenue receipts (liable to be taxed).
In these circumstances the five per cent commission is not exempted.
6. Mr. Hassan Inamullah has contended that receipts of Rs. 1,08,500 did form part and parcel of tax- holiday and as such exempted udder section 15-BB. The contention on behalf of the department is that according to the agreement between the assessee and the sub-contractor, the former was entitled to designing fee from the sub-contractor. This fee was paid to the assessee. The word "income" has not been defined in the Income-tax Act but as was noticed in E. D. Session's & Company v. C. I. T. 26 I T R 27 = AIR 1954 SC 470, the P. C. In C. I, T. v. Shaw Wallace & Co. (1932) I T R 59 = AIR 1932 (?) 138 at 140 attempted a definition of the term income in the following terms: - `Income, in this Act, connotes a periodical monetary return `coming in' with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. Thus, income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something which is often loosely spoken of as "capital". But capital, though - possibly the source in the case of income from securities is in most cases hardly more than an element in the process of production."
7. In that view of the matter, since five per cent commission and Rs. 1,08,500 on account of designing fee had accrued to the ass and the assessee received the same from the sub- contractor it can be regard as income taxable in the hand of the assessee.
8. The assessee assigned the contract of work to Messrs Muhammad Rasool Khan & Co. For execution of the same. The only manner in which the learned counsel for the assessee is trying to establish that the receipt was a capital in nature, was that the assessee received the designing fee and there was no stock-in-trade. In the present case, the transaction is on revenue account because the amount of fee was received by the assessee on account of a transaction with respect to execution of the work. There is no capital element in the transaction. The profit or fees, would, therefore be on revenue account. We are of the opinion that the assessee has bee carrying on work of the contractors and that it bad dealt with it sub-contract as trading asserts by using them to earn income commission and fees from the sub-contractors, and, therefore, the receipts by way o commission and fees were trading receipts and profits therefrom we business income and the receipts in question were includable in the total amount of the assessee as business income. In the circumstances, we hold that the Tribunal was correct in holding that the amounts receivable by the business on account of transfer of contract to said assignees or sub_ contractors in the instant case were revenue receipts taxable in the assessment year. We answer the questions as follows :- Q. No. 1. In the negative.
Q. No. 2. In the negative.
Q. No. 3. In the affirmative.
Q. No. 4. In the negative.
The questions have, therefore, to be answered in the negative; in favour of the department, and against the assessee.
In the circumstances of the case, the parties will bear their own costs.