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Issues Involved:
1. Nature of the payments received by the director: whether they were income receipts or capital receipts. Detailed Analysis: Nature of the Payments Received by the Director The primary issue in this case is whether the payments received by a director of a company of chief agents, upon the termination of the chief agency, were income receipts or capital receipts. The Tribunal had held that these payments were capital receipts, but the Commissioner of Income-tax was dissatisfied and sought the court's opinion. The facts of the case are as follows: The assessee was a director of D.M. Das and Sons Ltd., which held the chief agency of the Empire of India Life Assurance Co. Ltd. for several regions. In 1948, the life assurance company decided to terminate the chief agency and take over the business directly. Terms of termination were negotiated, and an agreement was reached on June 26, 1948. The agreement included several terms, among which the assurance company agreed to pay certain amounts as "compensation" to individuals nominated by the chief agents. The question before the court was whether these payments were capital receipts or income receipts. The Tribunal had concluded that the payments were capital receipts, both when considered as payments made to D.M. Das and Sons Ltd., and when considered as payments made to the nominees of the chief agents. The court agreed with the Tribunal's first finding that the payments to D.M. Das and Sons Ltd. were capital receipts. The court reasoned that the chief agency was the principal business of the company, and its termination meant the loss of the source of income, which is a capital loss. The court cited the principle that compensation for the loss of the source of income is a capital receipt. However, the court disagreed with the Tribunal's second finding that the payments to the nominees were also capital receipts. The court noted that the payments were made to individuals, some of whom were not shareholders of the company, and the amounts were not in proportion to their shareholdings. The court reasoned that the chief agents were using their right to receive compensation to provide an income for certain individuals, including the assessee. The payments were not instalments of a determined capital sum but were monthly payments for a specified period, making them income receipts in the hands of the nominees. The court also considered the restrictive covenant in the agreement, which required the nominees to refrain from carrying on any life assurance business during the period of payment. The court concluded that this covenant did not change the nature of the payments, as the agreement was between the assurance company and the chief agents, not the nominees. In conclusion, the court held that the payments received by the nominees, including the assessee, were income receipts. The question referred by the Tribunal was answered in the affirmative, indicating that the payments were indeed income receipts. No order as to costs was made, as there was no appearance on behalf of the taxpayer. Summary: The court addressed the issue of whether payments received by a director of a company of chief agents, upon the termination of the chief agency, were income receipts or capital receipts. The court agreed with the Tribunal that the payments to the company were capital receipts but disagreed that the payments to the nominees were also capital receipts. The court concluded that the payments to the nominees were income receipts, as they were not instalments of a determined capital sum and were made to provide an income for certain individuals. The question referred by the Tribunal was answered in the affirmative, indicating that the payments were income receipts.
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