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TMI Blog1962 (3) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... that the terms of the agreement were fulfilled and that the resignation of the assessee firm was also accepted by the board of directors of the Kamala Mills Ltd. The previous year of the assessee had been accepted as the calendar year. In the return of the assessee for the assessment year 1955-56, the above receipts of ₹ 2,24,000 was not returned as part of the income. The Income-tax Officer applied section 10(5A) of the Act and called upon the assessee to show cause why the amount specified above should not be included in the total income of the relevant year ending on 31st March, 1955. The assessee objected contending that there was no termination of the managing agency agreement by the managed company and that the payment having been made by a third party and not by the principals, the amount was not compensation within the meaning of the Act. A further objection advanced was that since the amount was received on January 8,1955, and since the previous year of the assessee was the calendar year, this amount could not be brought to assessment in the assessment year 1955-56. These objections were overruled. On the first of the above questions, the departmental authorities an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Here is a case, so argues Mr. Swaminathan, learned counsel for the assessee, where the assessee voluntarily resigned its managing agency and the receipt of this sum from a third party and not from the managed company clearly dissociates it from any compensation which a person who is deprived of a valuable right is entitled to receive in recompense for the loss of that right. It is true that compensation has the meaning that it is something paid to a person what has suffered a loss by another who has caused that loss, but that appears to be a secondary meaning. We have been referred to Salmond on Jurisprudence, where it is stated: "It may be stated as a general rule, that the violation of a private right gives rise, in him whose right it is, to a sanctioning right to receive compensation for the injury so done to him. Such compensation must itself be divided into two kinds, which may be distinguished as Restitution and Penal Redress. In respect of the person injured, indeed, these two are the same in their nature and operation; but in respect of the wrongdoer, they are very different. In restitution the defendant is compelled to give up the pecuniary value of some benefit wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee can be regarded as compensation, in the light of a recompense for a right which the managed company wilfully deprived the assessee of, it cannot come within the scope of section (5A) . Even apart from this argument raised upon the precise significance of the expression "compensation", the relevant section takes in both compensation or other payments. While it may be true that compensation in the special sense urged by the learned counsel will certainly come within the scope of the provision, any other payment which was received by the managing agent "at or in connection with the termination" of his managing agency agreement is also within the mischief of the section. It is not necessary that the agency agreement should have been terminated by the managed company. If the payment is received at or in connection with the termination, that would be sufficient for the purpose of bringing it to tax under the Act. It cannot be denied by the learned counsel that it was so received. Clause 4 of the agreement entered into by the assessee with Chidambaram Chettiar reads: "It is hereby further agreed by and between the parties that the amount of ₹ 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir Lordships observed: "Reference was made to section 10(5A) of the Indian Income-tax Act, 1922, and it was urged that the language of that sub-section impliedly indicated that the sum of ₹ 26,000 (Rupees twenty-six thousand) was a capital receipt. We are unable to accept this suggestion. That sub-section was obviously introduced to prevent the abuse of managing agency agreements being terminated on payment of huge compensation and to nullify the application of the decision in Shaw Wallace's case [1932] 2 Comp Cas 276 to such cases. But that sub-section does not necessarily imply that if that sub-section were not there the kind of payment referred to therein would have been treated as capital receipt in all cases." To what purpose these observations are relied upon by the learned counsel we are at a loss to see. Apparently, the argument is that, but for this provision, there was a possibility of the receipt of this sum being treated as a capital receipt and therefore, not taxable, and if that were so, effect to this provision should be given only on and after the date of passing of the Finance Act. If that is the argument, we have necessarily to reject it, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notes that the legislature intended to treat this item of receipt as derived from a different source. Firstly, we are unable to agree that this receipt was not derived from the managing agency itself. The main part of section 10(5A) refers to any compensation or other payment received by a managing agent at or in connection with the termination of the managing agency agreement. If the managing agency was the business carried on by the assessee and its termination resulted in this receipt, we are at a loss to see why this receipt should not be related to that source, viz., the managing agency itself. It is true that it cannot be stated to be income, profits or gains of a business carried on, because it was not the carrying on of the business of the managing agency that gave rise to this receipt. But, undoubtedly, the source of this receipt was the managing agency business. If the argument of the learned counsel for the department is accepted, we have to presume that in addition to the fiction created by the section that the receipt shall be deemed to be the profits and gains of a business, there was the further implied fiction created by the section that it shall also be deemed to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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