1966 (10) TMI 47 - SC - Income Tax

Whether the receipt in question was a revenue receipt from a venture in the nature of trade? Held that - Under section 4(3)(vii) receipts which are of a casual and non-recurring nature are not liable to be included in the computation of the total income of the assessee ; but the rule in express terms does not apply to capital gains receipts arising from business or the exercise of a profession or vocation and receipts by way of addition to the remuneration of an employee. On the finding recorded by the Tribunal the receipt arose from the business of the assessees and is not exempt under section 4(3)(vii). Appeal dismissed

Summary

Issues:
1. Whether the receipt of Rs. 1,75,000 by the assessees is a revenue receipt from a venture in the nature of trade.
2. Whether the receipt in question is exempt from tax under section 4(3)(vii) of the Income-tax Act.
3. Whether the High Court's decision regarding the revenue nature of the receipt is correct.

Detailed Analysis:
The case involved the assessees, who received Rs. 1,75,000 as part of a larger payment of Rs. 6,00,000 for their involvement in assisting another party to acquire the controlling interest in a company. Initially, the assessees claimed the amount as non-recurring and exempt from tax, but the Income-tax Officer rejected this claim. The Appellate Assistant Commissioner upheld the decision, leading to an appeal. The Tribunal concluded that the payment was for services rendered, not for refraining from competition, and deemed it a revenue receipt from a trade venture. The High Court affirmed this decision, prompting the assessees to appeal to the Supreme Court.

The Supreme Court considered the contention that the payment was made to dissuade the assessees from competing with another party in acquiring the company's shares. However, the Court found evidence indicating that the payment was primarily for services rendered in facilitating the acquisition. The Court highlighted the terms of the agreement and the report of the Appellate Assistant Commissioner, supporting the view that the payment was for services, not refraining from competition. The Court also noted the lack of intention and resources on the part of the assessees to acquire the shares themselves, further strengthening the conclusion that the payment was for services rendered in a business context.

In analyzing relevant case law, the Court distinguished cases where payments were made for refraining from business activities from the present case, where the payment was for services rendered in the course of business. The Court emphasized that the receipt in question arose from the business of the assessees and was not exempt under section 4(3)(vii) of the Income-tax Act. Ultimately, the Court dismissed the appeal, upholding the decision that the receipt of Rs. 1,75,000 was a revenue receipt from a venture in the nature of trade and subject to tax.

In conclusion, the Supreme Court affirmed the lower courts' findings that the receipt in question was a revenue receipt earned in the course of the assessees' business activities. The Court's detailed analysis of the terms of the agreement, the nature of the services rendered, and the lack of intention to acquire shares supported the decision that the payment was not exempt from tax and was rightfully considered a revenue receipt.