TMI Blog1977 (8) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... management of the said business. Thereafter, the life insurance business in India was nationalised by the Life Insurance Corporation Act, 1956, and under section 7 of that Act the assets and liabilities of the insurers appertaining to the life insurance business stood transferred to and vested in the Life Insurance Corporation of India with effect from September 1, 1956. The Income-tax Officer brought the aforesaid amount to tax as a revenue receipt by rejecting the assessee's contention that it was a capital receipt. In view of the decision of the Supreme Court in the case of Dwarkadas Shrinivas v. Sholapur Spinning Weaving Co. Ltd. [1954] 24 Comp Cas 103; 1954 SCR 674; AIR 1954 SC 119, the Appellate Assistant Commissioner held that the right of the assessee to manage its life insurance business was a property and that the compensation paid for the deprivation of the said property was in the nature of a capital receipt in the hands of the assessee. Accordingly, he allowed the appeal filed by the assessee. The Tribunal dismissed the appeal filed by the department and at the instance of the Commissioner referred the following question of law for the opinion of this court: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty and its user and the compensation payable for deprivation of a capital asset is a capital receipt, whereas the compensation payable for deprivation of its user is a revenue receipt; the assessee remained the owner of its life insurance business which was carried on by the Custodian in terms of the Act under certain restrictions; and for all these reasons it should be held that this receipt was not a capital receipt but a revenue receipt and as such it was taxable in the hands of the assessee. Though the case of Lakshmi Insurance Co. (P.) Ltd. v. Commissioner of Income-tax [1971] 80 ITR 575 (Delhi) is directly on the point, Mr. Pal does not accept the correctness of this decision. Before expressing any opinion on this and his other contentions noted earlier, we would like to deal with the cases cited at the Bar. The agreements in the case of Van den Berghs Ltd. v. Clark [1935] 19 TC 390; 3 ITR (Eng Cas) 17 (HL) constituted the framework of the whole structure of the profit-making apparatus of the assessee and the compensation paid to the assessee for cancellation of those agreements was held to be a capital receipt in the hands of the assessee. On the other hand, the compens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng case the Supreme Court says that to determine whether the compensation paid to an assessee for cancellation of an agreement is a capital receipt or revenue receipt, the first question to be considered is whether the agreement in question was a capital asset of the assessee's business and constituted his profit-making apparatus and was in the nature of a fixed capital or it was a trading asset or circulating capital or stock-in-trade of his business. If it was the former, compensation received would be a capital receipt, whereas, if the agreement was entered into by the assessee in the ordinary course of his business and for the purpose of carrying out that business, it would fall into the latter category and the compensation received would be a revenue receipt. The managing agency agreement in the case of Kettlewell Bullen Co. Ltd. v. Commissioner of Income-tax [1964] 53 ITR 261 (SC) formed part of the capital asset of the assessee and, therefore, it was held that the compensation received by the assessee for its cancellation was a capital receipt and was not chargeable to tax as a revenue receipt. It was held in the case of Karam Chand Thapar Bros. (P.) Ltd. v. Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1954] SCR 674; AIR 1954 SC 119, it was held by the Delhi High Court that the right to manage its life insurance business was a property of the assessee and it formed part of its capital assets as it constituted a part of its profit-making apparatus. Accordingly, it was held that the compensation received by the assessee under section 7 of the Act was for the deprivation of a part of its capital asset and as such it was a capital receipt and was not taxable as a revenue receipt or income in the hands of the assessee. Their Lordships of the Delhi High Court also opined that the mere fact that the compensation paid to the assessee was measured by the past profits did not make the compensation paid income of the assessee as a result of business done by it. To us it appears that no exception can be taken to the aforesaid opinion of their Lordships of the Delhi High Court, for their Lordships of the Supreme Court in the case of Kettlewell Bullen Co. Ltd. [1964] 53 ITR 261 (SC), at page 274 of the report, quoted with approval the observation of Lord Macmillan, in the case of Van den Berghs Ltd. [1935] 19 TC 390; 3 ITR (Eng Cas) 17 (HL) to the effect that "even if a payment is measured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 674; AIR 1954 SC 119, it must be held that the right of the assessee to manage its life insurance business was its personal property and that the assessee was deprived of this particular property by the paramount act of the legislature. It is also a settled law that a property is a bundle of rights which the owner can lawfully exercise to the exclusion of all others. He is entitled to use and enjoy it as he pleases provided he does not infringe any law of the State. The property is either corporeal or incorporeal. The right to manage one's own business, in our opinion, is an incorporeal property. The argument that in view of the provisions of the Life Insurance Corporation Act, 1956, this property is not an asset is not acceptable to us. Briefly speaking, under section 2(4A) of the Indian Income-tax Act, 1922, capital asset means property of any kind held by an assessee except any stock-in-trade, consumable stores or raw materials held for the purpose of his business. The right to manage a business is not a consumable store or a raw material. The assessee did not carry on any business of managing companies and, that apart, it cannot be said that the right to manage its own li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finition of "capital asset". This particular capital asset of the assessee having been vested in the Central Government under section 3(1) of the Act and the corresponding provisions of the Ordinance, the assessee became entitled to the compensation and it was paid to the assessee in terms of section 7 of the Act. Thereafter its other assets pertaining to the life insurance business vested in the Life Insurance Corporation of India under the provisions of the Life Insurance Corporation Act, 1956, and, under its provisions, separate compensation became payable to the assessee for deprivation of those separate assets only. Therefore, reliance on the provisions of the Life Insurance Corporation Act, 1956, was misplaced by Mr. Pal. Moreover, no trading activity was involved in the matter of deprivasion of the right of management of the life insurance business of the assessee. This deprivation had radically affected the whole mechanism and the entire profit making apparatus or structure of the assessee. It had also seriously affected the whole trading structure and the framework in which the assessee used to carry on its life insurance business. It may also be noted here that sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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