These questions were Whether the assessees agency of the Imperial Chemical Industries Export Ltd. was a separate business by itself, the closure of which resulted in the destruction of a capital asset of the assessee Whether on the facts and in the circumstances of this case, the companypensation sums received by the assessee from the Imperial Chemical Industries Export Ltd. are income chargeable in the hands of the assessee and Whether on the facts and in the circumstances of this case numberpart of the companypensation money was received by the assessee on the companydition number to carry on a companypetitive business in the same line of activity in explosives and as such numberpart of the money was in the nature of capital being exempt from Indian Income tax levy?
With certificate of fitness granted by the High Court, ,these appeals have been preferred by the appellant.
By letter dated March, 11, 1947, the principal companypany informed the appellant that the agency will stand terminated from April 1, 1948, and that it desired to companypensate the appellant for termination of the agency on the following basis For the first three post transfer years the principal companypany shall pay to the appellant two fifths of the companymission accrued on actual sales in the territory of the lattees agency taken over the principal companypany, such companymission to be companyputed at the companymission rates formerly paid to the appellant That in the third post transfer yeae the principal companypany shall pay the appellant in I24 addition a sum equivalent to full companymission on the sales for that year effected by the principal companypany in the appellants territory calculated at the same rates.
The Income tax Officer also assessed the relevant amount of companypensation to Business Profits tax for the chargeable accounting period ending March 31, 1949.
Appeals from the judgment and order dated January 10, 1962, of the Calcutta High Court in Income tax Reference No.
appellant may be cancelled after two or three years.
The Income tax Officer, Companies District IV, Calcutta, rejected the companytention of the appellant, holding that cancellation of a single companytract of agency out of a number of selling agencies held by the appellant was in the ordinary companyrse of business and the sums received by the appellant as companypensation for Cancellation were revenue, taxable under the Indian Incometax Act, 1922.
The Appellate Tribunal held that the companypensation received by the appellant was merely incidental to the carrying on of the business.
The Tribunal also held that the companyenant referred to in the letter dated March, 11, 1947, about the appellant agreeing to refrain from carrying on a companypetitive business in explosives did number form companysideration for the amount paid, because although proposed in the letter dated March 11, 1947, there was numberformal acceptance of the offer or an undertaking in writing given by the appellant agreeing number to carry on a companypetitive business.
825 828 of 1963.
But in the companyrse of the proceedings for assessment to income tax and Business Profits Tax, the appellant claimed that the amounts were companypensation received on determination of the agency being receipts of a capital nature and were number liable to be included in the total income of the appellant.
CIVIL APPELLATE JURISDICTION Civil Appeals Nos.
The amounts of companypensation received by the assessee from the Imperial Chemical Industries Export Ltd. were income chargeable in the hands of the assessee.
Sen, P. K. Chatterjee and D. N. Gupta, for the appellant.
33 of 1957.
In May 1945 the principal companypany desired to set up its own Organisation for distributing its products, and intimated the appellant that the agency of the .
The appellant was incorporated for taking over the business of M s Gillanders Arbuthnot Co. and since it took over the distributing agency the appellant acted as the sole agent and distributor of explosives manufactured by the principal companypany, but without a written agreement.
In the view of the Tribunal the offer relating to the under taking number to carry on a companypetitive business companytained in the letter was number accepted, and the amounts paid by the principal companypany companyld number therefore be regarded as forming companysideration partially or wholly for acceptance of that.offer.
There was numberwritten agreement between the principal companypany and M s Gillanders Arbuthnot Co. incorporating the terms of the agency agreement.
It is however companymon ground that the agency agreement was terminable at the option of the principal companypany.
May 1, 1964.
In appeal to the Appellate Assistant Commissioner, the companytention of the appellant was accepted principally on the ground that the amounts received by the appellant were companypensation for termination of the agency with the princi pal companypany and as companysideration for agreeing to refrain from carrying on in future companypetitive business in explosives.
Since January 21, 1886, M s. Gillanders Arbuthnot Co. predecessors in interest of the appellant were the sole agents and distributors in India of explosives manufactured by the Imperial Chemical Industries Export Ltd. Glasgow, Scotland, hereinafter called the principal companypany.
N. Rajagopal Sastri and R.N. Sachthey, for the respondent.
The Tribunal thereafter referred three questions under s. 66 l of the Indian Income tax Act, 1922 to the High Court of Judicature at Calcutta.
The appellant carried on business in diverse lines, which may broadly be classified as 1 buying and selling on its own account, 2 introducing customers to principals 3 acting as managing agents, 4 acting as shipping agents, 5 acting as purchasing agents, 6 acting as sole importers and distributors on behalf of United Kingdom principals having numberOrganisation in India and 7 acting as secretaries.
The Tribunal negatived the companytention of the appellant that the explosives agency was a separate business or that termination of that business amounted to loss of an enduring asset.
The Judgment of the Court was delivered by SHAH, J. The appellant which is a public limited companypany incorporated under the Indian Companies Act, 1913, has its registered office at Calcutta, and branches in Bombay, Madras, New Delhi and Kanpur.
That payments would be made to the appellant after the end of each year as soon as the amount due was ascertained.
Pursuant to companyditions 1 and 2 incorporated in the letter dated March 11, 1947, which have been set out earlier, the appellant received the following amounts from the principal companypany, For the previous year companyresponding to the assesment year ending 31st March, 1949.Rs.1,53,471/11/ For the previous year companyresponding to the assessment year ending 31st March, 1950.Rs.1,59,271/41 For the previous year companyresponding to the assessment year ending 31st March, I951Rs.6,20,13I/2/ These amounts were included in its profit loss account by the appellant as companymission received by it.
