B.L.GUPTA J. - (1.) THESE are four references under section 66(1) of the Income-tax Act. Along with each reference there is an application under section 66(4) also. The point involved in the references and the applications is the same. There is also only one statement of the case in respect of all the four references. Accordingly, we propose to dispose of all the four references and all the four applications under section 66(4) by one consolidated judgment.
(2.) THE question referred to us for opinion is : Whether, on the facts and in the circumstances of the case, the sum of Rs. 2,72,500 being the 1/4th share of Rs. 10,90,000 received by M/s. Beharilal Kailashpat on termination of their managing agency of Mills Company has correctly been treated as a receipt in the nature of a capital receipt ? The references were made at the instance of the Commissioner of Income-tax. The opposite parties in the references are four out of eight partners of firm, M/s. Beharilal Kailashpat (hereinafter called the firm) which was the managing agents of M/s. Laxmi Ratan Cotton Mills (hereinafter called the company). The applicant in the four applications is also the Commissioner of Income-tax and the opposite parties are the same four partners of the managing agency firm as in the four references. The facts giving rise to the references and the applications may be stated as follows : There were two groups of partners who constituted the managing agency firm. The shares of the two groups in the managing agency firm were equal, namely, eight annas each. One group consisted of four members of the Singhania family, two owning a share of annas 0-2-8 each and the other two, a share of annas 0-1-4 each. The other group consisted of four members of the Gupta family, each owning a share of two annas. The firm was appointed the managing agents under paragraph 6 of the memorandum of association which is : 6. Messrs. Beharilal Kailashpat (hereinafter called the Agents firm) are appointed the Secretaries, Treasurers and Agents of the Company, upon the remunerations, terms and with powers and for the consideration set forth in the draft agreement annexed as Schedule A, which as also the provisions of this clause may be revised, modified or altered from time to time in such one or more or all the particulars as the Board of Directors and Agents may jointly agree to.
(3.) THE matter was dealt with in the articles of association also. THE relevant articles are articles 143 and 144. THEy are as follows : 143. Appointment of Messrs. Beharilal Kailashpat as Agents of the Company - the members (or sole member as the case may be) for the time being of the firm of Beharilal Kailashpat shall be and they are appointed Agents of the Company, such appointment is hereby confirmed upon the terms, for the remuneration, and with powers in the Draft Agreement set forth in Schedule A hereto and the Board is hereby authorised to get the said agreement executed on behalf of the company and it is hereby expressly provided and declared that in consideration of the services rendered by them in promoting this Company, the appointment of the said firm of Beharilal Kailashpat to the Office of the Agents of the Company shall not be liable to be, at any time hereafter revoked or cancelled on any ground or for any reasons whatever, save and except their being found guilty of fraud in the management and discharge of their duties as such Agents of the Company. 144. If Messrs. Beharilal Kailashpat are removed for any other cause except that mentioned in the last article they are entitled to receive compensation - In the event of the said Company being wound up, the said firm of Messrs. Beharilal Kailashpat shall be entitled to receive and shall receive, out of the assets of the said Company and as compensation for the loss of such appointment of the Agents to the said Company as aforesaid a sum of money equal to the amount earned by the said firm during 5 years preceding the winding up of the said Company, if the Company shall have so long existed and if not then a sum of money equal to five times the average annual amount earned by the said firm, if the said Company shall have existed for more than a year and if not then a sum of money equal to sixty times the average monthly amount earned by the said firm of Messrs. Beharilal Kailashpat. The draft agreement is appended as schedule A to the memorandum and articles of association. Paragraph I of the draft agreement provides for the carrying on of the business of the company by the firm. Paragraph 2(a) provides for the tenure of the firm. Paragraph 2(b) provides for the remuneration of the managing agency firm while in office. Paragraphs 3(a) and 3(b) provide for the termination of the tenure of the firm as the managing agent of the company and for the compensation payable to the firm for loss of their appointment.;