TMI Blog1979 (7) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of films had been secured for the calendar years 1960 to 1962 for the areas, Madras and Rajasthan. Subsequently, there was a formal contract on 22nd April, 1961, which reduced the terms of the informal arrangement obtaining previously into a formal character. The agreement was as between principal and principal and the rates at which the assessee was to be paid were stipulated in the agreement. Lintas was to provide the assessee with the necessary prints, etc. The prints were to be of films in the Indian languages. The terms of the contract, as reduced to writing on 22nd April, 1961, were continued for the calendar year 1962 and also for 1963. On 26th June, 1963, the arrangement was again reduced to writing, but it was to be enforced up to 31st December, 1963. In the last mentioned agreement, there was a new clause that Lintas, during the period of the agreement, had the right to enter into agreement with other persons for distribution and exhibition of their films even in the towns covered by the agreement with the assessee. The agreement continued for the calendar year 1964, also under contract dated 9th April, 1964. On 25th June, 1965, Lintas wrote to the assessee that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lintas came to Rs. 2,55,047.41, from Colgate Rs. 1,22,299.71 and from others Rs. 22,068.55. The agreement with Lintas came to an end on 31st December, 1965. On 1st April, 1966, the assessee entered into a further agreement with Blaze modifying the terms of the agreement of 16th May, 1965, to some extent. In this agreement of 1st April, 1966, it was mentioned that by the earlier agreement of 1965, it had been agreed that neither party should interfere with the business of the other during the life of the agreement, i.e., till 31st March, 1975, and that the main business of the assessee was the business of exhibition of film shorts of Lintas in the agreed areas. It was also stated that Blaze was exhibiting film shorts of Lintas Ltd. in areas other than the agreed areas and was desirous of having the business of M/s. Hindustan Lever Ltd. and/or Lintas Ltd. in the agreed area also. Under the agreement of 16th May, 1965, the assessee had agreed not to represent or otherwise do business in film shorts and any sort of advertisement on the cinema screens for Hindustan Lever Ltd. or Lintas Ltd. in the agreed area. The assessee had agreed also to Blaze " taking over and handling " the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be taxed. In effect, his view was that the amount represented capital receipt. The department appealed to the Tribunal, and the Tribunal also considered that all that the assessee had agreed under the agreement dated 1st April, 1966, was to refrain from carrying on any business with Hindustan Lever or Lintas or to canvass such business till the end of 1975, and that the receipts in this connection could be only of a capital nature. It is this order of the Tribunal that has given rise to the question already extracted. The only point to be examined is whether the sum of Rs. 1,50,000 represents a capital or a revenue receipt. At this stage, it may be mentioned that in the assessment on Blaze, the sum of Rs. 1,50,000 was claimed as deduction and it was disallowed. The matter reached this court on reference in T.C. No. 235/74 [Blaze Central (P.) Ltd. v. CIT [1979] 120 ITR 33 (Mad)]. The question that was referred in that case was whether the sum of Rs. 1,50,000 was not deductible as an allowable expenditure. In the course of the judgment, this court referred to the finding in that case, namely, that the sum of Rs. 1,50,000 had been paid for the acquisition of an asset which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee was paid in that case was, therefore, considered to be in the nature of a receipt for compensation for loss of a capital asset and, was, therefore, not a revenue receipt. Each managing agency agreement was considered to be a separate asset. On the same day, the Supreme Court delivered judgment in another case in Gillanders Arbuthnot and Co. Ltd. v. CIT [1964] 53 ITR 283. In this case, the assessee carried on business in several lines. Besides acting as managing agents, shipping agents, purchasing agents and secretaries, the assessee carried on business as importers and distributors on behalf of foreign principals. There were also trading transactions on the assessee's own account. The assessee was the sole selling agent and distributor in India of explosives manufactured by the Imperial Chemical Industries (Exports) Ltd., Glasgow (hereinafter called ICI), since 1886. There was no written agreement between the principal company and the assessee incorporating the terms of the agency agreement. The agreement was terminable at the option of ICI. In 1945, ICI desired to set up its own organisation for the distribution of its products and intimated the assessee that the agency w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain amounts calculated on the basis of the agreement between the parties. The assessee claimed that the amounts received were capital in nature, and the Supreme Court held that the compensation agreed to be paid was not only in lieu of loss of agency but also for the assessee accepting a restrictive covenant for specified period (five years, in that case), that the restrictive covenant was an independent obligation which came into operation only when the agency was terminated, and that part of the compensation attributable to the restrictive covenant was a capital receipt and hence not taxable. The Supreme Court referred to the decision in Gillanders Arbuthnot and Co. Ltd. v. CIT [1964] 53 ITR 283 and pointed out as to what was decided in that case, at pp. 16 and 17 of 60 ITR as follows: " The question was whether the amounts received by the appellant for those three years were of the nature of capital or revenue. This court held that the amounts paid were of the nature of income and, therefore, assessable to tax. The reason given for that conclusion was that, having regard to the vast array of business done by the appellant as agents, the acquisition of agencies was in the nor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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