TMI Blog1958 (2) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... of six years certain, and the same was to continue automatically unless six months' notice was given for termination by either party. 3. According to the assessee, the principals at Lahore stopped supplying the expellers as contracted, because they had started the manufacture of armaments when the war broke out. The assessee, therefore, filed a suit being O. S. No. 125 of 1943 before the District Munsif, Bezwada, alleging that the principals failed to supply expellers and spares according to his requirements and that the expellers and spares manufactured by them were being sold outside the territory of the assessee. In consequence of this, the assessee stated that he could not keep up his business engagements with his constituents in the matter of the supply of expellers. The result was that he was put to heavy loss and inconvenience. He also claimed proprietary rights in a particular type of expeller Diamond . He prayed that an injunction be issued restraining the merchants at Lahore from selling or otherwise disposing of any of the expellers with or without the trade name Diamond . While the assessee filed a suit in Bezwada, as a counter blast to this the firm at Lahore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sum did not represent the compensation for terminating the business, but in a sense the receipt of the expellers was the receipt of stock-in-trade for the injury inflicted on him in the trade carried on in that line of business. The Tribunal, therefore, treated it as a revenue receipt liable to tax. Learned counsel appearing for the assessee contended that by no stretch of imagination could this sum be regarded as revenue receipt, for under the terms of the agreement and the circumstances that have been set out already the amount was given to the assessee as compensation for the termination of the sole agency which was to last for some time. According to him the case fell directly under the decision of the Privy in Commissioner of Income-tax v. Shaw Wallace and Company. Counsel for the Department argued that the amount received was for loss of profit and further this amount was invested in another partnership concern which the assessee was running along with others and therefore the amount should be treated as one received in lieu of profit in the regular carrying on of the business. Reliance was sought to be placed on the case of Commissioners of Inland Revenue v. Fleming an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay and this company gave notice to the railway company of their intended extension of their working of the mines. There were disputes between the company and the railway, the one trying to stop the other from excavating, the other trying to carry on the mining operations, and finally arbitration proceedings ensued and a sum of Pounds 15, 316 was fixed as the amount payable by the railway to the company to prevent the further working by the company of the mines. The question was as to whether this amount received by the company should be treated as a capital receipt or revenue receipt. Lord Buckmaster observed that the amount was paid to prevent the fire clay company obtaining the full benefit of the capital value of that part of the mine which they are prevented from working by the railway company. He further observed : The capital asset of the company to that extent had been sterilised and destroyed. Under those circumstances it was held that it should be treated as a capital receipt alone. 7. The next case which might be referred to in this connection is the case of Kelsall Parsons and Co. v. Commissioners of Inland Revenue. In this case the assessee commenced busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds 5, 320 received by the company from the Imperial Chemical Industries could be treated as part of the company's taxable profits. After considering the respective contentions advanced on behalf of the assessee and the Inland Revenue Commissioners, the law Lords held that the aforesaid sum should be regarded as compensation for loss of profits and could not be treated as compensation for loss of profit earning asset. In so doing they took into consideration the following circumstances. The company's main business consisted in acquiring agencies which at one time was 10 and by reason of the cancellation of the agency their agencies were reduced to 7. It was observed that the diminution or the increase in the number of agencies should be regarded as a normal feature in the business of a concern whose business consisted mainly in the acquiring of agencies. It was also held that the loss of this agency involved no apparent disorganisation or disruption of the structure of the company's business. In so far as Indian cases are concerned, the leading case is the case of Commissioner of Income-tax v. Shaw Wallace Co. The respondents in this case, viz., the company, were carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test laid down by the Privy Council it could very well be said that in the case now before us the amount of ₹ 40, 000 was paid to the assessee as compensation for the cessation of the agency business which he had with the firm at Lahore. The matter came to be considered by the Supreme Court in the case of commissioner of Income-tax v. South India Pictures. This was an appeal against the judgment of the Madras High Court. The assessee company in that case was carrying on the business of distribution of films. It acquired the right of distribution in some instances by advancing money to the producers of films. The assessee company received from certain producers of films a sum of ₹ 26, 000 as compensation for the termination of three contracts which the assessee had entered into for distribution of three pictures, for a period of five years. The question raised was, as to whether this amount was taxable and should be treated as revenue receipt. The learned Judges of the High Court, Satyanarayana Rao and Rajagopalan, JJ., held that the sum was not a revenue receipt and, therefore, was not liable to be taxed. The matter went up to the Supreme Court in appeal and their L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital receipt. In the case of Glenboig Union Fire Clay Co. Ltd. v. Commissioners of Inland Revenue, Lord Buckmaster went to the extent of saying that even if the amount of compensation for cessation of business is computed on the basis of the profits which could have been earned by working the fire clay company, it did not make it an income receipt. The tests that have been laid down in the decided cases may be summed up as follows : The amount should have been paid for parting with something which could be described as an enduring asset of the business. The cessation of the business or the cancellation of the agreement should affect the profit-making structure. To quote the words it should materially destroy or cripple the structure of the profit-making apparatus. 10. If there was an agreement ensuring for a period of years and by mutual consent the agreement is cancelled and payment is made, such payment would be regarded as capital payment. The fact that the assessee is carrying on similar other businesses would not alter the character of the receipt. The question to be put is the money received in the course of a going concern. If it is not, it would cease to be a reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
