TMI Blog1981 (9) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... he Commissioner was aggrieved by the decision of the Tribunal to the effect that the sum of Rs. 24 lakhs received by the assessee in terms of the agreement dated 29th April, 1961, between the assessee and Premier Automobiles Ltd. was capital receipt and not a revenue receipt. He, therefore, filed a reference application and sought reference of question No. (1). However, the Tribunal had permitted the Department to raise before it the alternative contention that assuming that it was not a revenue receipt but a capital receipt, the capital gains arising from the receipt should be assessed. In its order the Tribunal directed that the matter should go back to the ITO for examination of the matter from the capital gains' angle in all its aspects. It is this direction which is questioned by the assessee in question No. (2). In CIT v. V. Damodaran [1980] 121 ITR 572, the Supreme Court has opined that where the order of the Tribunal has decided the appeal partly against one party and partly against the other, the party who is aggrieved and who desires a reference to the High Court must file a reference application. The Supreme Court has gone on further to say that it is not open to an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akhs and Rs. 70 lakhs respectively in 1959-60 and 1960-61. It appears to be the agreed position (although separate accounts were not kept) that from this venture the assessee did not make a profit throughout this period. One of the reasons for the inability of API to make profits was that it was making engines only and according to the assessee the venture might have proved profitable if the makers of the engines were allowed to manufacture trucks also into which the engines could be fitted. API, however, did not have any licence to manufacture trucks. The matters were under discussion with the Govt. of India. Ultimately, the Government appears to have taken a decision that in the interest of rationalisation of the automobile industry, the same persons must manufacture engines as well as trucks. The assessee-company, namely, AP], was interested in obtaining a licence for manufacturing trucks, but due, to considerations of foreign exchange it was not possible for them to secure such a licence. Accordingly, at a meeting held on 16th January, 1961, at the residence of the Hon'ble Minister for Industries, Govt. of India, certain points of agreement were arrived at between API and repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the written down value and the sum of Rs. 24 lakhs could be said to have been paid substantially for the machinery, raw materials, etc. The AAC also approved of the footing which had found favour with the ITO and confirmed the ITO's conclusion. According to the AAC, there were four effective licences involving foreign collaboration existing at the relevant time, namely : (1) Meadows Diesel Engines 1955, M/s. Henry Meadows, U.K. (2) Lambretta Scooters 1955, M/s. Inocenti, Italy. (3) Clutch and Brake Main 1955, M/s. Automobiles Products and 4 others of U.S., Germany and Italy. (4) Friction Materials 1954, World Beston, U.S. There were other minor licences for manufacture of items, but they did not involve foreign collaboration. According to the AAC, one of these four licences had been surrendered without affecting the structure of the business, as seen from the subsequent performance. According to the AAC, the ITO was, therefore, right in holding that the amount of Rs. 24 lakhs was liable to be considered as a revenue receipt and taxable as such. The assessee carried the matter before the Tribunal. The Tribunal in an exhaustive, well-reasoned and well-considered order uph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he agency agreement within the Hyderabad State and though expansion of the territory of the agency in 1939 and the restriction thereof in 1950 could very well be treated as grant of additional territory in 1939 and the withdrawal thereof in 1950, both these agency agreements constituted but one employment of the assessee as the sole selling agents of the company. There is nothing on the record to show that the acquisition of such agencies constituted the assessee's business or that these agency agreements were entered into by the assessee in the carrying on of any such business., The agency agreements in fact formed a capital asset of the assessee's business worked or exploited by the assessee by entering into contracts for the sale' of the Charminar cigarettes manufactured by the company to the various customers and dealers in the respective territories. This asset really formed part of the fixed capital of the assessee's business. It did not constitute the business of the assessee but was the means by which the assessee entered into the business transactions by way of distributing those cigarettes within the respective territories. It really formed the profit-making apparatus of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive diesel engines or industrial diesel engines or both of a horse power approximating to the horse power of Meadows Engines which were hereafter to be manufactured by PAL. In Kettlewell Bullen and Co. Ltd. v. CIT [1964] 53 ITR 261 (SC), the principle has been explained by the Supreme Court as under (p. 276): " It is manifest that the principle, broadly stated in the earlier cases, that compensation for loss of office, or agency, must be regarded as capital receipt has not been approved in later cases. An exception has been engrafted upon that principle that, where payment even if received for termination of an agency agreement, but the agency is one of many which the assessee holds, and the termination of the agency does not impair the profit-making structure but is within the framework of the assessee's business, it being a necessary incident of the business that existing agencies may be terminated and fresh agencies may be taken, the receipt is revenue and not capital." The question which is required to be posed is whether the termination of this activity was a necessary incident of the business of the assessee or did it impair the profit-making structure. The Tribunal af ..... X X X X Extracts X X X X X X X X Extracts X X X X
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