1959 (3) TMI 5 - SC - Income Tax

Whether the sum of ₹ 2,19,343 received by the assessee in the year of account relevant for the assessment year 1951-52 was a revenue receipt or a capital receipt? Held that - The Appellate Assistant Commissioner as well as the High Court were thus justified in the conclusion to which they came, viz., that the sum of ₹ 2,19,343 received by the assessee from the company, was a capital receipt. Appeal dismissed.

Issues Involved:
1. Whether the sum of Rs. 2,19,343 received by the assessee is a revenue receipt or a capital receipt.
2. Whether the receipt is liable to be taxed under the Indian Income-tax Act.

Issue-wise Detailed Analysis:

1. Whether the sum of Rs. 2,19,343 received by the assessee is a revenue receipt or a capital receipt:

The primary issue in this case was to determine the nature of the sum of Rs. 2,19,343 received by the assessee from Vazir Sultan Tobacco Co., Ltd. The assessee contended that the sum was a capital receipt, being compensation for the loss of the agency, and therefore not liable to tax. The Revenue, on the other hand, argued that it was a revenue receipt and hence taxable.

The judgment emphasized that the determination of whether a receipt is capital or revenue in nature depends on the specific facts of each case. The court referred to several precedents, including the Commissioner of Income-tax v. South India Pictures Ltd. and Commissioner of Income-tax v. Rai Bahadur Jairam Valji, to establish the criteria for such determination.

The court noted that the agency agreement in question was a capital asset of the assessee's business, forming part of its profit-making apparatus. The agreement was not merely a trading asset or circulating capital. The court concluded that the compensation received for the termination of such an agency agreement would be a capital receipt, as it resulted in the sterilization of a capital asset of the assessee's business.

2. Whether the receipt is liable to be taxed under the Indian Income-tax Act:

The High Court had rephrased the question to determine whether the sum received by the assessee was liable to be taxed under the Indian Income-tax Act. The court observed that the Indian Income-tax Act is not in pari materia with the British income-tax statutes and that English authorities could only serve as useful guides on analogous provisions and general principles.

The court discussed the concept of "income" as understood in various cases, including Commissioner of Income-tax v. Shaw Wallace & Co. and Raghuvanshi Mills Ltd. v. Commissioner of Income-tax. It noted that the periodicity or recurring nature of the receipt was not a necessary ingredient of "income" under the Act.

Furthermore, the court emphasized that the compensation received by the assessee was for the termination of a capital asset and not for the loss of trading profit. As such, it was a capital receipt and not liable to tax under the Indian Income-tax Act.

Dissenting Judgment:

Kapur, J., delivered a dissenting judgment, disagreeing with the majority view. He argued that the compensation received by the assessee was in lieu of the commission they would have earned if the agreement had continued. He emphasized that the agency in question was terminable at will and any compensation paid for it would prima facie be revenue.

Kapur, J., referred to various tests and precedents, including Van Den Berghs Ltd. v. Clark and Commissioner of Income-tax v. R. B. Jairam Valji, to support his view that the compensation was a revenue receipt. He concluded that the termination of the agency did not affect the trading activities of the assessee and the compensation was in the nature of surrogatum for the loss of future profit and commission.

Final Order:

In accordance with the majority judgment of the court, the appeal was dismissed with costs throughout.

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