Ajit K. Sengupta, J. - (1.) In this reference made at the instance of the Revenue, the following question has been referred by the Tribunal to this court under Section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in confirming the decision of the Commissioner of Income-tax (Appeals) that the receipt of Rs. 29,47,500 by the assessee from the receiver of the hotel in the course of the assessee's hotel operation business is a capital receipt ?"
(2.) The facts as found by the Tribunal are as follows : This reference relates to the income-tax assessment of the assessee-company for the previous year ending on June 30, 1978, corresponding to the assessment year 1979-80. The assessee-company had acquired certain skills and experience in managing big hotels in different countries of the world. During the relevant previous year, the assessee-company was operating, managing or administering many hotels belonging to others for a fee in several places, i.e., Cairo, Colombo, Kathmandu, Singapore, etc. The memorandum of association of the assessee-company authorised it not only to purchase and run hotels on its own account, but also to operate, manage or administer hotels belonging to others for a fee.
(3.) In terms of an agreement dated November 2, 1970, the assessee-company agreed to operate the hotel known as Hotel Oberoi Imperial, Singapore. The assessee-company agreed to operate the Singapore hotel and all its facilities and activities in the same manner as is customary and usual in the operation of first-class international hotels. It also provided supervisory services in the form of providing technical staff. In return, the assessee-company was to receive a certain fee called "management fee" which was calculated on the basis of gross operating profits as laid down in Article X of the agreement. This agreement was to run for an initial period of ten years ; but the assessee had the option to ask for renewal of the said agreement for two further periods of ten years each by mutual agreement. Article XVIII of the said agreement gave the assessee a right to exercise the option of purchasing the hotel in case its owners desired to transfer the same during the currency of the agreement. The assessee-company started operating Hotel Oberoi Imperial, Singapore, under the terms and conditions laid down in the said agreement dated November 2, 1970.;