9911796707
TMI Blog1972 (3) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... a on commission. One Mr. R. T. Gardner was employed by the assessee on the recommendation of M/s. Joseph Tetley Co. Ltd. as a tea tester for a term of three years from April, 1951. There was, however, no written agreement of service between the assessee-company and Mr. Gardner. In November, 1952, Mr. Gardner left the assessee's service after giving one month's notice and took employment with M/s. Duncan Bros. Ltd., a well-known firm of tea brokers of Calcutta. Shortly thereafter, M/s. Joseph Tetley Co. Ltd. transferred their business from the assessee to M/s. Duncan Bros. Ltd. The assessee filed a suit in the Calcutta High Court against M/s. Duncan Bros. Ltd. and Mr. Gardner (being Suit No. 1687 of 1953), claiming a sum of Rs. 6 lakhs as damgaes under the following heads : Rs. (1) Damages for loss of service of Mr. Gardner 51,000 (2) Expenses incurred by the assessee for Mr. Gardner 49,000 (3) General damages arising from loss of business 1,50,000 (4) Special damages resulting from the transfer of business from Messrs. Joseph Tetley Co. Ltd. 3,50,000 ------------------------------ Rs. 6,00,000 ------------------------------ On the 28th of February, 1955, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt could be treated as income only under the head "Business" and that the transaction had no characteristic of business activities. The Income-tax Officer rejected the contention of the assessee and held : " The judgment of Hon'ble P. B. Mukharji in Suit No. 1687 of 1953 filed by the assessee against Mr. Gardner, and another shows that there was no contract binding Mr. Gardner to work for any fixed period with the assessee-company. What really happened is that by Mr. Gardner's leaving service with the assessee, the assessee had made less profit than if a man of his qualification and experience were functioning in the administration of the assessee. The case can be compared to the receipt of insurance moneys by a business man for loss of profits insurance or insurance moneys received to cover the employer against revenue loss which he suffered by being deprived of the services of the experienced and valuable employees. The sum of Rs. 50,000 is, therefore, added to the profit shown by the assessee in his return." It may be noted that at the time of passing of the consent decree no judgment was delivered and the judgment referred to by the Income-tax Officer is the judgment of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e him. The Appellate Assistant Commissioner on the merits, however, found that the amount of Rs. 50,000 could not be assessed under section 10(5A), as it could not be said to be a compensation or payment received on termination of any agency. The Appellate Assistant Commissioner held: "I agree with the learned representative that the receipt of the amount of Rs. 50,000 from M/s. Duncan Bros. cannot be made liable under any clause of section 10(5A). My predecessor had relied on one letter dated 16th of June, 1958, written by the appellant to the Income-tax Officer which reads as follows: 'We do business with M/s. Joseph Tetley CO. Ltd., London, as sole buying agent of tea on commission'. On the strength of this letter my predecessor held that the appellant were the buying agents of M/s. J. T. Co. from whom the commission was being earned by them and for loss of their agency they received a compensation of Rs. 50,000. The fallacy in this conclusion lies in the fact that the amount of Rs. 50,000 was not received by the appellant from M/s. Joseph Tetley Co. Ltd. If it was only receipt from that company then only it could be said that it was compensation for the loss of agency. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of its business with M/s. Joseph Tetley Co. Ltd." The Tribunal accepted the contention of the assessee that the amount received by the assessee under the said consent decree could not be considered to be a trading receipt liable to be taxed as business income of the assessee' and the Tribunal had allowed the appeal of the assessee in so far as it related to the said sum of Rs. 50,000. The departmental representative had argued before the Tribunal that the business connection with M/s. Joseph Tetley Co. Ltd. was a small fraction of the assessee's business and even if the amount of Rs. 50,000 was considered to be a receipt for the loss of such business it would not affect the capital structure of the assessee-company and would, therefore, go towards its trading receipts. On behalf of the assessee it was contended before the Tribunal that when Mr. Gardner left the service of the assessee and joined M/s . Duncan Bros. Ltd. he could influence M/s. Joseph Tetley Co. Ltd. and transfer the customer to M/s. Duncan Bros. and the action was brought against Duncan Bros. for damages for seducing Mr. Gardner from the assessee's employment and inducing M/s. Joseph Tetley Co. Ltd. to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f managing agency have no application to the facts of this case. We are, therefore, of the opinion that the amount of Rs. 50,000 received by the assessee from M/s. Duncan Bros. Ltd. under the compromise decree was a capital receipt and was not assessable as income." On the application of the Commissioner and on the above facts the Tribunal has referred the following question to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 50,000 received from M/s. Duncan Bros. Ltd. was a capital receipt and was not assessable as the assessee's business profits either under section 10 or under section 10(5A)(d) of the Indian Income-tax Act, 1922 ?" Mr. B. L. Pal, learned counsel for the revenue, has submitted that in the facts of the instant case, the provisions of section 10(5A)(d) apply. The material provisions of section 10(5A)(d) are : " Any compensation or other payment due to or received by any person, by whatever name called, holding an agency in the taxable territories for any part of the activities relating to the business of any other person at or in connection with the termination of its agency or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfied that the assessee was holding any agency of M/s. Joseph Tetley Co. Ltd. of London as required under section 10(5A)(d). The fact that the assessee acted as the sole buying agent of tea on commission does not necessarily establish that the assessee was holding any agency. It is quite possible that the assessee acted as such agent in respect of individual consignment and was being appointed as such in respect of cach business transaction. The fact that the assessee did not file any suit against M/s. Joseph Tetley Co. Ltd. for damages for any wrongful breach of contract of agency or did not implead the said party in the suit filed by the assessee against Mr. Gardner and M/s. Duncan Bros. Ltd. and had not also made any claim for damages for any wrongful termination of the assessee's agency, to my mind, goes to indicate that the assessee was not holding any agency. It is to be noted that the basis of the suit filed by the assessee was not any claim for damages for wrongful termination of any agency but for damages for loss of service of Mr. Gardner and for wrongful seduction of the assessee's custom of M/s. Joseph Tetley Co. Ltd. to Duncan Bros. Ltd. As the basic requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of the solicitor's letter and the provision of the consent decree should not be construed on the basis of the said letter. It is the argument of Mr. Pal that by way of settlement of the suit the said sum of Rs. 50,000 was a lump-sum payment in satisfaction of all the claims of the assessee made in the suit including the assessee's costs of the suit. Mr. Pal has further contended that even if the said sum of Rs. 50,000 is considered to represent the compensation for the injury done to the assessee's business, the said amount cannot be considered, in the facts of the instant case, to be a capital receipt of the assessee. It is the contention of Mr. Pal that the facts found by the Tribunal clearly show that the assessee was acting as tea brokers and buying agents of tea for foreign buyers and one of such foreign buyers was M/s. Joseph Tetley Co. Ltd. Mr. Pal submits that in view of the above fact, it cannot be said that the injury which the assessee suffered for loss of custom of Joseph Tetley Co. Ltd. who happened to be only one of its many foreign customers, affected the capital structure of the company and was inflicted on the capital assets of the trade of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of a particular case. If any amount is received as compensation for an injury which affects a capital asset of the assessee or the capital structure of the assessee's business such amount may normally be considered to be a capital receipt. If, however, any amount is received by an assessee as compensation or damages for any wrong done which does not affect any capital asset or the capital structure of the assessee's business but injures the assessee in its trade, such amount will normally constitute a trading receipt of the assessee. As indicated by me earlier, the facts of the present case do not establish that the assessee was holding any agency of M/s. Joseph Tetley Co. Ltd. and that the sum paid to the assessee on the basis of the consent decree was a payment for termination of any such agency. The assessee undoubtedly lost the custom of Joseph Tetley Co. Ltd. which happened to be one of its many foreign customers. Even if the said sum of Rs.50,000 could be said to have been received by the assessee in its entirety as compensation for loss of such custom, the question will still remain whether the loss of custom by the assessee of Joseph Tetley Co. Ltd. affects any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant case there is nothing to suggest that the custom of Joseph Tetley Co. Ltd. constituted any capital asset of the company. In the normal course of the assessee's business Joseph Tetley Co. Ltd. was one amongst its very many foreign customers. There is no evidence that the assessee was entitled to the custom of Joseph Tetley Co. Ltd. for any fixed duration. It was a part of the assessee's business to secure custom or orders from very many foreign customers to enable the assessee to earn income by way of commission or otherwise and Joseph Tetley Co. Ltd. just happened to be one of such customers. There is nothing to indicate that by losing the custom of Joseph Tetley Co. Ltd. the trading structure of the assessee's business was impaired. The facts go to show that the assessee was compensated by payment to it for the loss of income or profit it suffered by the wrongful acts done by Gardner and Duncan Bros. Ltd., which led to the withdrawal of the custom of M/s. Joseph Tetley Co. Ltd., only one of the assessee's very many foreign customers. Therefore, even on the basis that the amount received by the assessee under the consent decree could be considered to have been paid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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