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TMI Blog1958 (9) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... e question is answered in the negative and against the assessee. (4) We shall deal next with the first question Whether the aforesaid sum of ₹ 60,000 compensation received from the Tallier Estates Ltd., is assessable as a trading profit under the Income-tax, Excess Profits Tax and Business Profits Tax Acts. (5) The relevant facts as found by the Tribunal are as follows: The assessee company is incorporated in the United Kingdom. It has an office at Kozhikode among other places in India. In the course of its varied business activities the assessee took up the managing agencies of Plantation Companies, to which the assessee also acted as Secretaries. Whenever a managing agency was terminated, as for example when the plantations were sold and the Plantation company itself wound up its operations the assessee was paid compensation, the quantum of which was decided by agreement. In 1945-1946 the assessee company held such managing agencies for sixteen Plantation Companies. Tallier Estate Ltd. was one of such Plantation Companies, and the agreement between that company and the assessee was in 1937 (Annexure A). In 1945 Tallier Estate sold its plantation, which was in India, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the problem. The learned Chief Justice observed further at p. 915 (of ITR): (at p. 495 of AIR): The assessee before us is a company carrying on a business and it received the sum in question in connection with that business. We have, therefore, to ask ourselves as to what is the substance of the matter from the point of view of a businessman. (7a) No doubt normally a businessman would view a managing agency as a capital asset, acquired to produce income. Some of the cases in which it was so viewed including Commr. of Income-tax, Bombay City v. Asiatic Textile Co. Ltd., Bombay, , were set out p. 719 of the report (ITR): (at p. 439 of AIR) in Rangasami Naidu v. Commissioner of Income-tax, . The learned counsel for the assessee was equally well found in his contention that the managing agency could not be viewed even in the case of the assessee as part of its stock-in-trade. That the compensation of ₹ 60,000 was paid for the loss of the Managing agency a Tallier Estates, among other rights secured by the assessee under the agreement (Annexure A) with the Tallier estates, may not be conclusive to show that it was a capital receipt in the hands of the assessee, that is, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the expiration of the period of five years from the respective dates of release of the films and had only a part of the period to run, a fact which may also be relevantly borne in mind. The cancellation of these agreements must have left the assessee free, if it so chose, to secure other films which could be distributed in the place of these films and which might have brought in better box office collections. In the language of Lord Hanworth M. R. in Short Bros. Ltd. v. Commissioner of Inland Revenue, (1927) 12 Tax Cas 955, the sum paid to the assessee was not truly compensation for not carrying on its business but was a sum paid in the ordinary course of business to adjust the relation between the assessee and the producers of the films. The agreements which were cancelled were by no means agreements on which the whole trade of the assessee had for all practical purposes been built and the payment received by the assessee was not for the loss of such a fundamental asset as was the ship managership of the assessee in Barr, Crombie and Co. Ltd. v. Commr. of Inland Revenue, (1945) 26 TC 406. Nor can one say that the cancelled agreements constituted framework or whole structure of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Barr Crombie's case 1947-15 ITR (Sup). 56. (10) In the case of the assessee, taking up managing agency along with secretaryship to the Plantation company and other trading rights was part of the assessee's normal trading activities. The assessee dealt with among other things, the export of tea produced in India, and obtaining managing agencies and other rights from the Plantation companies certainly facilitated that trade in tea. The managing agencies the assessee obtained were liable to termination, in which event the assessee received the compensation it was entitled to by agreement. We should point out that the agreement (Annexure A) was not a contract for securing simpliciter the managing agency, for Tallier 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaking. The case of 1947-15 ITR (Sup.) 56 was a case of that exceptional character. At page 318, the learned Master of the Rolls pointed out: It is true that the facts show that Anglo French (that was the assessee in that case) held some eight agency and secretarial contracts and had done so far a considerable time with little variation. Nevertheless, the making of such contracts was part of the business of Anglo-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, in Johannesburg exactly as before. The case of the assessee before us was certainly analogous to that the Court of Appeal had to consider in 1956-30 ITR (Sup.) 309. (13) In our opinion, in the circumstances in which the assessee company carried on its trading operations the amount of ₹ 60,000 constituted a trading receipt received in the usual course of its business activities. (14) We answer the first question in the affirmative and against the assessee. (15) The third question ran: Whether the credit balances in the capital profits accounts, profit and loss account and business pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to apply these principles when it upheld the claim of the assessee. Possibly the assessee had no opportunity to place before the authorities and the Tribunal the relevant material on the basis of which the claim for abatement should have been investigated. The assessee preferred T. C. M. P. No. 42 of 1958 to produce further documents to decide the question. Even so the material furnished does not appear to be complete. It is however primarily for the Tribunal to investigate the facts and record the findings necessary before we can answer the question referred to us (19) As pointed out in , and by this Court in 1957-32 ITR 237: (AIR 1958 Mad 326), the crucial date is the first day of the relevant chargeable accounting period. What was merely a mass of undistributed profits on that date will not constitute a reserve. The Supreme Court stated in the profits lying unutilised and not specially set apart for any purpose on the crucial date did not constitute reserves within the meaning of Sch. II, rule 2(1) on this basis of what was pointed out by this court at page 245 (of ITR): (at p. 327 of AIR) in 1957-32 ITR 237: (AIR 1958 Mad 326), what the Tribunal will have to decide in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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