TMI Blog1975 (11) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... the court was delivered by GUPTA J.- The appellant is a private limited company. The assessment year is 1955-56, for which the relevant previous year ended on June 30, 1954. The shareholders of the appellant-company are Mulraj Karsondas, members of his family, allied concerns and nominees only. In 1944 the appellant purchased the managing agency of the Elphinstone Spinning and Weaving Mills Ltd. for Rs. 6 lakhs and thereafter entered into a separate managing agency agreement with the managed company for a period of seventeen years. The appellant's only source of income was this managing agency in the relevant year. Mulraj and his group also held among themselves 25,000 ordinary and 10,000 preference shares of the Elphinstone Spinning an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "Profits and gains of business, profession of vocation" in respect of the profits or gains of any business, profession or vocation carried on by him". Sub-section (5A) was inserted in section 10 by the Finance Act, 1955, with effect from April 1, 1955, the relevant part of which is in these terms: "(5A) Any compensation or other payment due to or received by,- (a) a managing agent of an Indian company at or in connection with the termination or modification of his managing agency agreement with the company; (b) a manager of an Indian company at or in connection with the termination of his office or modification of the terms and conditions relating thereto; (c) any person, by whatever name called, managing the whole or subtantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear in respect of the receipt. The Appellate Assistant Commissioner further held that if at all the amount was taxable in the assessment year 1955-56, the assessee was entitled to a deduction of Rs. 6 lakhs paid for acquiring the managing agency. The department took an appeal to the Tribunal against the order of the Appellate Assistant Commissioner. The Tribunal was of opinion that section 10(5A) only regards the compensation received by the managing agent as profits and gains of a business and does not create a fresh source therefor, and as the amount in question in this case was received in the accounting year relevant to the assessment year 1955-56, it was taxable in the assessment year 1955-56. The Tribunal, however, agreed with the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any separate source of income, profits and gains- (a) the twelve months ending on the 31st day of March next preceding the year for which the assessment is to be made, or, if the accounts of the assessee have been made up to a date within the said twelve months in respect of a year ending on any date other than the said 31st day of March, then at the option of the assessee, the year ending on the date to which his accounts have been so made up: ". As stated already, sub-section (5A) of section 10 came into force on April 1, 1955 ; therefore, the amount in question, if received by the assessee during the previous year for the assessment year 1955-56 would be taxable under that sub-section. By a legal fiction introduced by sub-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inite article before the word "business", it is submitted, makes it plain that the income is not relatable to the managing agency business but to a new and separate source. We are unable to accept the contention. The fiction introduced by sub-section (5A) regards the capital receipt as income and does not extend to treating the termination of managing agency itself as a business. The amount received by the appellant was a payment for the termination of the managing agency business and, as such, the receipt is obviously related to that business. It is of course true that the amount was not earned in carrying on the business of managing agency, but it is clear that the source of the receipt was the managing agency business itself. It canno ..... X X X X Extracts X X X X X X X X Extracts X X X X
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