Updated: Nov 10, 2022
Income Connotes a Periodical Monetary Return "coming in" with some sort of Regularity.
Bombay High Court
The Commissioner Of Income Tax vs Shaw, Wallace And Co.
on 14 March 1932
Equivalent citations: (1932) 34 BOMLR 1033
Author: G Lowndes
Bench: Blanesburgh, Tomlin, G Lowndes
JUDGMENT George Lowndes, J.
1. This is an appeal from a judgment of the High Court at Calcutta delivered on a reference made to it under Section 66 of the Indian Income-tax Act, XI 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. 9,88,361, part of a larger euro 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 years before 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 December 18, 1927, and that of the Anglo-Persian Company on June 30 following,
Some time in the early part of 1928, the Burma Company paid the respondents a sum of Rs. 12,00,000 " as full compensation for cessation of the agency."
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 December 31, 1928, but allowed certain deductions from that place in respect of compensation paid by the respondents to various employees, leaving a balance of Rs. 9,83,861 which he included in the total income of the respondents found assessable for the year 1929-30.
4. The respondents objected to the assessment and appealed to the Assistant Commissioner, who confirmed the assessment.
After that, 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.
5. The questions so formulated were as follows:-
Was not the sum of Rs. 9,83,361, which had been included in the total income of the assessees for purposes of assessment for 1924-30, in the nature of capital receipt and therefore not income, profits or gains within the meaning of the Income-tax Act?
If it could be said to be income, profits or gains within the meaning of the Act, was it liable to be assessed under either of Sections 10 and 12 of the Act, forasmuch as (I) it was not the profits, or gains of any business Carried on by the assessees within the meaning of Section 10 of the Act, nor (2) income, profits or gains from other sources within the meaning of Section 12 of the Act.
In the alternative, was not the payment of Rs. 9,13,361 an ex gratia payment like a present from the oil companies in question, and was it not exempt under Section 4 (3)(vii) of the Act?
6. The reference was heard by the Chief Justice sitting with Ghose and Buckland JJ.
The Chief Justice delivered the judgment of the High Court, and his colleagues concurred.
7. The learned Judges appear to have returned a formal answer only to question (a), which the Chief Justice stated to be "the real question in the case."
He thought that if the respondents could not escape because of the contention raised by this question, they must fail.
The other questions, he thought, fell within a recent decision of the Court in the case of Turner Morrison & Co. Ltd., In re (1928) I.L.R. 56 Cal. 211; he had nothing to add to what was then said on these points.
8. Their Lordships agree that the fundamental matter for decision falls under (a), but they think that this question is not happily worded, as it seems to suggest that it was only if the sum there referred to was " in the nature of a capital receipt" that it would be exempt from assessment.
In contrast, the correct proposition would seem to be that it was only if it was in the nature of an income receipt that it would fall to be assessed to the tax,
The question was, however, re-stated by the learned Chief Justice in more precise terms, viz., "whether these sums are income, profits or gains within the meaning of the Act at all," and for the reasons stated in his judgment he came to the conclusion that they were not.
Their Lordships think that his conclusion was right though they arrive at this result on a slightly different road.
9. In one part of his judgment, the Chief Justice seems to hold that the "compensation for loss of these agencies is a receipt in respect of a capital asset in the nature of goodwill."
Still, it has been objected with some force that there is nothing upon which this finding can be based.
There was, so far as the facts disclose, no transfer of the goodwill of the respondents and no agreement by them not to compete with the new selling agency of the companies.
10. In another part of the judgment, the payment seems to be regarded as in the nature of compensation in lieu of notice.
But here again, their Lordships think that there are no facts to support such a conclusion, and they doubt if Section 2C6 of the Indian Contract Act has any application upon which reliance is placed.
11. Again, their Lordships would discard the case law that has been so painfully evolved in the construction of the English Income Tax Statutes- both the cases upon which the High Court relied and the flood of other decisions that have been let loose in this Board.
The Indian Act is not in pari materia; it is less elaborate in many ways, subject to fewer refinements, and in arrangement and language, it differs significantly from the provisions the Courts in this country have had to deal with.
Under such conditions, their Lordships think that little can be gained by attempting to reason from one to the other, at all events in the present case in which they believe that the solution of the problem lies very near the surface of the Act and depends mainly on general considerations.