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TMI Blog1965 (4) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... urt was of the opinion that compensation received for taking over the Nellore Power and Light Company Ltd. was a capital receipt not liable to be taxed, and on the materials placed before us, we are unable to disagree with the High Court on this question. Appeal dismissed. - C.A. 215 OF 1964 - - - Dated:- 9-4-1965 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SHAH J.---The respondent is a private limited company : it carried on business in hides and skins, minerals, tobacco and other commodities, and also acted as managing agents for the Nellore Power and Light Company Ltd. and for two other companies. T. M. Ayyadurai, T. M. Rangachari and P. C. Chakrabarti were directors of the company. Each director was paid a fixed remuneration of Rs. 4,800 per annum for attending to the business of the company. On June 21, 1951, the respondent was appointed by the Central Government as its agent for buying, checking, weighing, leaf drying, storing, transporting, retaining and reselling tobacco under and in accordance with the directions issued from time to time. The Central Government agreed to pay to the respondent p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (2) Whether a sum of Rs. 17,346, which represented compensation received by the assessee for the loss of the managing agency of the Nellore Power and Light Company Ltd., is income liable to tax?" The High Court answered both the questions in the negative. Allowance in respect of the amount covered by the first question was sought by the respondent under section 10(2)(xv) of the Income-tax Act, 1922,which provided : " . . . any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. " The question whether an amount claimed as expenditure was laid out or expended wholly and exclusively for the purpose of such business, profession or vocation has to be decided on the facts and in the light of circumstances of each case. But as observed by this court in Eastern Investments Ltd. v. Commissioner of Income-tax, the final conclusion on the admissibility of an allowance claimed is one of law. The High Court had therefore power to call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e obtainable, not being below the price prescribed by the Government, to resell tobacco which the Government may direct it to sell by instructions in writing, in such manner and at such price as may be specified by the Government, and to finance the entire transaction of purchasing tobacco in the first instance out of its own funds. The respondent was to take all necessary steps to safeguard the stocks and to maintain fire-fighting services. Goods purchased by the respondent if not of the grade or quality were liable to be rejected by order of the Tobacco Grading Inspector. Performance of the contract evidently required expert knowledge of the practical side of the business of purchasing tobacco, getting it redried, if it was raw, and of packing, storing, transporting and shipping it. The respondent had entered into a profitable contract, but any negligence in purchasing, storing, packing, transporting and shipping the goods might have resulted in serious losses to the respondent. The Income-tax Officer accepted that the expenditure for payment of remuneration for attending to the contract was laid out for the purpose of the business of the respondent, but reduced the stipulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emuneration, the revenue authorities were not justified in reviewing their opinion and reducing the rate of remuneration. It is true that if, on a consideration of the relevant materials, the Appellate Tribunal is of the opinion that a particular remuneration stipulated to be paid is not bona fide or is unreasonable, the High Court in exercising its advisory jurisdiction has no power to interfere with that opinion. But the material circumstances relating to the nature of the contract, the services to be performed and the nature of the duties by the employee were not at all taken into account by the Tribunal and the income-tax authorities. We, therefore, agree with the High Court that the first question should be answered in the negative. The contract under which the respondent-company was appointed managing agent for the Nellore Power and Light Company Ltd. was to enure till 1960, but it had to be prematurely terminated because the Government of Madras exercising its powers under the Madras Electrical Undertakings Acquisition Act, 1949, had compulsorily acquired the electricity undertaking. With the acquisition of that undertaking the right of the respondent as managing agent ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the managing agent of the Nellore Power and Light Company Ltd. and of two other companies, there is no other evidence about the nature of the business of the two other companies of which the respondent was the managing agent, about their relative importance qua the managing agency of the Nellore Power and Light Company Ltd. and whether by reason of the extinction of the managing agency of the Nellore Power and Light Company Ltd. any enduring asset was lost to the respondent, or its trading organisation was adversely affected. The Income-tax Officer observed that the " company's business of managing agency as such had not come to an end ", the company still continues as " managing agents of other companies. Even after surrender of one of the agencies, the company carries on business as before, its structure not being affected " and therefore " the receipt is to be considered as revenue, in accordance with the decision in Kesall Parsons and Co. v. Commissioners of Inland Revenue, and with that view the Appellate Assistant Commissioner and the Tribunal agreed. But in the absence of evidence as to what effect the determination of the managing agency of the Nellore Power and Light Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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