1967 (4) TMI 31 - HC - Income Tax

Assessee carried on the business of manufacture and sale of bidis under the trade marks and trade names of P and D trade marks were his exclusive properties - by means of a registered deed of agreement he transferred his interest in the business along with the goodwill as well as the stock-in-trade - payment received by the assessee under the terms of the agreement is a revenue receipt

Issues Involved:
1. Nature of the payment of Rs. 18,000 received by the assessee.
2. Interpretation of the sale deed dated March 12, 1951.
3. Taxability of the monthly payments under the Income-tax Act, 1922.
4. Applicability of relevant case law to the facts of the case.

Issue-wise Detailed Analysis:

1. Nature of the payment of Rs. 18,000 received by the assessee:
The primary issue in this case is whether the payment of Rs. 18,000, received by the assessee at the rate of Rs. 1,500 per month under the terms of the agreement dated March 12, 1951, is a capital receipt or a revenue receipt. The court analyzed the terms of the sale deed to determine the nature of these payments.

2. Interpretation of the sale deed dated March 12, 1951:
The sale deed dated March 12, 1951, was pivotal in this case. The vendor agreed to sell all his interests and shares in his trade, business, goodwill, and stock-in-trade, including the ownership rights of the property and trade marks, to the purchaser. As consideration, the purchaser agreed to pay Rs. 18,500 within two years and Rs. 1,500 per month during the vendor's lifetime. The deed specifically stated that the monthly payments were in consideration for selling all rights of ownership in the trade marks "Pan Ka Ekka," "Seth Biri No. 311," and "Divi." The court noted that the sale deed did not explicitly or implicitly state that the monthly payments were compensation for restrictions imposed on the vendor.

3. Taxability of the monthly payments under the Income-tax Act, 1922:
The Income-tax Officer and the Appellate Assistant Commissioner concluded that the monthly payments were annuities and thus taxable as "income" under section 12 of the Income-tax Act, 1922. However, the Income-tax Appellate Tribunal differed, viewing the payments as compensation for the vendor's agreement not to manufacture or trade in bidis. The High Court, upon reviewing the sale deed, found that the payments were clearly stated as consideration for the transfer of trade marks and not for the restrictive covenant. The court emphasized that the liability to pay tax on these amounts was the vendor's, indicating that the parties contemplated the payments as taxable income.

4. Applicability of relevant case law to the facts of the case:
The court referenced several cases to support its conclusion:

- Maharajkumar Gopal Saran Narain Singh v. Commissioner of Income-tax: The court found this case analogous, where an estate owner exchanged a capital asset for a life annuity, which was deemed taxable income.
- Commissioner of Income-tax v. Kunwar Trivikyam Narain Singh: The Supreme Court held that exchanging an estate for a perpetual annuity results in taxable income, unlike a capital sum payable in instalments.
- Commissioner of Income-tax v. Best and Co. (Private) Ltd.: This case was distinguished as it involved compensation for the termination of an agency and a restrictive covenant, whereas the present case involved consideration for the sale of trade marks.
- Commissioner of Income-tax v. Patel Bros.: The court found this case irrelevant as it dealt with the release of a right to a share of surplus profits, which was a capital receipt.
- Commissioner of Income-tax v. Shaw Wallace and Company: The court noted that this case involved compensation for the cessation of an agency, which was not analogous to the present case.
- Senaiyam Doongarmall v. Commissioner of Income-tax: The court distinguished this case, which involved compensation for the requisition of assets, from the present case involving annuity payments.

Conclusion:
The High Court concluded that the payment of Rs. 18,000 received by the assessee at the rate of Rs. 1,500 per month under the terms of the agreement dated March 12, 1951, is a revenue receipt in the hands of the assessee. The court answered the question in the negative and ordered the assessee to pay the costs of the reference, with an advocate's fee of Rs. 250.

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