RAM KUMAR AGARWALLA AND BROS Vs. COMMISSIONER OF INCOME TAX
LAWS(CAL)-1963-3-4
HIGH COURT OF CALCUTTA
Decided on March 11,1963

RAM KUMAR AGARWALLA AND BROS. Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents


Referred Judgements :-

VAUGHAN VS. ARCHIE PARNELL AND ALFRED ZEITLIN LTD [REFERRED TO]
CIT VS. MILLS STORE CO.,KARACHI [REFERRED TO]
HIGGS VS. OLIVER [REFERRED TO]
ROLLS-ROYCE LTD. VS. JEFFREY [REFERRED TO]
SHADBOLT VS. SALMON ESTATE LTD. [REFERRED TO]
THOMPSON VS. MAGNESIUM ELEKTRON LTD [REFERRED TO]
G VENKATASWAMI NAIDU AND COMPANY VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
SAROJ KUMAR MAZURNDAR VS. COMMISSIONER OF INCOME TAX WEST BENGAL [REFERRED TO]
RADHA DEBI JALAN VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
COMMISSIONER OF INCOME TAX VS. P K DAS [REFERRED TO]
MAYFAIR ESTATES PRIVATE LTD VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
FRINGFORD ESTATES LIMITED VS. COMMISSIONER OF INCOME TAX [REFERRED TO]


JUDGEMENT

P.B. MUKHARJI, J. - (1.)IN this IT Reference under s. 66(1) of the IT Act the following questions have been asked:
"1. Whether there was any material on record for the President to give a finding to the effect that the contention of the assessee that it intended to buy the mills was without any basis whatsoever? 2.Was the receipt in question a revenue receipt from a venture in the nature of trade and has it been rightly brought to tax?"

(2.)THE facts lie within a small compass though the case had a very chequered history. THE assessee is a registered firm carrying on the business as share brokers, share dealers and paper merchants. THE asst. yr. is 1947-48, corresponding to the previous year which is the calendar year 1946. Early in 1946, the assessee, Mr. David Mitchell of M/s Lovelock and Lewis, chartered accountants, and Mr. Rowan Hodge of M/s Orr, Dignam and Co., solicitors, were found as a fact to be negotiating with M/s Harseman Brothers, proprietors of Swadeshi Cotton Mills, for acquiring the controlling interest in the said mills. In or about April, 1946, M/s Mangturam Jaipuria acting through its main partner, Anandram Guzdar, was also trying to acquire the controlling interest in the said Swadeshi Cotton Mills with a view to secure the controlling interest for itself. M/s Mangturam Jaipuria offered to pay Rs. 6,00,000 to the applicant, Mitchell, and Hodge, in order to dissuade them from competing with it in the negotiations for the purchase of the controlling interests in the Swadeshi Cotton Mills. THE offer was made by M/s Mangturam Jaipuria as contained in their letter dt. 29th April, 1946, addressed to David Mitchell and the material portion of that letter is : .... We confirm that we and our associates are desirous of purchasing the same (Swadeshi Cotton Mills Co. Ltd.) and in the event of your securing the same for us and upon your giving up all claims to purchase the same and assigning to us and our associates any interest that you may have acquired therein, we hereby agree to pay you and your colleagues a capital sum of Rs. 6,00,000, such payment to be made upon completion of the purchase by us."
With a view to give effect to that Mangturam Jaipuria also secured an irrevocable letter of credit of the then Imperial Bank of India in favour of David Mitchell. Now this sum of Rs. 6,00,000 was duly received and divided amongst these three persons, the assessee, Mitchell and Hodge, and out of it the applicant had received the sum of Rs. 2,00,000. It is this amount over which the controversy rests. After payment of Rs. 25,000 to one Ratanlal Goel for services rendered in this deal the applicant-assessee credited the balance of Rs. 1,75,000 out of this Rs. 2,00,000 to the profit and loss account as "brokerage and commission". The assessee duly filed a return showing the receipt of this very money as income receipt. But then, later on, the assessee submitted a revised return excluding that amount from the income and claimed exemption on the ground that it was not a receipt "arising from business or the exercise of a profession, vocation or occupation", and was of a "casual and non-recurring nature" within the meaning of s. 4(3)(vii) of the IT Act.

Both the ITO as well as the AAC rejected the claim of the assessee that the receipt of this sum of Rs. 1,75,000 was a non- recurring casual receipt exempt from tax under s. 4(3)(vii) of the Act or that it was in any-way a capital receipt as distinct from a revenue receipt. The assessee appealed to the Tribunal. Before the Tribunal the assessee's main contention was that this sum of Rs. 2,00,000 was offered to it for staying away from the transaction and not competing with M/s Mangturam Jaipuria. In respect of this contention the assessee relied on the well known case of the British Shakesperian actor, Sir Lawrence Olivier, reported as Higgs vs. Oliver (1952) 33 Tax Cas. 136. Reliance was also placed on such authorities as CIT vs. Mills Store Co., Karachi (1941) 9 ITR 642 and Fringford Estates Ltd. vs. CIT (1951) 20 ITR 385.

(3.)THERE was difference of opinion between the Accountant Member and the Judicial Member of the Calcutta Bench of the Tribunal and the matter was referred to the President of the Tribunal for his opinion. The President was of opinion that more relevant material should be brought on record before he could express his opinion and, therefore, remanded the case to the AAC with a direction to examine certain persons and to submit his remand report. The President made the remand order on the 24th Dec., 1955. After remand the AAC examined certain persons and made his remand report to the President. It may only be added that the Accountant Member was of the view that the receipt was of a casual and non-recurring nature and that it had not arisen out of the appellant- assessee's business and, therefore, it was exempt from tax under s. 4(3)(vii) of the IT Act. The Judicial Member, on the other hand, held that the assessee was a professional broker and the assessee in the first instance showed the amount in his brokerage account and also showed it as profit in the first return filed by the assessee. The Judicial Member held that the money received by these three professional persons was in the course of their joint venture in consideration of their not competing with the rival group and could not be considered to be casual within the meaning of s. 4(3)(vii) of the Act.
After the remand report the President on a consideration of all the facts came to the conclusion that the receipt was a revenue receipt from a venture in the nature of trade and should be brought to tax by the IT authorities. In other words, the President agreed with the Judicial Member's view on this point. This in short is the chequered history of this case on which the present reference has been made on the aforesaid two questions.



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