COMMISSIONER OF INCOME TAX Vs. ASIATIC TEXTILE COMPANY LIMITED
LAWS(BOM)-1954-9-11
HIGH COURT OF BOMBAY
Decided on September 17,1954

COMMISSIONER OF INCOME TAX Appellant
VERSUS
Asiatic Textile Company Limited Respondents


Referred Judgements :-

BUSH,BEACH AND GENT,LTD. V. ROAD [REFERRED TO]
BARR,CROMBIE AND CO. LTD. V. COMMRS. OF INLAND REVENUE [REFERRED TO]
WITHERS (INSPECTOR OF TAXES) V. NETHERSOLE [REFERRED TO]
COMMISSIONER OF INCOME TAX AND EXCESS PROFITS TAX BOMBAY VS. SHAMSHER PRINTING WORKS [REFERRED TO]
PROVIDENT INVESTMENT CO LTD VS. COMMISSIONER OF INCOME TAX BOMBAY CITY [REFERRED TO]
GODREJ AND CO VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
COMMISSIONER OF INCOME-TAX, BENGAL VS. SHAW WALLACE AND COMPANY [REFERRED TO]



Cited Judgements :-

RANGASWAMI NAIDU V VS. COMMISSIONER OF INCOME TAX [LAWS(MAD)-1957-1-22] [REFERRED TO]
V S ARULANANDAM VS. COMMISSIONER OF INCOME TAX [LAWS(MAD)-1957-1-7] [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. KETTLEWELL BULLEN AND CO LTD [LAWS(CAL)-1961-8-2] [REFERRED TO]
V RANGASWAMI NAIDU VS. COMMISSIONER OF INCOME-TAX MADRAS [LAWS(MAD)-1957-1-9] [REFERRED TO]
BLUE STAR LIMITED VS. COMMISSIONER OF INCOME TAX [LAWS(BOM)-1994-12-43] [REFERRED TO(BOM) : TC 13R.252,]


JUDGEMENT

CHAGLA,C.J. - (1.)THE question that arises on this reference is whether a receipt of Rs. 25 lacs was a capital or a revenue receipt. This question has vexed and troubled many Judges and many Courts and in - 'Barr, Crombie and Co. Ltd. v. Commrs. of Inland Revenue', (1945) 15 ITR (Supp.) 56, Lord President Normand at p. 60 points out:
"It has been truly said that every case must be considered on its own facts, and that no legal criterion for distinguishing between capital payments and income payments is readily applicable. Therefore, though we have had a considerable citation of cases, I do not propose to refer to more than a few of them."
Notwithstanding this warning counsel go on citing cases and it is the duty of the Court to consider them although the Court has to observe that each case must be decided on its own facts.
(2.)NOW , the facts here are an illustration of high finance, in this case at its highest, and one must confess that the manipulations which high finance requires leaves one completely bewildered. The Moon Mills had appointed P.A. Hormarjee and Co. as its managing agents for several years, and on 28 -6 -1943, a new managing agency agreement was entered into between the Mills and Hormarjee and Co. This agreement was transferred by a deed of transfer to the assessee company on 21 -7 -1944. On 3 -4 -1946, the assessee company surrendered its right as managing agents of the company for a sum of Rs. 25 lacs. This sum was paid to the assessee company by the Moon Mills Ltd., and the taxing department treated this receipt as income and brought it to tax.
A question also arose in the assessment of the Moon Mills, Ltd., as to whether the expenditure of Rs. 25 lacs by the Moon Mills, Ltd., for getting rid of its obligations under the agreement to pay the managing agents was an expenditure incurred wholly and exclusively for the purpose of the business of the Moon Mills. The Department rejected the claim of the Moon Mills that the amount was a permissible deduction. That decision of the Department was upheld by the Tribunal, but with regard to the decision of the Department in the case of the assessee company that the sum of Rs. 25 lacs was liable to tax it was not accepted by the Tribunal, and therefore at the instance of the Commissioner this reference has been made, and it raises two questions,

(1) Whether the receipt of Rs. 25 lacs by the assessee in consideration of the termination of its managing agency was a revenue receipt or a capital receipt? and (2) If the answer to question No.1 is that it was a capital receipt, whether the sum of Rs. 25 lacs or any part thereof was income assessable under the head "capital Gains" under Section 12B of the Act?

(3.)NOW , in order to appreciate the contentions put forward both on behalf of the Commissioner and the assessee it is necessary to have a certain background and to look into the past history which, ultimately resulted in the deed of transfer of 3 -4 -1946. In the first place it is necessary to look at the managing agency agreement itself of 28 -6 -1943. Looking at this agreement it is clear that it is a composite agreement and it is not a simple agreement which one often comes across of a company appointing someone as its managing agents. In other words this is not a simple managing agency ageement. As we shall presently point out, this is an agreement under which Hormarjee and Co. are appointed managing agents and as such certain rights are conferred upon them, and therefore this agreement deals with the integrated rights which are conferred upon the managing agents.


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