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TMI Blog1974 (8) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... 962, the assessee transferred its rights under the agreement dated November 22, 1960, with effect from the 1st January, 1962, for a consideration of Rs. 50,000 to the Orient Industries Pvt. Ltd., Calcutta. Out of the sum of Rs. 50,000 Orient Industries had paid Rs. 25,000 on March 12, 1962, Rs. 10,000 on March 23, 1962, Rs. 5,000 on May 9, 1962, and Rs. 10,000 on June 21, 1962. The assessment year in question is 1963-64, corresponding to the accounting year ending on March 31, 1963. The Income-tax Officer held the sum of Rs. 50,000 to be a revenue receipt of the assessee and taxed it as its income. The Appellate Assistant Commissioner maintained the addition in appeal. The assessee took up the matter further in appeal before the Tribunal, and it allowed the appeal and deleted the sum of Rs. 50,000 from the income of the assessee, holding that it was a capital receipt and not a revenue receipt. On being asked to state a case, the Tribunal has done so on the question of law afore-mentioned. The Tribunal in its appellate order followed the principles of law laid down by the Supreme Court in Commissioner of Income-tax v. Vazir Sultan Sons and distinguished the decision of that cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the cars and other vehicles of Hindustan Motors Ltd. when it entered into an agreement on November 22, 1960, with Poddar Auto Dealers Pvt. Ltd. As I shall presently show with reference to some passages from the judgment of the Supreme Court in the case of Vazir Sultan Sons, wherein reference has been made to the decision of the Privy Council in Commissioner of Income-tax v. Shaw Wallace and Company and to the decisions of the Supreme Court in Commissioner of Income-tax v. South India Pictures Ltd. and Commissioner of Inome-tax v. Rai Bahadur Jairam Valji, that undoubtedly the agency business of the assessee obtained in the year 1955 was a capital asset and a fixed capital and not a trading asset in the shape of circulating capital or stock-in-trade. When the assessee exploited the agency agreement and the agency business by parting with some of its bundles of rights in favour of Poddar Auto Dealers Pvt. Ltd., then in a sense it was letting out commercial assets, and the receipts which it got from the said private company, either in the shape of 31% of its profits or a minimum guarantee of Rs. 25,000, was undoubtedly its income--- vide the decision of the Supreme Court in Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her two decisions of the Supreme Court in the cases of South India Pictures Ltd. and Rai Bahadur Jairam Valji. I cannot do better than taking the gist of those cases, as mentioned by Bhagwati J., who delivered the majority view of the court in the case of Vazir Sultan Sons . I am doing so for the purpose of pointing out that the facts of the instant case, on application of the said principles, will unmistakably lead to the conclusion that the sum of Rs. 50,000 is a capital receipt and not taxable as a revenue receipt. In the case of South India Pictures Ltd., it was held by the majority, as noted at pages 181-182 of Vazir Sultan Sons' case : " (1) 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 ; (2) 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 Co. Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealings between the principal and his customers, and the work of the agent is only to bring about that business. In other words, what he does is not the business itself but something which is intimately and directly linked up with it. It is, therefore, possible to view the agency as the apparatus which leads to business rather than as the business itself on the analogy of the agreements in Van den Berghs Ltd. v. Clark. Considered in this light, the agency right can be held to be of the nature of a capital asset invested in business. But this cannot be said of a contract entered into in the ordinary course of business. Such a contract is part of the business itself, not anything outside it as is the agency, and any receipt on account of such a contract can only be a trading receipt'." The Supreme Court considered whether the agency in the case of Vazir Sultan Sons was a capital asset of the assessee's business and, after relying upon the decision of Viscount Haldane in John Smith Son's v. Moore, it was held at page 187 that the agency agreement was a capital asset. I have no difficulty in holding in this case that the agency agreement entered into by the assessee with Hindus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hands of one may be a trading asset in the hands of another. An assessee doing business in merchandise owning a piece of land on which stands his business premises will be holding it as a capital asset, while a dealer in real estate in England or immovable properties in India will be holding such a piece of land as a trading asset or as a stock-in-trade. In London Investment Mortgage Co. Ltd. v. Worthington (H. M. Inspector of Taxes), a company carried on the trade of property dealing. During the war some of the properties of the company were damaged or destroyed by enemy action ; the company received value payments in respect of those properties under the provisions of the War Damage Act, 1943. The company was assessed to income-tax, under Schedule D, for the relevant periods. The stand taken on its behalf that it was not taxable as a revenue receipt was rejected. The Court of Appeal reversed the judgment of Upjohn J. and the House of Lords took the same view. Lord Evershed M. R. said at page 104 : " It seems to me that the effect of the two cases I have mentioned supports the view which has been fundamental to the Crown's argument, namely, that where a trader is dealing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase of parachutes from the Tata Aircraft Ltd. An advance of Rs. 10,00,000 had to be deposited. He entered into an arrangement with three financiers, but subsequently, he walked out on receipt of a sum of Rs. 1,87,000 from one of the three financiers. A question arose whether the said sum was a capital receipt or a revenue receipt. Of course, one of the questions before the Tribunal was that even if the said sum could be treated as a revenue receipt, was it on account of any business carried on by the assessee ? The answer by the Tribunal was that it was an adventure in the nature of trade. The Tribunal had found that it was the assessee, namely, the appellant before the Supreme Court, who had entered into a contract with the Tata Aircraft Ltd. for the purchase of parachutes for a fixed sum. He intended to do and did a venture in the nature of trade. He did, as many influential parties in the country do, that instead of doing the business himself, he managed to secure contracts and pass on the actual execution of the business to others in return for a fixed sum of money. In such a situation, when the so-called partnership arrangement entered into by the assessee with the three fina ..... X X X X Extracts X X X X X X X X Extracts X X X X
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