CHAKRAVARTTI, C. J. - (1.) THIS is a reference under s. 66(1) of the Indian IT Act, by which the Tribunal has referred to this Court a short question of a familiar shape. The question asks whether certain payments received by a director of a company of chief agents, which was apart of the total payment made by the principal company on the termination of the chief agency, were income receipts in the hands of the director or were capital receipts. The Tribunal have held that the sums were capital receipts. The CIT, being dissatisfied, has brought up the question before us for an expression of the Court's opinion.
(2.) THE reference relates to two assessment years, namely, 1950-51 and 1951-52. It has arisen out of the following facts : THE assessee is, or perhaps was, a director of a company, going by the name of D. M. Das and Sons Ltd. I say "was", because it is not clear whether after the termination of the chief agency, the company which had this particular agency as its main, if not the only, business, has at all continued to exist. THE present assessment of the assessee is an assessment in his capacity of an individual. It appears that D. M. Das and Sons Ltd., held the chief agency of the Empire of India Life Assurance Co. Ltd. for Bengal, Bihar, Orissa and Assam. As such chief agents, the company procured considerable business for the principal company and built up for it a fine business reputation in the area covered by the chief agency. Nevertheless in 1948, the life assurance company decided to terminate the chief agency and take up the business directly into its own hands. Certain negotiations as regards the terms on which the agency was to be terminated followed and it appears that ultimately a set of proposals was made by the chief agents. Those proposals were accepted by the assurance company with certain modifications and the terms, as so modified, are evidenced by a letter which the assurance company wrote to the chief agents on the 26th June, 1948. The seventh term, as set out in that letter, states that a formal agreement, giving effect to the arrangement agreed to between the parties, would be drawn up subsequently with the approval of the company's solicitors and it may be presumed that an agreement was in, fact drawn up. In those circumstances, it would have been proper if the formal agreement had been produced in the case as evidence of the terms on which the chief agency was terminated. But since both parties proceeded on the footing that the terms, as set out in the letter of the 26th June, 1948, were the terms upon which the termination took place, I shall overlook what appears to me to have been a slight irregularity. The effective terms were six in number, although there were in some of them what I may call sub-terms. It was agreed that the termination of the agency would have effect as from the 1st Jan., 1948. On and from that date, the chief agents would not be entitled to and would not be paid any commission or renewal commission on business secured by them during the period of their chief agency. The amounts of commission or renewal commission which had already accrued due for the period ending on the 31st March, 1947, but which had not been paid or accounted for, would be adjusted and paid to the chief agents, but as regards the period after that date the bills for commission submitted by the sub-agents would be settled by the assurance company directly. As a corollary to that term, it was further agreed that all expenditure incurred by the chief agents on account of establishment and other usual charges would be payable by the company from the 1st Jan., 1948, till the actual date of the handing over of the chief agents' business. The handing over would be in the form that the entire organisation of the chief agents would be taken over by the assurance company as from the 1st Jan., 1948.
(3.) AS a consideration for the termination of the chief agency, the assurance company agreed to pay to certain persons nominated by the chief agents certain amounts which were collectively called "compensation". There were seven shareholders of the company of chief agents, namely, Mr. Amiya Kumar Sen, Mr. Anil Kumar Sen, Mr. P. K. Das, Mrs. Maya Bose, Mr. Dilip Bose, Mr. A. B. Gupta and Mr. Anupam Sen, but of them, Mr. Amiya Kumar Sen, Mr. Dilip Bose, and Mr. Anupam Sen were not to receive any payment at all. For Mr. Anil Kumar Sen, Mr. A. B. Gupta, Mrs. Maya Bose and Mr. P. K. Das, who is the assessee before us, payments at certain rates per month, to be made for a period of seven years, were provided for. A further provision was made for payment of Rs. 1,000 per month to one Mrs. A. C. Sen, who was the mother of Mr. Amiya Kumar Sen, to be made for the period of her life. Mrs. Maya Bose, it may be stated here, was the mother of Mr. Dilip Bose who was himself a director, but for whom no provision was made by the agreement. It appears, and the Tribunal has so found, that even the shareholders who were to get monthly payments under the terms of the agreement were to receive benefits which were not in proportion to their shareholdings. A further covenant provided that neither the company, nor any of the recipients of the compensation would carry on life assurance business or work for any other life office during the period of the payment of the compensation, but, on the other hand, the company and its directors, more particularly Mr. Amiya Kumar Sen, would extend their full co-operation to the assurance company. The question before us concerns the nature of the payment which one of the directors of the company of chief agents, who held twenty-three shares in the company, was to receive from the assurance company under the terms of the agreement. The amount receivable by him was Rs. 1,000 per month for a period of seven years. The assessee, Mr. P. K. Das, did not enter appearance in the reference and has not been represented before us at the hearing. Probably, the reason is to be found in cl. 3(b) of the agreement which states that if any income-tax is levied on any of the payments provided for in the agreement, the same will be borne by, the assurance company.;