COMMISSIONER OF INCOME-TAX, BENGAL Vs. SHAW WALLACE AND COMPANY

JUDGEMENT

(1.) This is an appeal from a judgment of the High Court at Calcutta delivered on a reference made to it under S. 66, Indian Income-tax Act, 11 of 1922. The reference arose out of an assessment to income-tax upon the respondents for the year 1929-30, in respect of an item of Rs. 9,83,361, part of a larger sum of Rs. 15,25,000 received by them in 1928 as compensation for the termination of certain agencies.

(2.) The respondents carry on business in Calcutta as merchants and agents of various companies, and have branch offices in different parts of India. For a number of years prior to 1928 they acted as distributing agents in India of the Burma Oil Company and the Anglo-Persian Oil Company, but had no formal agreement with either company. In or about the year 1927 the two companies combined and decided to make other arrangements for the distribution of their products. The respondents' agency of the Burma Company was accordingly terminated on 31 December 1927, and that of the Anglo-Persian Company on 30 June following. Some time in the early part of 1928 the Burma Company paid to the respondents a sum of Rs. 12,00,000 "as full compensation for cessation of the agency," and in August of the same year the Anglo- Persian Company paid them, another sum of Rs. 3,25,000 as "compensation for the loss of your office as agents to the Company." The quotations are from letters by which the payments were recorded, and are accepted on both sides as correctly expressing the nature of the transactions.

(3.) The income-tax officer, in computing the assessable income of the respondents for the relevant year, took these two receipts into account as profits or gains of their business in the year ending 31 December 1928, but allowed certain deductions therefrom in respect of compensation paid by the respondents to various employees, leaving a balance of Rupees 9,83,361 which he included in the total income of the respondents found assessable for the year 1929-30. The respondents objected to the assessment, and appealed to the Assistant Commissioner, who confirmed the assessment. Thereafter, on the requisition of the respondents, the Commissioner drew up a statement of the case, and referred the questions of law therein set out to the High Court with his own opinion thereon which was against the contentions of the respondents