TaxTMI 
TaxTMI 
1967 (1) TMI 21
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....ny, named Messrs. Dalmia Dadri Cement Limited (hereinafter referred to as the company), was incorporated and the benefits of the above-mentioned agreement were transferred to that public company. The assessee also assisted in the promotion of the aforesaid company. For the aforesaid services rendered by the assessee the company entered into an agreement on 27th of May, 1938, by which it agreed to pay to the assessee by way of commission 1 per cent. on the yearly net profits earned by the company from the said cement factory. This agreement was to last so long as the monopoly rights granted by Jind State, vide its agreement dated 2nd of April, 1938, subsisted. The assessee was paid his 1 per cent. commission regularly till 1950. As no commission was paid thereafter, the assessee filed a suit against the company, and in that suit a compromise was entered into by which the assessee was paid a total amount of Rs. 15,000 as commission for the years 1951 and 1952 ; another Rs. 15,000 as commission for the year 1953, and Rs. 70,000 were paid by way of compensation for the termination of the agreement dated 27th of May, 1938, and this amount was received by the assessee on 11th June, 1954,....
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....e paid certain remuneration, or for the supply of goods, he is to be paid certain amount. The remuneration received by him in one case and the profits made by him in the second are certainly of a revenue type, and if such contracts are terminated, the compensation paid would normally be of a revenue nature. The present case, however, also does not fall in this category. The assessee, in this case, was not to supply anything to the company, nor was he to render any service for which he was to be paid the commission as agreed in the contract. The cases, which deal with contracts of this type, therefore, are also not of any assistance in determining the question before us. The third catergory of contracts can be those under which the assessee has not to do anything. Mr. Awasthy, learned counsel appearing for the department, vehemently urged that the case, which was on all fours with the present one, was Shove v. Dura Manufacturing Co. Ltd. The Tribunal tried to distinguish this case with the following remarks : " In that case the decision went in favour of the Commissioners of Inland Revenue because it was found that the contract was an agency contract which constituted a very large....
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....ment or an income receipt. . . . In the present case, however, it is not the largeness of the sum that is important but the nature of the asset that was surrendered. In my opinion, that asset, the congeries of rights which the appellants enjoyed under the agreements and which for a price they surrendered, was a capital asset.... The agreements formed the fixed framework within which their circulating capital operated ; they were not incidental to the working of their profit-making machine but were essential parts of the mechanism itself. They provided the means of making profits, but they themselves did not yield profits. The profits of the appellants arose from manufacturing and dealing in margarine." The learned counsel for the appellant urged that the learned Tribunal was in error in considering that this case was applicable to the facts of the present case. Here, there was no machinery set up affecting or, in any way, regulating the activities of the assessee or the conduct of his business. In fact, nothing was to be done by the assessee under the agreement. The contract only provided for payment of certain sum of money to the assessee every year for his past services, and the....
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....second category, as detailed by Lord Moncrieff. The question still remains whether it falls under the first category or whether it forms a category different even from that. In Sadasivam's case the appellant and his wife Subbulakshmi were preparing a picture and joined with them another party as financier. They entered into an agreement by which (1) Subbulakshmi was to continue to act in the picture ; (2) out of the net collections over and above the amount advanced by the financier, 50 per cent was to be paid to Subbulakshmi and the assessee " towards remuneration for services rendered by them " ; (3) the copyrights in the songs, etc., were to vest in all the three jointly and the royalties were to be shared equally ; and (4) the parties were to have the right of pre-emption. When accounts were taken the two had overdrawn their account by a sum of nearly Rs. 29,000 and in consideration of this amount, both executed a release deed in favour of the financier, relinquishing all their rights in the picture and their copyrights in the songs, etc. A Bench of the Madras High Court had held that the consideration of Rs. 29,000 odd was paid for relinquishing three different rights, namely....
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....n of an agency contract and an amount paid as solatium for the cancellation of a contract entered into by a businessman in the ordinary course of business. In an agency contract the actual business consists in the dealings between the principal and his customers, and the work of the agent is only to bring about that business. What he does is not the business itself but something which is intimately and directly linked up with it. The agency may, therefore, be viewed as the apparatus which leads to the business rather than the business itself. 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.... Generally, payments made in settlement of rights under a trading contract are trading receipts and are assessable to revenue. But where a person who is carrying on business is prevented from doing so by external authority in exercise of a paramount power and is awarded compensa....
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....h was ultimately to exploit the concessions, he was doing something with an eye to make money out of it and this was not an act or series of acts done by him without an eye to make profit or with a view to get something that may be paid to him ex gratia. He, therefore, urged that what he did was a business activity and, as was held by Lawrence J. in Shove v. Dura Manufacturing Co. Ltd., if such an activity is not ultra vires, the contract entered into by him must be taken to be in the ordinary course of business, provided it is a revenue-yielding contract. It cannot be denied that the facts in Shove v. Dura Manufacturing Co. Ltd. are very similar to those of the present case. There, the introduction of the aero-valves was made to the manufacturing company by the assessee-company and nothing further was to be done by the assessee. The assessee being a limited company, the sphere of its work was governed by its object and it was held that so long as this introduction of the party was not ultra vires the company, the contract must be taken to have been entered into in the ordinary course of business notwithstanding the fact that this was not the normal business that was being carried ....
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....hese are : (i) Salaries (ii) Interest on securities (iii) Income from property (iv) Profits and gains of business, profession or vocation (v) Income from other sources (vi) Capital gains. Admittedly, the income arising from the contract before us cannot fall under the first three heads or the last one. We are, therefore, left with heads Nos. (iv) and (v). Under the contract the assessee was not carrying on any profession or vocation and the payment that was to be made to him was not in lieu of any services of that type. It was, therefore, urged that the question only arises whether income arising from this contract can be categorised under " profits and gains of business " or whether it was only an " income from other sources ". Senairam Doongarmall's case referred to above gives us an idea as to what is to be considered a business. In that case the assessee owned a tea estate and carried on business of growing and manufacturing tea. The factory and other buildings on the estate were requisitioned for defence purposes. Actually, the assessee continued to be in possession of the tea gardens and maintained them though he could not carry on the manufacture of tea. The assessee ....
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....iness. At best, as a result of this contract, there came into existence a source of income and the income derived can be categorised as " income from other sources." Furthermore this source was of an enduring nature and, therefore, was, in a way, a capital asset and not a stock-in-trade, and if this source dries up and compensation is paid in respect thereof, the same must again be treated as capital. Reference in this respect was made to Kettlewell Bullen & Co. v. Commissioner of Income-tax. There, the appellant-company was formed with the object of carrying on the business, including the Fort William Jute Company Ltd. An arrangement was entered into with another party whereby the party agreed to purchase the entire holding of shares of the appellant in the jute company and to procure repayments of all loans, etc., made by the appellant to the managed company. It was further agreed that the appellant-company was to be paid a sum of Rs. 3,50,000 as compensation if the company resigned its managing agency. The appellant-company tendered resignation and received the sum of Rs. 3,50,000 from the managed company. The question was whether the amount received was a revenue receipt. It wa....