9911796707
TMI Blog1966 (12) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... me?" The material facts are these : The assessee, Ram Sarup, is the son of Lala Roshan Lal. Roshan lal is the assessee in the connected I. T. Reference No. 245 of 1963. These two constitute one group representing one family. The other group is represented by Lala Purshottam Das and L. Jugul Kishore, who are brothers. The aforesaid four persons were the only shareholders of a private limited company, M/s. Ram Chand and Sons Sugar Mills Ltd. (hereinafter referred to as the mills company). This was, therefore, a family company. The aforesaid four persons had almost equal shareholdings of 25% each. In order to avoid friction between the two families of shareholders, it was agreed between them that the control and management of the mill compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no alternative but to sell the released stocks of sugar in the open market. The sale proceeds so received were credited to the company's sale account. The assessee, Ram Sarup, and his father, Roshan Lal, claimed that a subsidy of Rs. 1,04,000 was lost as a result of Lala Purshottam Das's action in asking the Government to release stocks of sugar and threatened Lala Purshottam Das and L. Jugul Kishore that they would apply for the liquidation of the company. The latter, thereupon, it appears, agreed to make good the loss and entered into an agreement dated 29th March, 1954, with the members of the first group, i.e., the assessee, Lala Ram Sarup and his father, Lala Roshan Lal. The material portion of this agreement reads : "That a sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. The contention was rejected. Hence, this reference at the instance of the assessee. The question that falls to be considered relates to the nature and character of the receipt of Rs. 26,000. In other words, the question is : Is it a capital or a revenue receipt ? The relevant provisions having a bearing on this question are section 4 and section 4(3)(vii) of the Act. The material portion of section 4 reads : "(1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived. This provision appears to be advisedly worded very widely and would enable almost everything to be swept into the net of taxation provided it has the quality of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt was of a casual or non-recurring nature. In the instant case, the agreement, the relevant portion whereof has been reproduced hereinabove, is the only document or material on the record and that would appear to negative the assessee's claim that the payment of Rs. 26,000 was not a loss from business but something wholly unconnected with it and it was also of a casual and non-recurring nature. The agreement dated the 20th March, 1954, clearly talks of a "payment made" to the first party by the second party "on account of 50% loss of the total losses sustained in getting released a sugar quota of 850 tons from the Government of India. . . ." The sugar was the stock in trade of the mills company, of which the aforesaid four persons we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and in the capital structure of the company. The receipt was in the capacity of his being one of the four shareholders and a director of the mills company. It is wholly immaterial that the payment was not made first into the coffers of the company and then distributed as dividend or payment by the company to the shareholder. It is no doubt true that a company has a separate legal existence in law from its shareholders, but that does not mean that the director-in-charge of a private company cannot make good the loss resulting from his action outside the books of the company and compensate the other directors who may have suffered a loss thereby. It is quite clear, as already observed, that the four directors were treating the company as a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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