1962 (5) TMI 2 - SC - Income Tax

Whether the sum of ₹ 60,000 was paid by Irani to the assessee company in view of the partnership getting the rights under the quota which the assessee company possessed and that therefore the sum represented a capital receipt and not a revenue receipt? Held that - The High Court came to a correct conclusion that the sum of ₹ 60,000 was a revenue receipt and liable to tax. We accordingly dismiss the appeal with costs.

Summary

Issues:
1. Whether the sum of Rs. 60,000 received by the assessee company is a revenue receipt and liable to income-tax.

Analysis:
The case involved an appeal under section 66A(2) of the Indian Income-tax Act by the National Steel Works Ltd., Bombay, regarding the taxation of a sum of Rs. 60,000 received from a partnership agreement. The appellant contended that the sum represented a capital receipt due to the transfer of rights under the quota possessed by the assessee company. However, the court disagreed, stating that the amount represented capitalised profits of the assessee company from selling steel purchased under its quota. The court highlighted that the sum was paid in consideration of waiving royalty, not in exchange for rights in the quota itself. The court emphasized that the amount was a revenue receipt and thus subject to taxation.

The original partnership agreement between the assessee company and K. R. Irani involved a provision where the partnership paid Rs. 50 per ton on steel received from the company. Subsequently, an amended agreement in 1954 modified this arrangement, reducing the royalty amount and introducing other provisions. The court noted that the sum of Rs. 60,000 was a capitalised value of profits the assessee company would have earned from supplying steel under its quota. The court rejected the appellant's argument that the amount was paid for the transfer of quota rights, emphasizing that it was a revenue receipt based on the capitalised profits.

The court emphasized that the description of the amount as goodwill for waiving royalty did not alter its nature as a revenue receipt. The court concluded that the High Court's decision, considering the sum of Rs. 60,000 as a revenue receipt and subject to tax, was correct. Consequently, the appeal was dismissed, affirming the tax liability on the sum received by the assessee company.