1969 (2) TMI 3 - SC - Income Tax

Appellant who had entered into the contract with M/s. Tata Aircraft Ltd. in respect of the purchase of parachutes - no question of the appellant having relinquished a share in the partnership - Receipt of Rs. 1,87,000 in the hands of the assessee is a revenue receipt and liable to income-tax - Assessee's appeal dismissed

Summary

Issues:
1. Whether the receipt of Rs. 1,87,000 is a revenue receipt and liable to income-tax?
2. Whether the amount received is a capital receipt or a revenue receipt?
3. Whether the contract entered into with M/s. Tata Aircraft Ltd. constitutes stock-in-trade of the appellant?
4. Whether the second contention raised by the appellant regarding relinquishing his right to participate in the partnership was valid?

Analysis:
1. The case involved an appeal regarding the taxability of a receipt of Rs. 1,87,000 by the assessee. The High Court held that the receipt was a trading receipt as the assessee was a businessman dealing in articles including parachute silk. The benefit of the contract with Tata Aircraft Ltd. was transferred for a consideration, and only Rs. 1,87,000 was actually received by the assessee. The High Court concluded that this amount represented a revenue receipt in the ordinary course of business.

2. The appellant argued that the amount received could not be considered as income but rather a capital asset or source of possible income. The Tribunal found that the appellant had entered into a contract for a fixed sum with Tata Aircraft Ltd. intending to do a venture in the nature of trade. The appellant's income from transferring the benefits of the contract was held liable to income tax. The Tribunal's findings did not support the argument that the receipt was a capital receipt.

3. The appellant contended that the contract with Tata Aircraft Ltd. was not part of his stock-in-trade as he was not in the business of transferring or selling contract benefits. However, the Tribunal viewed the contract as a venture in the nature of trade, making the income taxable. The distinction between stock-in-trade and a trade venture was not a significant factor in determining the taxability of the receipt.

4. The second contention raised by the appellant regarding relinquishing his right to participate in the partnership was dismissed by the High Court as it was not raised before the Tribunal. The High Court found that no partnership had come into existence based on the arrangement in the letter dated October 31, 1946. Therefore, the appellant's argument about relinquishing a share in the partnership was deemed invalid.

In conclusion, the Supreme Court upheld the High Court's decision that the receipt of Rs. 1,87,000 was a revenue receipt and dismissed the appeal with costs.