TMI Blog1941 (7) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... s the Burmah-Shell Company) acquired by purchase from the assessee all rights of the assessee in the oil installation, including all rights in the lease from the Karachi Port Trust, the assessee's stocks of petroleum products, including rights in shipments contracted to be purchased, other property of the assessee including barrels and motor lorries, and also the goodwill of the assessee's business as importers, sellers, dealers and distributors of petroleum. The consideration agreed to be paid by the Burmah-Shell Company to the assessee is set out in clause 2 of the agreement. Three lakhs of rupees were to be paid for the assessee's rights under the lease and for the oil installation, one lakh of rupees was to be paid for the goodwill, and for other property payment was to be made according to a valuation attached to the agreement, or in the case of petroleum products at cost price. Clauses 7 and 8 of the agreement contain restrictive covenants entered into by two sets of partners of the assessee's firm. By clause 7 six partners jointly and severally agreed that for a period of ten years from the 21st October 1935 they would not, without the permission of the Burma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d until February 6th, 1936, when the Mills Company addressed the following letter to the Burmah-Shell Company :- With reference to two letters of December 18th and January 13th in connection with the selling agency agreement, I would mention that during the course of negotiations and signing of the agreement, I had great hopes of our future connections being strengthened, but by what since passed, I have come to the conclusion that it would be best for the Mills Store Company to remain content with ₹ 10,000 a year for ten years from 16th October 1936, i.e., the period of restriction , and by letter dated the 24th February the Manager of Burmah-Shell gave a formal undertaking in these terms :- We shall pay the Mills Store Co., the sum of ₹ 10,000 on October 16th 1936, and a like sum on the 16th of October of each succeeding year up to and including October 16th, 1945, always providing of course that there has been no breach of clauses 7 and 8 of the agreement of October 16th last and clauses 3 and 4 of the Deed of Conveyance of the 12th November, 1935 . It is not disputed that the annual payments of ₹ 10,000 are being made to the Mills Store Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v) Profits and gains of business, profession or vocation, (v) Income from other sources. Section 7 of the Act provides that tax shall be payable by an assessee under the head ' Salaries ' in respect of any salary or wages, any annuity, pension or gratuity, and any fees, commissions, perquisites or profits, in lieu of, or in addition to, any salary or wages. It is desirable here to dispose of a contention which found favour with the Income-tax Officer, and this is that the payments to the Mills Store Company, being the equivalent of the commission which would be earned by the agency for diesel oil offered to them, assume all attributes of commission, and are therefore income within the meaning of Section 7 of the Act. The Assistant Commissioner did not accept this argument, and we think the view taken by him is correct. It is quite clear from the letter of the Burmah-Shell Company that the offer of payment of an amount equal to the commission which could be earned by an agency was alternative to the offer of the agency. At first tight it is not easy to understand why an offer of agency was made at all, for no one would be expected to agree to earn a particular su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinary contract of employment, and that the word 'salary' if held to include the consideration of such a contract, would lose all meaning, for it could as well be said to include the money consideration of any contract whatever. We consider therefore that the amount in dispute does not fall under the head 'Salaries'. So also we consider that it does not fall under the fourth head of Section 6 'profits and gains of business, profession or vocation'. Section 10 of the Act provides that tax shall be paid by an assessee under this head in respect of any business, profession or vocation carried on by him. It may perhaps be said that it has been received by the Mills Store Company as a consequence of the business carried on by them prior to October 1935, and that, but for this business, they would not be receiving the amount. The amount, however, is not the direct consequence of actual business transacted. It is the direct consequence of no business being transacted. We think that to fall within the fourth head an amount must be the direct result of profits or gains accruing from a particular business actually carried on by the assessee. It is not suggested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section says that the Act shall not apply to the following classes of income , and in the category that follows, clause (v) runs : Any capital sum received in commutation of the whole or a portion of a pension, or in the nature of consolidated compensation for death or injuries, or in payment of any insurance policy, or as the accumulated balance at the credit of a subscriber to any such provident fund.' Their Lordships do not think that any of these sums, apart from their exemption, could be regarded in any scheme of taxation as income, and they think that the clause must be due to the over-anxiety of the draftsman to make this clear beyond possibility of doubt. They cannot construe it as enlarging the word 'income' so as to include receipts of any kind which are not specially exempted. They do not think that the clause is of any assistance to the appellant. Following the line of reasoning above indicated, the sums which the appellant seeks to charge can, in their Lordships opinion, only be taxable if they are the produce or the result, of carrying on the agencies of the oil companies in the year in which they were received by the respondents- But when once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreement with the Burmah-Shell Company taken the form of a single payment, as was the remainder of the consideration, we think that the case would be covered by the penultimate paragraph of the extract of their Lordships' judgment set out above, and no further consideration would be necessary. Section 12(1) provides that the tax shall be payable by an assessee under the head in respect of income, profits and gains of every kind which may be included in his total income, if not included under any of the preceding heads. The Privy Council decision in Gopal Saran v. Income-tax Officer [1935] 3 ITR 237 ; AIR 1935 PC 143, shows that the word 'income' is not limited by the words 'profits' and 'gains', and that anything which can properly be described as income is taxable under the Act unless expressly exempted. In this case their Lordships repeated the following passage from their judgment in the Shaw Wallace case (supra ) already referred to: Income, their Lordships think, in this Act connotes a periodical monetary return ' coming in ' with some sort of regularity, or expected regularity, from definite sources. The source is not, necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al capital sum. The death of the annuitant brought into operation this part of the contract, and annuity payments were made to the nominee. The Court of Appeal has held that these sums received by the nominee art income in his hands, and are not capital receipts (Sothern-Smith v. Clancy [1941] 9 ITR Suppl. 73 ; [1911] 1 All ER 111). In order to ascertain whether the object of a transaction was the production of a definite return, the production of an income to the assessee, it is necessary to look to the nature of the particular transaction. In the present case we do not think it can fairly be said that the intention of the Burma-Shell Company was to give, or that the intention of the Mills Store Company was to secure, an income. We think that the object of the Burmah-Shell Company was to spread a capital payment over the period of the restrictive covenant in order to afford a safeguard to themselves against any breach of that covenant, and that the Mills Store Company accepted this spreading, not in order that they might enjoy an income for the period of ten years, but as a substitute for the friendly but obviously unbusinesslike, alternative of an agency for that period. We do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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