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TMI Blog1961 (8) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bar and the principles laid down there, it will be appropriate to have first a short account of the main facts on which this question arises. The assessee is Messrs. Kettlewell Bullen Co. Ltd. The assessment year is 1953-54 and the relevant previous year is the calendar year 1952. The assessee is a public limited company. They have now five managing agencies in five different companies, namely: (1) Fort Gloster Jute Manufacturing Co. Ltd.,(2) Bowreach Cotton Mills Co. Ltd.,(3) Dunbar Mills Ltd.,(4) Mothola Co., Ltd., and (5) Joonktollee Co. Ltd., In addition to these five different companies of which the assessee is the managing agent, the assessee was also the managing agent of another company, namely, Fort William Jute Co. Ltd., It is in connection with the managing agency of this fort William Jute Co. Ltd., that the question in this reference arises. The assessee tendered resignation from the office of managing agents of the Fort William Jute Co. Ltd., from July 1, 1952, in terms of a sale agreement dated May 21, 1952, entered into between the assessee company and Messrs. Mugneeram Bangur Co. This agreement describes the assessee company as the vendor and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for ₹ 3,50,000 in this case was a capital receipt and not a revenue receipt. He distinguished the English decision in Kelsall Parsons Co. v. Commissioners of Inland Revenue [1938] 21 Tax Cas. 608. , mainly on the ground that this particular agreement for managing agency between the assessee and the managed company had still five years to run and on the ground that there was no reason to expect that the agreement would not be renewed at the end of that term. For this purpose he relied on the observations of Lord Fleming and Lord Moncrieff in Kelsall Parsons' case [1938] 21 Tax Cas. 608, 622-4 , where their Lordships appeared to suggest that although in that case it was held to be a revenue receipt the decision might have been different if the agreement had a longer number of years like a period of ten years to run but the Lord President of the Court of Session in Kelsall Parsons' case [1938] 21 Tax Cas. 608, 622-4 , however, did not appear to be impressed with this aspect of duration at all in his judgement. The second point on which the Appellate Assistant commissioner distinguished the case of Kelsall Parsons* was that he thought that in the case of Kelsa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its memorandum of association. Clause 3, sub-clause (2) of the memorandum of association of Kettlewell Bullen Co. expressly provides for carrying on the business of managing agents in these terms: To carry on all kinds of agency business and to take part in the management, supervision or control of the business or operations of any other company, association, firm or person and to act as the managing agent, agents, secretaries or other officers of any such company, association, firm or person and in connection therewith to appoint and remunerate any directors, accountants, assistants and other officers or experts or agents. The other allied objects of the assessee company as set out in clause 3(19) and 3(27), etc., of the memorandum include, inter alia, objects such as to acquire and undertake all or any part of the business of any company carrying on any business which the company itself is authorised to carry on, to take or acquire or hold shares in any other company having objects altogether in part similar to those of the company or even of carrying on any business capable of being conducted so as directly or indirectly to benefit the company. It is, therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Ltd. and of Fort William Jute Co. Ltd., be filed with the record of this reference. The other features which stand out prominently on the facts of this case will appear from the nature of the managing agency agreement in this case and of the agreement for sale of the managing agency. The original managing agency agreement between the assessee and Fort William Jute Co. Ltd., is dated 1st May, 1925. It expressly refers to the articles of association of the managed company to show that the assessee is by name described to be the managing agents of the managed company. In fact, the managing agency agreement is annexed in the form of a schedule to the articles of association of the managed company. By clause 2 of this managing agency agreement it is provided that the managing agents shall be the managing agents of the company and they and their successors in business, unless they shall sooner resign office as in clause 8 of such agreement, shall continue to act as such managing agents until they shall cease to hold shares in the capital of the company of the aggregate nominal value of ₹ 1,00,000 and shall by reason thereof, be removed from office by a special resolution o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when he is removed by the special resolution as provided therein. The managing agency agreement only provided for reasonable compensation for the loss of office in case of winding up of the managed company in the special circumstances provided in clause 2 and in no other case. This is not a case of winding up and, therefore, the assessee managing agent could not as part of the bargain or contract of managing agency agreement claim any compensation in the facts of this case. The facts of this case make it abundantly and indisputably clear that the assessee voluntarily resigned the office of the managing agency of Fort William Jute Co. Ltd. In fact, he could only resign in according with the terms of the managing agency agreement or else he would commit a breach thereof. As clause 2 does not apply to the facts of this case, the managing agent in the facts here could only and did in fact resign under clause 8 of the managing agency agreement, and it is therefore a case of voluntary resignation. It is not a case of compulsory or forced cessation of business. This fact will be supported and borne out by the agreement of sale dated the 21st May, 1952, which, inter alia, produced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chasers have requested the managing agents to resign and the managing agents were resigning accordingly. The recital further goes on to record the fact that the purchasers have agreed to purchase the vendor's share in the company and to make an offer to all holders of the company's shares to purchase their respective shareholdings. Clause 2 of this agreement with the sellers shows that 600 ordinary shares of the company of 100-rupees each were being sold to the purchasers at the high premium of four times their value, namely, at ₹ 400 per share. The preference shares were also sold at a high premium. They were sold at ₹ 185 per share while its value was ₹ 100 per share. The purpose of showing these features is to bring out the fact that it was a profitable business deal. Clause 3 contains the formal offer by the vendors to sell and the purchasers to buy those shares at the above noted prices. Clause 4 of this agreement for sale empowers the purchasers to authorise the vendors to take all necessary steps to bring such offer to the notice of the shareholders of the company and it took necessary steps in connection therewith. Then follows clause 5 which re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (without prejudice to any other right they might have), to recover from the purchasers their shares in the company referred to in clause 2 on repayment of the purchase price and the purchasers shall pay all costs and charges including stamp duty and registration fees in connection with such recovery and retransfer of the shares to the vendors. A moratorium on the assessee's power of disposal of the managed company's assets is provided by clause 11 of this agreement saying that pending resignation of their office of managing agents of the company taking effect the vendors undertake not to dispose of any of the assets of the company save in the ordinary course of business. A broad review of different clauses of this agreement for sale makes prominent some of the essential features of this transaction. The sum of ₹ 3,50,000 which is described as the compensation for loss of the office of the managing agents in clause 6 of this agreement is a part of the whole scheme provided in this agreement. Each clause is a consideration of the other. The payment of compensation for the alleged loss of office in clause 6 does not stand by itself but is a part of the total sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btaining additional bank accommodation for the purpose. Next it pleads that the assessee advanced more than ₹ 12,50,000 to the managed company which is still outstanding and that having regard to the assessee's other commitments they would not be able to find additional finance. The assessee as managing agent carried through its proposals and obtained the consent of the managed company. It received the sum of ₹ 3,50,000 and presumably also the high price of its shares sold and it did offer its resignation of the office of the managing agency. From this account of the facts it is clear that it is part of the assessee's normal and ordinary course of business, confirmed by its agreed objects in the memorandum to carry on and enter into contracts of managing agency of other companies. In fact, it has five other managing agencies. The profit making apparatus is exploitation and use of other companies by the device of managing agency business. There is no finding here in this case in fact that there has been any deterioration in the structure or organisation of the assessee's business or profit making apparatus of managing agency business of different companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he superintendence, control and direction of the board of directors is also the feature which distinguishes the peculiar status of the managing agent of the companies in India from such offices as secretaries and treasurers as defined under section 2(44) of the Companies Act, 1956, and which office is also known in British and American company legislation. As I have shown from article 127 of the articles of association of Fort William Jute Co. Ltd., the managed company in this case, the article itself provides that the managing agent is to carry on the whole business of the company and has the entire general direction, management and superintendence and control of the company. In fact, although it is called an agent, it becomes virtually the principal. The managing agent becomes the very alter ego of the managed company itself. The managing agent does not own or acquire the land, building, furniture or other assets of the managed company as such. In fact, the managed company in theory retains its full legal ownership of its assets and remains distinct and separate legal entity as a limited joint stock company. What in effect happens under the managing agency agreement in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income-tax (1) may be seen in support of this point. While the provisions of the memorandum of association and articles of association are always relevant to consider and analyse the nature and character of the business of a company, they are never conclusive against or in favour of the company, for the question is not what business the taxpayer professes to carry on but what business he actually carries on. Here, on the facts, of course, not only the memorandum of association and articles but also the actual carrying on of five other managing agencies, confirm and establish the facts that the assessee carries on the trade and business of managing agency and as the record shows, it is the main business of the assessee. On the facts, therefore, of this particular reference before us, we have no hesitation in holding that the sum of ₹ 3,50,000 was received by the assessee in the course of its ordinary and normal trading and was a revenue receipt assessable under the Income-tax Act. Having answered the question on the facts of this particular case, it now remains necessary for us to examine the cases cited at the bar to find out, whether the view that we are takin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which distinguish the Privy Council decision from the present reference will be found from the following observations of Sir George Lowndes who delivered the opinion of the Judicial Committee at page 282 of the report: But when once it is admitted that they were sums received, not for carrying on this business, but as some sort of solatium for its compulsory cessation, the answer seems fairly plain. If the business had been sold--even if that somewhat indeterminate asset known as the 'goodwill' had been assigned to the employing companies, as the High Court seems to have thought it had--it is conceded that the price paid would not have been taxable. But why? Painly because it could not be regarded as profit or gain from carrying on the business, and their Lordships think that the same reasoning must apply when the sum received is in the nature of a solatium for cessation. Now as we have already indicated, the present reference is not a compulsory cessation at all. Secondly, on the facts of this case, the assessee is not ceasing to carry on its normal business of managing agency at all but is only giving up one managing agency and making a profit out of it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax v. Shaw Wallace Co(2). is distinguishable and instead of helping the respondent is really against his contention on the facts of this case. The next case on which reliance was placed for the assessee was Commissioner of Income-tax v. Asiatic Textile Co. Ltd. [1955] 27 I.T.R. 315. , a division bench decision of Chagla C.J. and Tendolkar J. of Bombay High Court. The ratio of that decision is that the amount received by the managing agents as solatium for the determination of the managing agency could not be profits arising out of their business but constituted only a capital receipt. The learned counsel for the Commissioner of Income-tax contends that in the light of subsequent decisions of the English courts approved by the Supreme Court and in the light of the more recent decisions of the Supreme Court itself this Bombay decision can no longer be said to be good law in all its aspects. He further contends that it relied on the older Bombay decision in Godrej Co. v. Commissioner of Income-tax [1954] 25 I.T.R. 108. , which was itself reversed by the Supreme Court in Godrej Co. v. Commissioner of Income-tax [1959] 37 I.T.R. 381 (S.C.). , and is also aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inary course of business is dealing with or acquiring managing agency or making such contracts or dealing with them, then it becomes itself a commodity in the business. It therefore becomes trading. It therefore ceases to be capital asset. It is then no longer the foundation of business as Chagla C.J. describes it. It is actually the sale of the product of the commodity of the business. Right of profitable management is the business itself. Management under managing agency agreement is the commodity itself and that is being sold for profit. We are, therefore, unable to apply the decision in Commissioner of Income-tax v. Asiatic Textile Co. Ltd. [1955] 27 I.T.R. 315 to the facts of this case before us. It will be now appropriate at this stage to notice the principles laid down by the Supreme Court in four recent cases: (1) Commissioner of Income-tax v. South India Pictures [1956] 29 I.T.R. 910 (S.C.), (2) Commissioner of Income-tax v. Jairam Valji [1959] 35 I.T.R. 148 (S.C.) (3) Commissioner of Income-tax v. Vazir Sultan Sons [1959] 36 I.T.R. 175 (S.C.). , and (4) Godrej Co. v. Commissioner of Income-tax [1959] 37 I.T.R. 381 (S.C.) . Now th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erned it is finished but that does not make X cease his managing agency business as his normal business. As has been noticed already in this case, the assessee continues to carry on his usual managing agency in five other companies under the memorandum or articles of association of the company. The second case of the Supreme Court is Commissioner of Income-tax v. Rai Bahadur Jairam Valji [1959] 35 I.T.R. 148 (S.C.) . This case emphasises the principle that in the determination of the question whether a receipt is capital or income, it is not possible to lay down any single test as infallible or any single criterion as decisive. The Supreme Court laid down as principle that the question must ultimately depend on the facts of the particular case, and the authorities bearing on the question are valuable only as indicating the matters that have to be taken into account in reaching a decision. Secondly, it lays down another fundamental principle that when once it is found that a contract was entered into in the ordinary course of business, any compensation received for its termination would be a revenue receipt, irrespective of whether its performance was to consist of a single ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for some period of time, and to appoint the assessee as a loading contractor. It was over this sum of ₹ 2,50,000 that the question arose before the Supreme Court. It was not a case of dealing, disposing or trading in managing agencies. Venkatarama Aiyar J., who delivered the judgement of the Supreme Court in Jairam Valji's case [1959] 35 I.T.R. 148 (S.C.) at page 163 of the report already quoted, made the following observations which provide a guide in coming to a conclusion of this vexed question: In holding that compensation paid on the cancellation of a trading concept differs in character from compensation paid for cancellation of an agency contract, we should not be understood as deciding that the latter must always, and as a matter of law be held to be capital receipt. Such a conclusion will be directly opposed to the decisions in Kelsall's case [1938] 21 Tax Cas. 608 and Commissioner of Income-tax v. South India Pictures Ltd [1956] 29 I.T.R. 910 (S.C.) . The fact is that an agency contract which the character of a capital asset in the hands of one person may assume the character of a trading receipts in the hands of another, as, for example ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as appointed as a sole selling and distributing agent for the Hyderabad State for Charminar cigarettes manufactured by the company and as such agent, the assessee was allowed a discount of 2% on the gross selling price. In 1939, an arrangement was arrived at between the assessee and the company by which the assessee was given a discount of 2% not only on the goods sold in the Hyderabad State but on all goods sold in and outside the Hyderabad State. This arrangement was altered subsequently and in 1950 the assessee and the company reverted to the old arrangement confining the sole agency of the assessee to the Hyderabad State and the assessee was paid a sum of ₹ 2,19,343 by way of compensation for the loss of the agency for the territory outside the Hyderabad State. The question before the Supreme Court was whether this particular sum of money was a revenue receipt assessable to income-tax or a capital receipt not so assessable. Now, the majority judgement in that case of Bhagwati and Sinha JJ. came to the finding of fact that the agency agreements were not entered into by the assessee in the carrying on of their business but formed the capital assets of the assessee's bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erritories. It really formed the profit-making apparatus of the assessee's business of distribution of the cigarettes manufactured by the company. If it was thus neither circulating capital nor stock-in-trade of the business carried on by the assessee, it could certainly not be anything but a capital asset f its business and any payment made by the company as and by way of compensation for terminating or cancelling the same would only be a capital receipt in the hands of the assessee. This is followed by the approval of the following observations by Lord Wrenbury in Glenboig Union Fireclay Co. Ltd. v. Commissioners of Inland Revenue [1922] 12 Tax Cas. 427, 462 : The matter may be regarded from another point of view: the right to work the area in which the working was to be abandoned was part of the capital asset consisting of the right to work the whole area demised. Had the abandonment extended to the whole area all subsequent profit by working would, of course, have been impossible, but it would be impossible to contend that the compensation would be other than capital. It was the price paid for sterilising the asset from which otherwise profit might have been o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is more the ordinary business was not carrying on of different managing agencies of different companies. Godrej's decision* is, therefore, distinguishable from the present reference before us. There the fact was that the assessee firm was appointed the managing agent of a company for a period of thirty years and under clause 2 of that agreement it was entitled to a commission at the rate of 20% of the net profits of the company. The arrangement was finally altered by a formal resolution of the company stating that the agreement arrived at between the managing agent on the one hand and the directors of the company on the other is that the managing agents in consideration of the company paying ₹ 7,50,000 as compensation for releasing the company from the onerous term as to remuneration contained in the present managing agency agreement should accept as remuneration for the remaining term of their managing agency 10% of the net annual profit of the company. The controversy before the Supreme Court was with regard to the character of this sum of ₹ 7,50,000, whether it was a capital receipt or a trading receipt. It was held there by the Supreme Court that this sum of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rritories were reduced to their original extent. In that case also the agent agreed to continue to serve with the extent of his field of activity limited to the State of Hyderabad only. To regard such an agreement as a mere variation in the terms of remuneration is only to take a superficial view of the matter and to ignore the effect of such variation on what has been called the profit-making apparatus. A managing agency yielding a remuneration calculated at the rate of 20 per cent, of the profits is not the same thing as a managing agency yielding a remuneration calculated at 10 per cent. of the profits. There is a distinct deterioration in the character and quality of the managing an enduring kind. The reduced remuneration having been separately provided, the sum of ₹ 7,50,000 must be regarded as having been paid as compensation for this injury to or deterioration of the managing agency just as the amounts paid in Glenboig's case [1922) 12 Tax Cas. 427 or Vazir Sultan's case [1959] 36 I.T.R. 175 (S.C.) were held to be. It is clear then that the whole basis of the ratio of the decision of the Supreme Court in Godrej Co. v. Commissioner of Income-tax [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al goods and for the purpose of carrying on their business and it was further held by the Bombay bench that the benefit conferred by the agreement did not constitute a trading asset and its termination did not extinguish the whole or any part of the trading asset. Shah J. who delivered the judgement of the Bombay bench at page 219, noticed and distinguished the Supreme Court decision in Commissioner of Income-tax v. Vazir Sultan Sons [1959] 36 I.T.R. 175 (S.C.) and also Commissioner of Income-tax v. Asiatic Textile Co. Ltd. [1955] 27 I.T.R. 315. The other decision is the recent one of the Madras High Court in Pierce Leslie Co. Ltd. v. Commissioner of Income-tax [1960] 38 I.T.R. 356. , a decision of a bench of the Madras High Court consisting of Rajagopalan and Balakrishna Ayyar JJ. This again is a case of managing agency. It held that the loss of one or several managing agencies had little effect on the structure of the assessee's business even in tea or on its profit-earning apparatus as a whole and the termination of the agreement could well be said to have been brought about in the ordinary course of business of the assessee. It was further held in this cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re liable to termination, in which event the assessee received the compensation it was entitled to by agreement. We should point out that the agreement...was not a contract for securing simpliciter the managing agency for Talliar Estates. It was a composite agreement securing other rights as well to the assessee, which helped it in its trading activities in tea. The assessee was in a position to obtain such contracts with plantation companies because of its large experience in handling tea for export and also in managing plantations in India. Even confining ourselves to the managing agency the loss of one of several such managing agencies could have little effect on the structure of the assessee's business even in tea or on its profit-earning apparatus as a whole. They endured virtually unimpaired by the termination of the managing agency for the Talliar Estates even as the business of the assessee remained unimpaired when other managing agencies were terminated in the past. The assessee's business in tea proceeded apace notwithstanding the termination of such agreements. To adopt the words of Das C.J. at page 916 of the report in Commissioner of Income- tax v. South India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia under the Indian company law. Lord Normand, the Lord President of the Court of Session, at page 621 of the report observed as follows: Counsel maintained that a payment for loss of a 'profit-making apparatus' was necessarily a capital payment in the hands of the recipient who received it as compensation for such loss. This proposition is, I think, too vague and too wide. I find it impossible to reconcile with some of the decided cases, for example, Short Bros. Ltd. v. Commissioners of Inland Revenue [1927] 12 Tax Cas. 955 and Commissioners of Inland Revenue v. Northfleet Coal Ballast Co. Ltd. [1927] 12 Tax Cas. 1102. These two cases were referred to by Lord Macmillan in his speech in Van den Berghs Ltd. v. Clark [1935] 3 I.T.R. (Eng. Cas.) 17 , and I think they can be treated as of high authority since they passed the scrutiny of the House of Lords without adverse comment. The second proposition of importance at the same page of the report in Lord President Normand's judgement is as follows: Then it was urged that the whole structure of the appellants' business was affected by the cancellation and that on the authority of Van den Berghs Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the variation of the managing agency agreement requires a resolution of the company in general meeting and previous sanction of the Central Government before such resolution is passed. Section 332 of the 1956 Act also puts a limit to the number of managing agencies that a company may hold, the limit being ten companies. Under section 324 of the new Companies Act the Central Government can prohibit managing agents in companies engaged in specified class of industry or business. Section 325 of the 1956 Act provides: No company acting as the managing agent of any other company shall, after the commencement of this Act, appoint a managing agent for itself, whether it transacts any other kind of business for addition or not... All these provisions indicate that the Indian Companies Act and its statutory provisions proceed on the assumption that managing agency itself is business as indicated by the Supreme Court, and that its terms can be varied and modified. Both Lord Fleming and Lord Moncrieff adverted to the possibility of the compensation money in Kelsall Parsons' case [1938] 21 Tax Cas. 608 being considered as capital and not revenue if the duration of the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nor do I see why the duration of the contract should make any difference though this has been suggested as a test, for instance in the Barr, Crombie's case. [1947] 15 I.T.R. (Suppl.). 56. (3) For the taxpayer, it was argued that this was the purchase price paid by a third party on the sale by the company of a capital asset and was therefore capital. I do not think the true view lies here either. (4) This was a mining finance company and its stock-in-trade consisted of shares in other companies which it bought and sold. It also had another branch to its business which consisted in the performance of duties as secretary or registrar for a fee to a number of companies in some of which it held shares and in others it did not. It was no part of the day-to-day business of the appellants to buy and sell these secretaryships. They are not indeed things which can be bought and sold in the ordinary sense. (5) Apart from the holding of the shares, the secretaryship was worth little or nothing. It was only the appellants' special position that enabled them to obtain this money. It was in fact a sum earned in the course of the company's trade, namely, the sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -French, and the cancellation of this one contract in no sense affected the 'profit-making apparatus' of the company which retained its offices and staff, etc., in Johannesburg exactly as before. In my judgement, Mr. Monroe's first alternative proposition is really inconsistent with the cases. The taxpayers in the Kelsall Parsons' case [1938] 21 Tax Cas. 608 and the Fleming's case [1951] 33 Tax Cas. 57 were not dealers in agency contracts. This particular observation applies with great force to the facts before us. It is established here also that making of such managing agency contracts was part of the very business of the assessee here. It is also established that the cancellation of this one contract in no sense affected the profit-making apparatus of the company which retained its office and staff to adopt the language of Lord Evershed M.R. If Kelsall Parsons' case [1938] 21 Tax Cas. 608 and Fleming's case [1951] 33 Tax Cas. 57 could be decided in the way they were, when the taxpayers in those cases were not even dealers in agency contracts, then the decision in the present reference before us where the assessee's avowed and actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illustrates that is Barr, Crombie Co. Ltd. v. Commissioners of Inland Revenue [1945]26 Tax Cas. 406; [1947] 15 I.T.R. (Suppl.). 56 a Scottish case, where Lord Normand, the Lord President, points out, at page 412, that in the Van den Bergh's case [1935] A.C. 431; 3 I.T.R. (Eng. Cas.). 17 and indeed in the case before him the ending of this agreement radically affected the whole structure of the company and the character of its business. I do not myself think that observations about business structure apply here. This man was a manufacturer's agent. He had other agencies from time to time and carried on business as an agent, and one of the incidents of such a business is that one agency may be stopped and another begun, as table D does show. The fact that an agency was a key agency; and, therefore, was important to him and represented half of his income, seems to me to be irrelevant. He must have expected as part of the normal course of such a business that one agency would end and another start.............However that may be, it was a normal incident in this kind of business that an agency should come to an end, and the compensation paid is, it seems to me quite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 295 (C.A.) decided that it was more closely resembling the case of Commissioners of Inland Revenue v. Fleming Co. (Machinery) Ltd. [1951] 33 Tax Cas. 57 . It will not be inappropriate here to refer to the speech of Lord Russell in that case at page 63 of that report: The sum received by a commercial firm as compensation for the loss sustained by the cancellation of a trading contract or the premature termination of an agency agreement may in the recipient's hands be regarded either as a capital receipt or as a trading receipt forming part of the trading profit. It may be difficult to formulate a general principal by reference to which in all cases the correct decision will be arrived at since in each case the question comes to be one of circumstance and degree. When the rights and advantages surrendered on cancellation are such as to destroy or materially to cripple the whole structure of the recipient's profit-making apparatus, involving the serious dislocation of the normal commercial organisation and resulting perhaps in the cutting down of the staff previously required, the recipient of the compensation may properly affirm that the compensation represents t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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