TaxTMI 
TaxTMI 
2005 (11) TMI 198
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....of the assessees. However, the issue involved in all these appeals is identical and common. Accordingly, these appeals were all heard together and are being disposed of by this consolidated order for the sake of convenience. Even learned representatives of parties addressed us with reference to appeals by Smt. Payal Kapur. 2. In the instant appeals, all the seven assesses are members of Jain Group, which comprises of six individuals (D.K Jain, Usha Jain, Priya Jain, Pankaj Jain, Pooja Jain and Payal Kapur) and, a company called JHPL Holdings (P.) Ltd. 3. The relevant facts of the case are that in the year under consideration, the assesses collectively had shown an aggregate receipt of Rs 69.50 crores as capital receipt from M/s. Gillette Inc, USA. In a note annexed to their returns of income, it was claimed that this amount was not "income" liable for taxation. In the said note, it was stated that on19-3-1996, the members of Jain Group entered into a Joint Venture Agreement (JVA) with M/s. Gillette India (P.) Ltd. (GIPL) to jointly pool their resources and strengths to carry on the business of manufacture and marketing of writing instruments and stationery products in India. ....
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....ing to the transfer of interest in the shareholding of LWIL to Newell by M/s. Gillette Co., USA. It was stated that the joint venture company continued to carry and run its business, as it was hitherto doing. 3.3 It was, therefore, stated that amount so received by Jain Group was capital receipt and not liable to tax. In the aforesaid note, it was stated that although the sum received by the assessee is a capital receipt, it is not to be treated as capital gains as neither there was any capital asset and, nor there was a transfer of capital asset. 4. In the course of assessment proceedings, each of the assessee reiterated the stand taken in the return of income and, in support reliance was placed on six opinions of legal experts to the effect that the receipt under consideration is not exigible to tax, which we shall discuss later. It may be mentioned here that since the issue involved was identical, the cases of all the seven members of Jain Group were dealt in co-ordination by their respective three Assessing Officers and, a common text of the discussion and, determination was adopted for the purpose of assessments of all the assessees under section 143(3) of the Act. Th....
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.... Apart from the above stated Basic Principles governing the joint venture, other articles of the JVA provide for and bind the joint venture partners to various terms and conditions in respect of the financing of the joint venture business, issuance of share capital, transfer of shares, constitution of the board of directors, management, accounting, technical know-how and assistance, implementation by the parties, and consequences of termination (of the agreement) and its material breach. The Agreement inter alia provides that: (a) The parties agree that if any resolution is proposed (by the Board of Directors of the Company) which is contrary to the terms of the Joint Venture Agreement, the parties themselves shall vote against such resolution. (Refer clause 21.4 of article 21 of the JVA). (b) Each of the parties agree not to sell, transfer etc any of its shares in the Company in the first seven years without the prior written consent of the other party. (Refer article 7.1 of the JVA). (c) Any such sale or transfer etc. of shares shall constitute material breach of the Joint Venture Agreement. (Refer articles 20.10 and 20.11 of the JVA)." On the same d....
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....edings, it was contended that the description of the activities of the members of Jain Group was incorrect and Assessing Officer could not have justifiably held that Jain Group was engaged in manifold business activities. It was stated that the entire business of manufacture and sale of writing instruments in India under the brand names of Luxor and Parker Pens was carried through the concern of D.K. Jain, namely 'Luxor Pen Company'. It was stated that above business was discontinued and it ceased to exist since19-3-1996. It was stated that other entities carrying on business of Jain Group were: (a) Tech Ink Industries, a proprietary concern of Mrs. Usha Jain continuing to carry on business manufacturing since 1990. (b) Luxor Export, a partnership firm in export business since 1992 having Mr. D.K. Jain, Usha Jain and, Pankaj Jain as partners. (c) Kakkar Bros., another partnership firm, engaged in manufacture and sale of metal pens since 1989-90, of which 50 per cent shares were held by Pooja Jain and Payal Kapur. (d) Khanjia Industries Engineering (P.) Ltd. a private limited company owned by Jain family running a SSI unit. 6.2 It was f....
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....any, which was the business activity of the assessee. However, here neither formation of joint venture is business activity and, nor payment has been received for services rendered. In addition reliance was also placed on other opinions of legal experts, forming part of the paper book. In view thereof, it was submitted that the impugned receipt is capital receipt and, not liable for tax. 6.3 The CIT (Appeals)-26 in his order held that on consideration of the facts of the assessee that it is too far fetched to say that assessee is engaged in the business of forming joint ventures. It was held that apart from handful of family concerns, the only other business in which members of Jain Group were partners is an old firm in Mumbai. They have not entered into any joint venture other than joint venture with Gillette Group. It was held that, joint venture agreement by itself cannot be held to be business of the assessee. It is an instrument to bind the parties to joint venture and, define their legally enforceable rights and obligations. It was held that it was a link to set up of business but not business in itself. It was held that there is a clear nexus between compensation received....
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....ejected. While agreeing with the Assessing Officer, the learned CIT (Appeals) held that Jain Group had entered into JVA in the-course of, or 1 or the purposes of, or in pursuit of, or for the furtherance of, any one or more of their activities enumerated in para 2.1 of the assessment order. These activities singly as well as in conjunction with one or more of them, clearly tantamounted to carrying on of a business, profession or vocation. The contention that JVA was purely an investment agreement, according to learned CIT (Appeals) was rightly rejected by the Assessing Officer. This contention had no force as distribution of compensation bore no relation whatsoever to the share capital contributed by the parties. This fact further proved that parties to JVA did carry on business, profession or vocation and, therefore, received compensation different from their contribution. It followed that compensation was received by parties to the JVA for formation, promotion, management control and running of the joint venture. The learned CIT(A) agreed that even the activity of formation and promotion of a company could be termed as carrying on of a business, profession or vocation and motive ....
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....parties to the joint venture agreement had a direct, substantial and beneficial interest in the joint venture business being carried on through the vehicle of one or more joint venture entities, and would admittedly be compensated for their services through profits and accretion of wealth derived by them from the joint venture business in the normal course. 6.7 The learned CIT(A) further observed that decision of Hon'ble Delhi High Court in the case of Ram Pros had, of Hon'ble Supreme Court in the cases of P. Krishna Menon, and of Dr. K. George Thomas v. CIT [1985] 156 ITR 412 (SC) and 159 ITR 851 relied upon by the Assessing Officer were clearly applicable to the facts of the case and the assessees before her could be said to have carried on vocation, if it is held that she did not carry on business or profession. She observed that there was close link between activities of assessee as a party to the JVA and the receipt in question and, therefore, concluded that provisions of section 28(i) were applicable in this case. 6.8 The learned CIT(A) also agreed with the Assessing Officer that receipt in question was not of a capital nature being compensation for an injury to....
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....f carrying on of a joint venture business by promoting and managing joint venture entities for profit and this is a clear statement of fact. Further compensation received by various members of Jain Group under the consent and waiver agreement dated 17-1-2000 bore no relationship whatsoever to their share in the joint venture company. This clearly showed that JVA was not an investment agreement but a business agreement. In the end the learned CIT (Appeals) relied upon certain cases to support her conclusion which was that JVA was entered into by the Jain Group in the course of and for the purposes of business and compensation was received for breach of a business agreement and not for any loss to profit-earning apparatus of Jain Group. The disputed amount was liable to be taxed as receipt from business, profession and vocation. Accordingly, assessment made by the Assessing Officer was confirmed. 6.12 It is thus evident that the orders dated 2-6-2004 and 16-8-2004 by CIT(A)-26 and, CIT(A)-7 respectively are in respect of all the members of Jain Group other than Payal Kapoor and it has held that the impugned receipt of Rs. 69.50 crores is not taxable. However, in the case of Payal ....
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....auses 2.1 to 2.6 & 2.8, clauses 3.1,3.4.1 (a), 7 and 8. He specifically brought to our notice pages 236 & 238 of paper book, which contains article 27 and article 32 of the joint venture agreement. He contended that all what had been done was that certain investments had been made in the "Joint Venture Company" i.e., LWIL by assessees in accordance with the joint venture agreement and Joint investment in share capital cannot be called a business. It was submitted that joint venture agreement was a preliminary step to form a Joint Venture Company and, such a step could not tantamount to carrying on of business. In this connection, support was drawn from the judgment of Madras High Court in the case of Madras Fertilizers Ltd. that, setting up a factory may be a preliminary step and, an essential step but it cannot be said to be carrying on of the business itself, which principle stands affirmed by the Apex Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd. 8.2 He submitted that the Joint Venture is not a firm or body of individual or association of person, a Private Limited Company, incorporated under the Companies Act to carry any business. The business was admitt....
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....an agreement to define the relationship of the Joint Venturer's, which also could not be construed to be "Adventure in the Nature of Trade". 8.5 He contended that the amount paid by Gillette USA had nothing to do either with Joint Venture Agreement or their shareholding but represented payment made to ward of nuisance value, which was being attempted by Jain Group. He contended that the amount paid was a fortuitous payment and was paid to buy peace and was settled through a negotiated settlement. He further submitted that mere formation of joint venture company cannot be construed to be business or an adventure in the nature of trade. He submitted that cases relied upon by the lower-authorities in the case of Ram Pros had and P. Krishna Menon's case are inapplicable. He placed great emphasis on the judgment of Apex Courtin the case of Oberoi Hotel (P.) Ltd. v. CIT [1999] 236 ITR 903 and, the decision of ITAT in the case of Sak Inds, copy placed in paper book at pages 202 to 230. He submitted that facts of the two cases are identical and, therefore, on the basis thereof, it cannot be held that receipt is a business receipt taxable under section 28(i) of the Act. Amount re....
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....She submitted that as per the amended agreement with Newell, clause regarding exclusivity was withdrawn and, it also contemplated exit of D.K. Jain. In view thereof, it was argued that payment for deleting clause regarding competition and exclusivity. It was submitted that payment was made to allow the new shareholder to introduce new products and hence it was a pure business transaction and, payment was business receipt. Further, it has been stated that, it is not the case of the revenue that the assessees were engaged in the business of formation, management and control of joint ventures but the stand is that through this particular joint venture agreement, Jain Group and GIPL were conducting the business of LWIL and that joint venture agreement was entered in the course of the business and for purposes of business. Compensation received on facts of the case was a business receipt. 9.5 The learned DR has further placed reliance on the judgments in CIT v. G.R. Karthikeyan [1993] 201 ITR 866 (SC), Workmen Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. [1986] 157 ITR 77(SC) and Juggilal Kamlapat v. CIT [1969] 73 ITR 702 (SC) that, in order to see whether this ....
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....judgment of Apex Court in the case of ITO v. Ch. Attchiah [1996] 218 ITR 239. It was submitted that in such a situation the receipt represented the business profits of LWIL and the same should be taxed in the hands of LWIL. On the contrary, he contended that the sums have been received under Consent and Waiver Agreement dated 17-1-2001, for the assessee's agreeing to withdraw their claims and disputes and, to give their consent to transfer of shares by Gillette to Newell. It was submitted that, learned DR has misread the Assignment and Assumption Agreement dated 17-1-2001. The payment made was independent of the said agreement. It was submitted that it cannot be contended that the clause regarding noncompetition and exclusivity was withdrawn. It was submitted that the learned DR has also factually erred in contending that, on incorporation of LWIL i.e., on 7-11-1995, the proprietorship business of Sh. D.K. Jain, M/s. Luxor Pen Company ceased to exist whereas the fact is that business of M/s. Luxor Pen Company ceased to exist only on signing of JVA on 19-3-1996 and, not on 7-11-1995. Therefore, the inference drawn that, business in normal course should have been carried on by LW....
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....5 are rejected. 12. Another argument of the learned D.R. that true facts of commercial arrangement negotiated between the parties under which payment was made by the Gillette Company to Jain Group have not been brought on record. According to her it was not possible to believe that a multinational company would part with huge sum of 15 millions merely on receipt of a notice. There was something more to it. Another submission connected with this was the submission that corporate veil is required to be lifted in this case as profit belonged to and have been shared between members of Jain Group and Gillette. These two groups were owner of everything and managing the companies as provided in the JVA. LWIL and other companies were merely paper companies. We do not find any reason to accept and entertain these submissions. The Assessing Officer and on appeal CIT(A) decided the issue after considering provisions of JVA notices issued on behalf of Jain Group, consent and waiver agreement and other documents placed by the assessee on record. Genuineness, validity and veracity of documents referred to above was not disputed and doubted at any stage of the proceedings. It was not even alle....
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....owing JVA for some time. 15. On 21-8-2000, M/s. Gillette Co., USA entered into an agreement with Newell to sell their worldwide business of writing instruments and stationery products, including its shareholding in LWIL. According to Jain Group that the decision so taken by Gillette did not conform to the undertaking and commitment given by Gillette. Therefore, Jain Group notified Gillette Co., USA vide notices dated 15-12-2000 that the aforesaid decision constituted material breach of the terms and conditions of JVA and, the undertaking dated 19-3-1996. It therefore called upon them to resolve the disputes through mutual conciliation, failing which Jain Group would refer the dispute to Arbitration under the Rules of International Chamber of Commerce, Paris as provided under JVA and seek suitable relief including the relief of specific performance of the rights and obligation of the parties in JVA as well as various undertakings given by the M/s. Gillette Co., USA. The material portion of the said notice is as under: "We wish to express our deep concern and anxiety and to lodge our protest against the proposed sale of Gillette Stationery products business to Newell Rubb....
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....ould be a direct and material breach of your commitments made not only under the JV Agreement but also under your letter of March 19, 1996. We agreed to enter into the JV in acceptance of the Gillette umbrella. We were assured of Gillette's expertise, management, skills, new products and/or new brands and all these are sought to be denied to us in future without any cause. We were however willing to enter into a good faith discussion for exploring the possibilities of releasing Gillette from its commitments and obligations. We, therefore, attended a meeting organized by Gillette with Mr. Thomas H. Beyer, the President of Sanford International in August to get introduced. Thereafter, meetings were arranged on 31st October and 1st November, 2000 in Lond on with Mr. Steve Issacs, Ms. Andrea Home and Mr. Thomas H. Beyer of Newell Rubbermaid. During these meetings, Mr. Beyer categorically stated that the terms of the JV Agreement as signed between Gillette and the Jain Group were unacceptable to Newell. Nothing material was discussed and no Agreement was reached. In fact, we are now informed that Mr. Beyer has since resigned. The JV Agree....
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.... Please confirm that you are arranging to do the needful in respect of each of the above within seven days. Yours faithfully, For JHPL HOLDINGS PVT. LTD. Sd/- CHAIRMAN (For and on behalf of Mr. D.K Jain and D.K. Jain Family/Jain Group). Sd/- D.K. Jain For LUXOR WRITING INSTRUMENTS LTD. Sd/- CHAIRMAN Encl: Appendix-I." After discussion and negotiations the parties on 17-1-2001 arrived at an agreement called Consent and Waiver Agreement which is as under: "CONSENT AND WAIVER AGREEMENT This Agreement is made on this 17th day of January, 2001 between The Gillette-Company, a Delaware Corporation, U.S.A. together with its affiliates ('Gillette') AND Mr. D.K. Jain, Ms. Usha Jain, Mr. Pankaj Jain, Ms. Payal Kapoor, Ms. Pooja Jain, Ms. Priya Jain and JHPL Holdings Pvt. Ltd. (all hereinafter collectively referred to as the ('Jain Group'). WHEREAS Gillette and the Jain Group had agreed to carry on the business in India of Writing Instruments and Stationery Products in a joint venture company and accordingly signed the Joint Venture Ag....
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....in 10 46,33,40,000 2. Usha Jain 2.50 11,58,35,000 3. Priya Jain 0.50 2,31,67,000 4. Pankaj Jain 0.50 2,31,67,000 5. Pooja Jain 0.50 2,31,67,000 6. Payal Kapur 0.50 2,31,67,000 7. M/s. JHPL Holdings (P.) Ltd. 0.50 2,31,67,000 15.00 69,50,10,000 4. The Parties hereto agree that this Agreement and all matters covered herein shall be kept strictly confidential and the same shall not be disclosed directly or indirectly to any third party and for any reasons whatsoever provided however, nothing herein shall prohibit any Party from disclosing this Agreement and its contents to authorities pursuant to any law on condition that such disclosures shall be to such an extent as necessary. IN WITNESS WHEREOF THE PARTIES HERETO HAVE EXECUTED THIS AGREEMENT ON THE DATE, MONTH AND YEAR FIRST ABOVE WRITTEN. The Gillette Company D.K. Jain for himself and, on behalf of Jain Family and JHPL Private Limited Sd/- Sd/- By: By: Name: Peter Mee Name: Title: Asst. General Counsel Title:" Under the aforesaid arrangement, the payments in dispute were ....
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....in question as donations for the furtherance of the objects of his vocation. There was a link between the activities of the appellant and the payments received by him and the link was close enough. The receipts arose to the appellant from the carrying on of his vocation and they were not casual and non-recurring receipts and were taxable. Further held that the burden is on the revenue to establish that a particular-receipt is of a revenue character, once a receipt is found to be of a revenue character, that it comes under an exemption is for the assessee to establish. It is evident from above that any payment received for services rendered whether in the formation of a company or in teaching Vedanta or practicing vocation is liable to be taxed as income from business or vocation. But it cannot follow as a general proposition that the formation of a company in every case is "business" and if an activity does not tantamount to carrying on a business it must be taken as a vocation are taxed as a return from occupation. The aforesaid decisions in our considered opinion have no application to the facts or controversy involved in the present case. In the case o....
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....ructure of the assessee's business was impaired. It is manifest that the agencies of the companies conducted by the appellant must have been obtained at different times. There is no evidence that these agencies were of any fixed duration. It would be reasonable to infer that some of the agencies may be cancelled and fresh agencies obtained. On a careful consideration of all the circumstances we agree with the High Court that cancellation of the contract of agency did not affect the profit-making structure of the appellant, nor did it involve a loss of an enduring trading asset: it merely deprived the appellant of a trading avenue, leaving it free to devote its energies after the cancellation to carry on the rest of the business, and to replace the contract lost by a similar contract." The case is important for determining whether a compensation in a given case is capital receipt or a revenue receipt. In the case of CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 (SC) the assessee was paid compensation for termination of agency which was held to be a trading receipt by Their Lordships of Supreme Court. Their Lordships laid down important test for det....
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..... Ltd. which later on became a public company. OnApril 3, 1951G.C. & Co. decided to terminate the managing agency of the assessee and paid Rs. 18 Lakhs as compensation for such termination. The question arose whether receipt of Rs. 18 Lakhs was capital or income of the assessee. The Assessing Officer treated receipt as a capital receipt. The Appellate Tribunal found as under:- "(i) that the transactions whereby the managing agency was terminated were genuine and real transactions, (ii) that the managing agencies held by the appellant represented sources from which it received its income by way of commission and the termination of the managing agency represented destruction of a source of income, and (iii) that, therefore, the receipt was a capital receipt." On a reference High Court reversed the decision of the Tribunal but on further appeal Their Lordships of Supreme Court agreed with the Tribunal and held as under:- "As held by this court in Commissioner of Income-tax v. Chart and Chart Ltd., that ordinarily compensation for loss of office or agency is regarded as a capital receipt, but this rule is subject to an exception that payment received even for....
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....places belonging to others for a fee. As per the Memorandum of Association of the company, it was authorised to run hotels on its own account and also to operate, manage and administer hotels belonging to others for a fee. In terms of an agreement dated 2-11-1970, the company agreed to operate the hotel known as Hotel Oberoi Imperial, Singapore, for which the assessee-company was to receive a certain fee called management fee. Under article X of the agreement, the agreement was to run for an initial period of ten years, the assessee had the option to ask for renewal of the said agreement for two further periods of ten years each by mutual agreement. Article XVIII of the said agreement gave the assessee a right to exercise the option of purchasing the hotel in case its owners desire to transfer the same during the currency of the agreement. Thereafter on 14-9-1975, a supplementary agreement was executed between the appellant and the receiver of the Hotel and the property of Imperial Securities International (ISI) Limited, which, inter alia, provided that on 6-9-1975, a receiver was appointed of the undertaking and property of ISI pursuant to the terms of the debenture dated 7-1-1974....
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.... from above is that, question whether particular compensation received is a revenue receipt or a capital receipt is some time a very complicated question. Although it more turns on facts of each case yet decided cases are consulted to resolve the problem. Each case has its peculiar facts and no infallible criterion is available. Nevertheless the decisions are useful illustrations and afford indications and consideration which might be borne in mind in approaching the problem. 19. There is no dispute in the cases before us that members of Jain group were carrying on business of sale and purchase of writing material as per details noted above. The facts relating to the business carried have been correctly stated by the learned representative of the assessee. The learned D.R. did not raise much dispute on them. There is further no dispute that on19-3-1996, Jain Group entered into JVA with GIPL. According to Jain Group, the JVA was an isolated agreement of unique type never entered into by Jain Group earlier with any body. Revenue has contested this proposition and accordingly it has been held that JVA was a business and commercial agreement and, therefore, compensation flowing from....
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.... capital receipt. Therefore, even a transaction "entered into in normal course of business" can give rise to capital receipt. What is important is the nature of asset involved. In case of compensation, what is the asset damaged for which compensation is being paid? 21. In the case of Rai Bahadur Jairam Valji Their Lordships of Supreme Court drew a distinction between agency contract and trading contracts. Agency contract was held to be apparatus which led to the business, rather than business itself. Thus Agency contract was treated as an apparatus with which business is carried. Compensation received on termination of such Agency contract is a capital receipt as it is for damages caused to the business structure. Trading Agency, on the other hand, is one which relates to an item in which the assessee is dealing. For example, if an assessee has Distributing Cement Agency from ACC for indefinite or t or a long period, the contract under which it is obtained is Agency contract and not "business". It leads to business but not business. It is a structure to carry on the business. However, if the same assessee enter into contract for supply of 100 bags daily for a period of one month....
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....hat it is very comprehensive. 24. The letter of Jain group dated 15-12-2000 also throws light as to what was the joint understanding of two groups as per JVA. Jain group complaints that JVA was commitment and understanding that Jain group and Gillette company through GIPL will establish long-term alliance and will pool their respective finances and strengthen their assets and trade marks like Luxor and Parker to obtain leading position in writing instrument and stationery business in India through the introduction of world class management, marketing, manufacturing and quality standard. The business was to be carried in India by the exclusive vehicle of joint venture company set up as per understanding in JVA. Both parties had agreed not to undertake directly or indirectly any activity in competition with Joint venture company. Gillette USA had given undertaking as per letter dated 19-3-1996. Detailed terms and conditions recorded in JVA have been referred to earlier. 25. The aforesaid quoted terms and conditions are sufficient to give us an idea as to what sort of asset flowed as per JVA. In our considered opinion, the terms and conditions leave no amount of doubt that JVA w....
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.... loss of value or injury caused to their share capital in the joint venture company on account of the better known Gillette withdrawing from the joint venture and lesser known Newell Rubbermaid entering in its place. This, the Assessing Officer observed could not be a serious argument because it was totally falsified by the fact that amount in question was not at all distributed amongst the members of the Jain Group in the ratio of their respective share capitals in the joint venture. Therefore, the Assessing Officer said, the argument that the receipt in question was a capital receipt which compensated the assessee for any capital loss held no waver." 30. It is very difficult to subscribe to above view of the revenue authorities. The finding recorded is contrary to the agreement between the parties. The Jain group raised a claim and served notice that on account of breach of agreement and on account of departure of Gillette group out of joint venture, heavy loss had been caused to the assessee. The claim was accepted by the Gillette and compensation was paid. We do not know on what basis and on what material the revenue authorities could say that no loss was caused to the asses....
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....ny from its agreement and undertaking" and Gillette Group paid compensation to Jain Group for "agreeing to give their consent and waiver to Gillette transferring by way of sale its writing instrument and stationery product business internationally to Newell including Gillette's interest in the joint venture and in reciprocating the gesture of Jain group, the Gillette group agrees and undertakes to make payment to the Jain Group in the manner stipulated in Article 3 below". It is neither permissible nor possible to rewrite above written agreement. Compensation is admittedly paid to Jain Group by Gillette USA and not by Newell Rubbermaid. At any rate, even if it is assumed that compensation is paid for some changes made in the JVA, the said changes were in capital asset and, therefore, receipt a capital receipt. It was open to the revenue to show that written agreements placed by the assessee on record were not reliable or acted upon and that compensation was paid for something else. But no case on lines above has been made out. No statement of parties to agreement was recorded nor any other material was collected to show that compensation was for any revenue loss caused to the a....
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....ird agreement was made modifying the two previous agreements as to the basis of profit-sharing, extending the branches of the business, and again continuing the principal agreement of 1908 till December, 1940. In 1927 three agreements were made, under which the appellants agreed to determine the agreements of 1908, 1913 and 1920 in consideration of the payments to them of GBP450,000. The Special Commissioners held that that sum was paid in respect of the pooling agreements, and must be brought in for the purposes of arriving at the balance of the profits of the appellants for the year ending December, 1927, and consequently that the sum was an income receipt. FINLAY, J., held that the cancelled agreements were a capital asset of the appellants, and that the GBP450,000 was not an income receipt at all. The COURT OF APPEAL restored the decision of the Commissioners, who had held that the sum was not received by the appellants in consideration of the surrender of a fixed capital asset, but arose from a transaction attributable to circulating capital, and therefore an income receipt:" 34. On further appeal house of Lords noted about the agreement between the parties as under:- ....