AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1965 (4) TMI 16
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..... for tobacco not redried, and at the rate of two annas per lb. for tobacco redried, and commission on all purchases. On June 22, 1951, the respondent passed a resolution placing T. M. Ayyadurai in " special charge " for arranging purchases of tobacco on credit, inspecting tobacco at Guntur and at Madras Port, and for supervising shipment of tobacco, and agreed to pay him 30 per cent. of the net profit as remuneration. Under the contract with the Government of India, Rs. 1,38,454 became due to the respondent as commission in the account year ending March 31, 1952. After providing Rs. 41,473 for expenses, 30 per cent. of the balance being Rs. 29,094 was paid to T. M. Ayyadurai as commission and was claimed in the assessment year 1952-53 as a permissible deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Income-tax Officer allowed only 10 per cent. of the net profit for the services rendered by T. M. Ayyadurai in the contract for tobacco purchase and sale, and disallowed Rs. 19,796 out of the amount claimed by the respondent. The managing agency agreement of the respondent with the Nellore Power and Light Company Ltd. was terminated with effect from September....
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....e Indian Income-tax Act. In considering whether the expenditure to remunerate a person for services rendered is allowable under section 10(2)(xv), the Income-tax Officer must have regard to all the circumstances, such as, the nature and special character of the service, the practice, if any, in the trade for payment of a percentage of profit to an employee in similar circumstances, the qualifications of the employee for rendering the service, the amount, if any, paid by the assessee to another person for rendering similar service, the normalcy of the allowance having regard to the practice in the trade, the existence of any other extraordinary and abnormal circumstances in the arrangement or special reasons or circumstances which may suggest that the transaction was abnormal, and the like. The normal business of the respondent was in hides and skins, minerals and tobacco. It does not appear, however, that the turnover of the company was large. The contract to purchase tobacco on behalf of the Government of India was apparently out of the way of the normal business of the respondent and demanded the setting up of a special organisation. Under the terms of the contract the responde....
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..... M. Rangachari, and that he was, as a director of the company, bound to attend to all the activities of the company including the contract. There is no evidence that the agreement was motivated by considerations other than strictly business considerations. There is also no evidence that as a director T. M. Ayyadurai was bound to attend to all the activities of the company including the special contract with the Central Government. The duties which the director was bound to perform for earning the remuneration of Rs. 400 per month are not on the record, but even in the opinion of the taxing authorities the duties of T. M. Ayyadurai as director did not cover attendance to the contract with the Government. T. M. Ayyadurai and T. M. Rangachari are brothers, but that by itself is not sufficient to justify an inference that unreasonable or excessive remuneration was agreed to be paid. The person who was called upon to attend to a contract of this magnitude was required to have expert knowledge of the business, apply his time exclusively thereto, travel from time to time, maintain supervision and control at the stage of purchase, redrying, packing, transport and loading for shipment. P....
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....nt was bound to pay compensation which would include compensation for termination of the managing agency agreement. The respondent received Rs. 17,346 as compensation for termination of the agency, computed in the manner laid down in section 15 of that Act. Prima facie, such a receipt, being in lieu of extinction of an asset of the assessee, is a capital receipt. It was urged, however, on behalf of the revenue that the respondent was carrying on business of taking up managing agencies and that by the extinction of one of the managing agencies, the business structure of the respondent was not impaired. In a recent judgment delivered by this court in Kettlewell Bullen and Company Ltd. v. Commissioner of Income-tax, it was pointed out that : " It may be broadly stated that what is received for loss of capital is a capital receipt: what is received as profit in a trading transaction is taxable income. But the difficulty arises in ascertaining whether what is received in a given case is compensation for loss of a source of income, or profit in a trading transaction. " The court further observed : " It cannot be said as a general rule, that what is determinative of the nature of th....