9911796707
TMI Blog1971 (1) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1922 (in short " the Act "), the following facts are available. The assessee is a private limited company (which will hereinafter be referred to as " the company "). It was functioning as the managing agents of 27 companies including M/s. Greaves Cotton & Co. Ltd. M/s. Greaves Cotton Co. Ltd. was incorporated as a private company in about 1922, and its managing agents was the firm styled M/s. Greaves Cotton & Co. The company acquired a large block of shares in the managed company. M/s. Greaves Cotton Co. released their managing agency rights in favour of the company on receiving Rs. 27,34,325. On May 8, 1950, the managed-company, viz., M/s. Greaves Cotton & Co. Ltd., was converted into a public company. Thereafter, the company was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emuneration and not a compensation on account of loss of employment. On appeal by the company, the Appellate Assistant Commissioner differed from the view taken by the Income-tax Officer and held that the amount in question represented compensation received by the company for the termination of its managing agency. The Income-tax Officer took the matter in appeal to the Tribunal. On his behalf, two contentions were advanced before the Tribunal, viz., (1) that the transactions leading to the termination of the managing agency were not genuine transactions but were mere manipulations, and (2) that in view of the fact that, as the company was the managing agent of 27 managed-companies, it must be held that the managing agencies were the stock- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion as framed proceeds on the basis that the fact found by the Commissioner but he challenges the decision reached by the Tribunal on the basis of those findings. In other words, the question framed should be read as to whether, on the facts and in the circumstances of the case, as found by the Tribunal, the sum of Rs. 18,00,000 paid to the company was a revenue receipt and as such assessable to income-tax. Curiously enough, despite the fact that the question referred to the High Court for its opinion did not in any manner challenge the correctness of the facts found by the Tribunal, the High Court proceeded to re-examine the material on record and reversed the findings of fact reached by the Tribunal. It came to the conclusion that al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee held and its termination did not impair the profit-making structure of the assessee, but was within the framework of the business, it being a necessary incident of the business that existing agencies may be terminated and fresh agencies may be taken. But it is for the income-tax department to clearly establish that the case fell within the exception to the ordinary rule. In the present case, according to the findings of the Tribunal, the termination of the agency in question had resulted in the destruction of a source of income of the company. The Tribunal had arrived at the conclusion that the managing agencies held by the company represented the source from which it received its income by way of commission. In the determina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down the following guidelines for finding out the true nature of such a receipt. The relevant observations read thus : " Where, on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated), the receipt is revenue : where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessee's income, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
