TMI Blog1959 (8) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... e managing agent of Godrej Soaps Limited (hereinafter called the "managed company"). It has been working as such managing agent since October, 1928, upon the terms and conditions recorded originally in an agreement dated October 28, 1928, which was subsequently substituted by another agreement dated December 8, 1933, (hereinafter referred to as "the principal agreement"). Under the principal agreement the assessee firm was appointed managing agent for a period of thirty years from November 9, 1933. Clause 2 of that agreement provided as follows : "The company shall during the subsistence of this agreement pay to the said firm and the said firm shall receive from the company the following remuneration, that is to say : (a) A commission during every year at the rate of twenty per cent. on the net profits of the said company after providing for interest on loans, advances and debentures (if any) working expenses, repairs outgoings and depreciation but without any deduction being made for income-tax and super-tax and for expenditure on capital account or on account of any sum which may be set aside in each year out of profits as reserve fund. (b) In case such net profits of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... document be prepared by the company's solicitors and approved by the managing agents and the directors shall carry the same into effect with or without modification as they shall think fit." The agreed modifications were thereafter embodied in a supplementary agreement made between the assessee firm and the managed company on March 24, 1948. After reciting the appointment of the assessee firm as the managing agent upon terms contained in the principal agreement and further reciting the agreement arrived at between the parties and the resolution referred to above, it was agreed and declared as follows : "1. That the remuneration of the managing agents as from the 1st day of September, 1946, shall be ten per cent. of the net annual profits of the company as defined in section 87C, sub-section (3), of the Indian Companies Act, 1913, in lieu of the higher remuneration as provided in the above recited clause (2) of the principal agreement. 2. Subject only to the variations herein contained and such other alterations as may be necessary to make the principal agreement consistent with these presents the principal agreement shall remain in full force and effect and shall be read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess for appeal to this court and that is how the appeal has come before us. As has been said by this court in Commissioner of Income-tax v. South India Pictures Ltd., "it is not always easy to decide whether a particular payment received by a person is his income or whether it is to be regarded as his capital receipt". Eminent Judges have observed that "income" is a word of the broadest connotation and that it is difficult, and perhaps impossible, to define it by any precise general formula. Though in general the distinction between an income and a capital receipt is well recognised, cases do arise where the item lies on the border-line and the problem has to be solved on the particular facts of each case. No infallible criterion or test has been or can be laid down and the decided cases are only helpful in that they indicate the kind of consideration which may relevantly be borne in mind in approaching the problem. The character of payment received may vary according to the circumstances. Thus, the amount received as consideration for the sale of a plot of land may ordinarily be capital ; but if the business of the recipient is to buy and sell lands, it may well be his income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the language used in the document is not decisive and the question has to be determined by a consideration of all the attending circumstances ; nevertheless, the language cannot be ignored altogether but must be taken into consideration along with other relevant circumstances. This sum of Rs. 7,50,000 has undoubtedly not been paid as compensation for the termination or cancellation of an ordinary business contract which is a part of the stock-in-trade of the assessee and cannot, therefore, be regarded as income, as the amounts received by the assessee in Commissioner of Income-tax v. South India Pictures Ltd. and in Commissioner of Income-tax v. Rai Bahadur Jairam. Valji had been held to be. Nor can this amount be said to have been paid as compensation for the cancellation or cessation of the managing agency of the assessee firm, for the managing agency continued and, therefore, the decision of the Judicial Committee of the Privy Council in Commissioner of Income-tax v. Shaw Wallace and Co., cannot be invoked. It is, however, urged that for the purpose of rendering the sum paid as compensation to be regarded as a capital receipt, it is not necessary that the entire managing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompensation for this injury to or deterioration of the managing agency just as the amounts paid in Glenboig's case or Vazir Sultan's case were held to be. This case is also very nearly covered by the majority decision of the English House of Lords in Hunter v. Dewhurst. It is true that in the later English cases of Prendergast v. Cameron and Wales v. Tilley, the decision in Hunter v. Dewhurst was distinguished as being of an exceptional and special nature but those later decisions turned on the words used in rule 1 of Schedule E to the English Act. Further, they were cases of continuation of personal service on reduced remuneration simpliciter and not of acquisition, wholly or in part, of any managing agency viewed as a profit-making apparatus and consequently the effect of the agreements in question under which the payment was made upon the profit-making apparatus did not come under consideration at all. On a construction of the agreements it was held that the payments made were simply remuneration paid in advance representing the difference between the higher rate of remuneration and the reduced remuneration and as such a revenue receipt. The question of the character of the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X
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