TMI Blog1970 (9) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... he lessee was to receive a total of Rs. 68,000 from the lessor. Accordingly, the assessee received a sum of Rs. 16,000 from Kanshi Ram. Under similar circumstances, the assessee received another sum of Rs. 39,262 from Seth Debi Chand. The Income-tax Officer held that these receipts of Rs. 16,000 and Rs. 39,262 were liable to be taxed as income in the hands of the assessee. This decision was upheld by the Appellate Tribunal. The assessee obtained 1/6th share in S. B. Sugar Mills under a deed of exchange. The assessee claimed depreciation on machinery on account of the assessee's 1/6th share in S. B. Sugar Mills. The claim for depreciation was not allowed by the income-tax authorities. This view was upheld in appeal by the Appellate Tribunal. During the accounting period the assessee paid a total sum of Rs. 1,06,039 towards interest on borrowed money. The Income-tax Officer allowed deduction on account of this entire sum of Rs. 1,06,039. That sum included a smaller sum of Rs. 75,211 paid by the assessee towards interest on a loan taken for the purchase of shares of Messrs. Jaswant Sugar Mills. The Appellate Assistant Commissioner thought that the assessee was not entitled to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his total sum of Rs. 68,000. The question for consideration is whether this receipt of Rs. 16,000 by the assessee is to be treated as its income. In Commissioner of Income-tax v. Panbari Tea Co. Ltd., by a lease dated March 31, 1950, the respondent-company leased out two different estates along with machinery and building for a period of ten years in consideration of a sum of Rs. 2,25,000 by way of premium and an annual rent of Rs. 54,000. Of the premium the sum of Rs. 45,000 was payable at the time of execution of the deed and the balance of Rs. 1,80,000 was payable in 16 half-yearly instalments of Rs. 11,250 commencing from January 31, 1952. The question arose whether the sum of Rs. 11,250 received by the respondent towards premium was a revenue or a capital receipt. It was held to be capital receipt. In Kettlewell Bullen Co. Ltd. v. Commissioner of Income-tax, it was explained that it cannot be said as a general rule that what is determinative of the nature of a receipt on the cancellation of a contract of agency or office is extinction or compulsory cessation of the agency or office. Where payment is made to compensate a person for cancellation of a contract which does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Ltd. the assessee which carried on the business of distribution of films entered into three agreements for advancing money to certain motion picture producers. The agreements provided that the assessee would advance certain sums of money in instalments for the production of films. After the assessee had exploited to a certain extent its right of distribution of the three films, the agreement was cancelled, and the producers paid an aggregate sum of Rs. 26,000 to the assessee towards commission. It was held by the Supreme Court that the sum so received was income receipt. In Gangadhar Baijnath v. Commissioner of Income-tax, it was observed at page 637 : " When the rights and advantages surrendered on cancellation are such as to destroy or materially to cripple the whole structure of the recipient's profit-making apparatus, involving the serious dislocation of the normal commercial organisation and resulting perhaps in the cutting down of the staff previously required, the recipient of the compensation may properly affirm that the compensation represents the price paid for the loss or sterilisation of a capital asset and is, therefore, a capital and not a revenue receipt...... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the total amount of Rs. 68,000. Consequently, the sum of Rs. 16,000 received by the assessee was its income assessable to tax. On the same reasoning, the sum of Rs. 39,262 received from Seth Devi Chand by the assessee was assessable as income of the assessee. Question No. 2. This question has been framed on the assumption that there is material difference between 1/6th share in the sugar mills and 1/6th interest in the same property. This question has been unhappily framed. The question of depreciation was disposed of by the Appellate Tribunal in paragraph 15 of its judgment thus : " The assessee had acquired 1/6th share of another party in the said sugar mills. Since depreciation is allowable only on machinery, etc., and not on the interest which the party had in a particular factory, the Appellate Assistant Commissioner is right in disallowing the assessee's claim. " It is true that in that passage the Tribunal used two different words " share " and " interest ". But it does not appear that the Tribunal considered that there was any substantial difference between the two expressions. The basis of the decision of the Tribunal was that mere acquiring of some interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mant must make out that the machinery is the property of the assessee. That test is not satisfied by the present assessee. The assessee does not claim to be the full owner of the machinery in question. All that is claimed for the assessee is 1/6th share in the machinery. Such a fractional share will not suffice for granting an allowance for depreciation under section 10(2)(vi) of the Act. Question No. 4. In Ormerods (India) Private Ltd. v. Commissioner of Income-tax, the facts were these : In the accounting year ending November 30, 1948, the assessee-company purchased shares to the tune of Rs. 52 1/2 lakhs and for this purpose took loans to the extent of Rs. 49 1/2 lakhs. During the accounting years the assessee paid certain sums as interest on capital borrowed for the purchase of shares, but there was no income at all from those shares, The assessee claimed to set off those payments of interest against its other income in those years. It was held by the Bombay High Court that the word " purpose " in the expression " expenditure incurred solely for the purpose of making or earning such income, profits or gains " in section 12(2) of the Act did not mean motive for the transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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