1959 (8) TMI 2

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.... "the principal agreement"). Under the principal agreement the assessee firm was appointed managing agent for a period of thirty years from November 9, 1933. Clause 2 of that agreement provided as follows : "The company shall during the subsistence of this agreement pay to the said firm and the said firm shall receive from the company the following remuneration, that is to say : (a) A commission during every year at the rate of twenty per cent. on the net profits of the said company after providing for interest on loans, advances and debentures (if any) working expenses, repairs outgoings and depreciation but without any deduction being made for income-tax and super-tax and for expenditure on capital account or on account of any sum which may be set aside in each year out of profits as reserve fund. (b) In case such net profits of the company after providing for interest on loans, advances and debentures (if any), working expenses, depreciation, repairs and outgoings and after deduction therefrom of the commission provided for by sub-clause (a) shall during any year exceed a sum of rupees one lakh the amount of such excess over rupees one lakh up to a limit of rupees twenty-f....

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....reciting the appointment of the assessee firm as the managing agent upon terms contained in the principal agreement and further reciting the agreement arrived at between the parties and the resolution referred to above, it was agreed and declared as follows : "1. That the remuneration of the managing agents as from the 1st day of September, 1946, shall be ten per cent. of the net annual profits of the company as defined in section 87C, sub-section (3), of the Indian Companies Act, 1913, in lieu of the higher remuneration as provided in the above recited clause (2) of the principal agreement. 2. Subject only to the variations herein contained and such other alterations as may be necessary to make the principal agreement consistent with these presents the principal agreement shall remain in full force and effect and shall be read and construed and be enforceable as if the terms of these presents were inserted therein by way of substitution." The sum of Rs. 7,50,000 was paid by the managed company and received by the assessee firm in the calendar year 1947 which was the accounting year for the assessment year 1948-49. In the course of the assessment proceedings for the assessm....

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....ome" is a word of the broadest connotation and that it is difficult, and perhaps impossible, to define it by any precise general formula. Though in general the distinction between an income and a capital receipt is well recognised, cases do arise where the item lies on the border-line and the problem has to be solved on the particular facts of each case. No infallible criterion or test has been or can be laid down and the decided cases are only helpful in that they indicate the kind of consideration which may relevantly be borne in mind in approaching the problem. The character of payment received may vary according to the circumstances. Thus, the amount received as consideration for the sale of a plot of land may ordinarily be capital ; but if the business of the recipient is to buy and sell lands, it may well be his income. It is, therefore, necessary to approach the problem keeping in view the particular facts and circumstances in which it has arisen. There can be no doubt that by paving this sum of Rs. 7,50,000 the managed company has secured for itself a release from the obligation to pay a higher remuneration to the assessee firm for the rest of the period of managing agenc....

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....rmination or cancellation of an ordinary business contract which is a part of the stock-in-trade of the assessee and cannot, therefore, be regarded as income, as the amounts received by the assessee in Commissioner of Income-tax v. South India Pictures Ltd. and in Commissioner of Income-tax v. Rai Bahadur Jairam. Valji had been held to be. Nor can this amount be said to have been paid as compensation for the cancellation or cessation of the managing agency of the assessee firm, for the managing agency continued and, therefore, the decision of the Judicial Committee of the Privy Council in Commissioner of Income-tax v. Shaw Wallace and Co., cannot be invoked. It is, however, urged that for the purpose of rendering the sum paid as compensation to be regarded as a capital receipt, it is not necessary that the entire managing agency should be acquired. If the amount was paid as the price for the sterilisation of even a part of a capital asset which is the framework or entire structure of the assessee's profit-making apparatus, then the amount must also be regarded as a capital receipt, for as said by Lord Wrenbury in Glenboig Union Fireclay Co. Ltd. v. Commissioners of Inland Revenue, ....