9911796707
TMI Blog1988 (3) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... essee from the owners of a hotel at Singapore. By an agreement dt. 2nd Nov., 1970 the assessee agreed to operate the hotel known as Hotel Oberoi Imperial, Singapore. The assessee agreed to operate the hotel and all its facilities and activities in the same manner as is customary and usual in the operation of first-class international hotels including supervisory services, in the form of providing technical staff. In return, the assessee was to receive certain fee as management fee calculated on the basis of the gross operating profits as laid down in Article X of the agreement. The agreement was to run for a period of 10 years and could be renewed for 2 further periods of 10 years each by mutual agreement. Article XVIII of the agreement gave the assessee the right to purchase the hotel in case the owners desired to transfer the hotel during the currency of the agreement. Further, the assessee's right to operate the hotel for a fee shall not be affected by such transfer of the ownership of the hotel by the owners. The assessee started operating the hotel under the above terms and conditions from Nov., 1970. 3. It appears that the said hotel at Singapore was placed under a Receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1970 and also its right to purchase the hotel and run it for profit. The second agreement dt. 14th Sept., 1975, also laid down that the aforesaid right of the assessee would come to an end when the Receiver would sell the hotel to a third person. The said hotel was sold by the Receiver to a third party, namely, Hind Hotels International Pvt. Ltd. On 2nd Dec., 1977. By virtue of the agreement dt. 14th Sept., 1975 the assessee's rights under the agreement dt. 2nd Nov., 1970 came to an end on 2nd Dec., 1977. The second agreement dt. 14th Sept., 1975 has stipulated in cl.10 thereof that in the event of termination of the assessee's rights under the first agreement, the assessee was to be paid a certain sum which worked out to Rs. 26,47,500 on 2nd Dec., 1977. That sum became payable by virtue of cl.10 of the second agreement dt. 14th Sept., 1975 on 2nd Dec., 1977. This date falls within the previous year ended 30th June, 1978 relevant to the assessment year under consideration. The dispute in this appeal relates to the question as to whether this amount is assessable in the hands of the assessee as its business income. 4. The case of the assessee was that it was a capital receipt b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business it would fall into the latter category and the compensation received would be a revenue receipt. Next, he referred to the case of Divecha P.H. vs. CIT (1963) 48 ITR 222 (SC) wherein the assessee was deprived of his rights obtained under an agreement to distribute the products manufactured by another party and receive a sum in consideration thereof. It was held that the amount received by the assessee was for the loss of an enduring asset and so it was a capital receipt. Next, reference was made to the case of Karam Chand Thapar Bros. P. Ltd. vs. CIT (1971) 80 ITR 167 (SC). In that case, the compensation received for the termination of managing agency was held to be a capital receipt. It must be stated in this connection that the said decision was rendered under the old Act which did not have any section corresponding to s. 28 of the IT Act, 1961 which brought to tax the compensation received on termination of managing agency agreement. Reference was also made to the case of R.B. Jairam. In that case, the assessee received a compensation from the party with whom it had entered into an agreement for supply of its stock-in-trade because the said party could not honour the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue receipt. In this connection, he pointed out that a similar decision was taken in the case of CIT vs. South India Picture Ltd. (1956) 29 ITR 910 (SC). He urged that the assessee was not having a managing agency agreement. So, the decisions relating to managing agency did not apply to the facts of this case. According to him, the agreement dt. 2nd Nov., 1970 r/w the supplemental agreement dt. 14th Sept., 1975, was not an agency agreement at all. They were agreements in the ordinary course of business. He referred to the decision in the case of Kettlewell Bullen Co. Ltd. vs. CIT (1964) 53 ITR 261 (SC) and drew our attention to the observations at page 266 thereof. It is observed therein that the question whether the compensation received by an agent for premature termination of the contract of agency is a capital or revenue receipt is not capable of solution by the application of any single test. Its solution must depend on a correct appraisal of the facts in their true perspective. Reference was made to the earlier decision in the case of R.B. Jairam. He next referred to the decision in the case of Daruvala Bros. (P) Ltd. vs. CIT (1971) 80 ITR 213 (Bom). That was a case of agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 415 : (1978) 114 ITR 840 (All). In that case, it was held that the import entitlements received under the Export Promotion Scheme are revenue receipts under s. 28(iv) of the Act. For the above reasons, Shri B.K. Bagchi urged that the order of the CIT(A) deserves to be reversed and that of the ITO deserves to be restored. 8. Shri S. Bhattacharjee, the learned representative for the assessee, on the other hand, supported the order of the CIT(A). He also took us through the aforesaid two agreements. He stated that the receipt under consideration was not received in the ordinary course of business. Even if it is so received it can still be a capital receipt. He stated that the case of R.B. Jairam is distinguishable because in that case the assessee lost a trading contract unlike the instant case which lost a source of income in the shape of a profit-earning apparatus. In this connection, he referred to the decision in the case of CIT vs. Bombay Burmah Trading Corpn. (1986) 58 CTR (SC) 144 : (1986) 161 ITR 386 (SC). In that case, the assessee took several forest leases from the Government of Burma. A new Government came in Burma which rationalised the forest business. The assessee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st ultimately depend on the facts of the particular case. In the case of Bombay Burmah, the Supreme Court again referred to the aforesaid case of R.B. Jairam. After considering all the earlier cases of the Supreme Court, the principle laid down in the case of Bombay Burmah is that the compensation received for the destruction of the very structure of the operation of the assessee which produced income is a capital receipt. In that reported case, the assessee was an authorised contractor having several forest leases. The amount received by it on the cancellation of those leases was held to be a capital receipt. The assessee before us is a hotel operator. It was engaged in the business of operating first-class hotels of international standard on behalf of their owners. The assessee was not the owner of the hotels but it was only managing the hotels in consideration of a fee. Thus, each of the contracts entered into by the assessee is a separate source of income. In our opinion, the different contracts are like different branches or different units of production owned by the assessee in the sense that each branch or unit is a separate source of income. This is evident because each con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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