TaxTMI 
TaxTMI 
1981 (8) TMI 35
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....ection 10(5A)(a) of the Indian Incometax Act, 1922 ? " We are concerned with two sums of Rs. 81,000 and Rs, 2,00,000 received by the assessees on 15th February, 1956, and 31st July, 1956, respectively, by way of two instalments of compensation in connection with the termination of their managing agency under an award, which were treated by the ITO as income in the hands of the assessees liable for tax under s. 10(5A)(a) of the Indian I.T. Act, 1922, in their assessment orders for the assessment years 1957-58 and 1958-59. There was an agreement of managing agency between the assessees, Seksaria Sons (Private) Ltd. and Seksaria Cotton Mills Ltd. (hereinafter referred to as " the managed company "), under which the assessees were appoint....
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.... while the second instalment of Rs. 2,00,000 received by the, assessees on 31st July, 1957, was shown in the assessees' return for the assessment year 1958-59. However, it was contended by the assessees that they were not liable for tax, as the said amounts in the hands of the managed company were also not taxed. According to the assessees, in the circumstances of the case, the provisions of s. 10(5A)(a) of the Indian I.T. Act, 1922, were not applicable and the said amounts should not be treated as, income liable to tax. The ITO by his two orders for the said two years rejected the said contention of the assessees and taxed the said amounts ill, the hands of the assessees. Against the said orders of the ITO, in appeal filed to the AAC, t....
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....) Any compensation or other payment due to or received by (a) a managing agent of an Indian company at or in connection with the termination or modification of his managing agency agreement with the company;... shall be deemed to be profits and gains of a business carried on by the managing agent, manager or other person, as the case may be, and shall be liable to tax accordingly;... " (Underlining supplied) It is clear that under the said provisions managing agents of an Indian company were liable to pay tax on any compensation or payment received by them at or in connection with the termination of their managing agency agreement. In this case there is no dispute as to the facts that the managing agency agreement with the asses....
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....er of the Tribunal in the managed company's assessment, we find that the Tribunal had, on various circumstances mentioned by it in its order, found that the termination of the managing agency agreement by the managed company was not bona fide, that is, being brought about for some ulterior purpose. The said conclusions presupposed that factually the managing agency agreement was terminated. Nowhere in the said order the Tribunal had held that factually there was no termination, or that the termination was sham or without consideration, or that the amounts, said to have been paid by the managed company to the assessees towards the compensation for the termination of the managing agency agreement, were in fact not paid but were merely book en....
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.... of the similar amounts on the same day by the assessees to the managed company would go to show that the termination of the managing agency agreement by the managed company, under which the compensation was alleged to have been paid to the assessees, was a transaction without consideration and, therefore, sham. Firstly, this court cannot consider in this reference for the first time the effect of the said extract of the entries in the account books of the assessees. That apart, it is also difficult to see how the said entries would help the learned counsel in his contention, when the entries disclose actual receipt of payment by the assessees towards compensation for termination of the agency. It is also difficult to see how the transactio....