1. In this reference made by the Tribunal to this court under section 66(1) of the Indian Income-tax Act, 1922, the following question has been referred for our determination :
'Whether, on the facts and in the circumstances of the case, the amount of Rs. 41,471 received by the executors was assessable in their hands as their income for the assessment year 1958-59 ?'
2. A few facts giving rise to the question may be stated : The assessees are the executors of the estate of late Shri Frank Summersgill who died in Bombay on 20th March, 1955, leaving his last will made on 23rd February, 1955. The two assessees - Shri Reginald Mathalone and Shri K. B. Parekh - were appointed by the deceased as his executors for the administration of his estate after his death. The question under reference refers to the assessment year 1958-59. It may be stated that up to the end of the previous year relevant to the assessment year in question the administration of the estate was not completed.
3. By virtue of an agreement made between the company, M/s Williamsons (India) Ltd. on the one had and himself on the other, the late Shri Frank Summersgill was to act as a life director and the first managing director for a period of five years from the date of the incorporation of the company and thereafter until the expiry of six months' notice in writing given by one party to the other. Apart from the director's fees, expenses and other remuneration which were payable under article 53 of the articles of association of the company, under clause 2 of the agreement for a period of five years from the date of the incorporation of the company and thereafter until the termination of the agreement by 6 months' notice on either side, the deceased was entitled to receive as remuneration for his services as the managing director two items : (a) a monthly salary of Rs. 2,500 to be paid at the end of every month, and (b) a commission at the rate of 30% on price of all goods sold by the company in India (including the Dominion of India, the Dominion of Pakistan and Indian States). Burma and Ceylon, such commission to be payable upon each sale being made. Under clause 4 of the agreement excepting the provisions specially provided in clauses 5, 6 and 7 thereof, upon the termination of the agreement Shri Summersgill or his heirs, executors and administrators were entitled to a proportionate part of his salary up to the date of termination and to the commission at the rate mentioned above on all sales effected by the company up to such date on all the business on the books on such date and on all business booked for a period of one year thereafter.
4. Shri Summersgill died on 20th March, 1956, and it appears that a sum of Rs. 41,471 representing the commission of one year's sales after his death was given to the executors as per the aforesaid agreement. It appears that litigation ensued between the legal heirs of Shri Summersgill, namely, his wife and daughter and the executors named under the will in this court on the original side in which the legal heirs claimed for a declaration that the aforesaid amount paid by the company to the executors belonged to them. The originating summons which had been taken in this behalf was decided by this court on 10th February, 1959, and on a true construction of clause 4 of the agreement this court held that the amount of Rs. 41,471 being the commission ascertained by the company in respect of the business booked for the company for one year after the death of Shri Summersgill belonged to his estate and was to be administered by the executors under the directions of the will and the same did not belong to the heirs in their own right.
5. In the assessment of the executors and trustees under the will for the assessment year 1958-59 the Income-tax Officer included the aforesaid amount in their assessment as representing commission belonging to the estate administered by the executors. The assessees appealed to the Appellate Assistant Commissioner and the Appellate Assistant Commissioner excluded that amount from the total income of the assessee on the ground that the said amount was not a revenue receipt in the hands of the executors but the same was required to be treated as a receipt of capital nature. The matter was carried by the department in further appeal to the Tribunal and it was contended that what the estate acquired was a right under the agreement and it was in exercise of that right that the estate received the amount in the form of commission income. It was also contended that the decision of this court in Commissioner of Income-tax v. Amarchand N. Shroff : 36ITR124(Bom) as well as the Supreme Court decision in that very case when the matter was carried further and which has been reported in : 48ITR59(SC) was clearly distinguishable on facts. On the other hand, on behalf of the assessee it was contended that the ratio of the decision of this court as well as the Supreme Court in Amarchand N. Shroff's case : 48ITR59(SC) was clearly applicable to the facts of this case and that, therefore, the amount received by the assessee was essentially a capital receipt. The Tribunal upheld the order passed by the Appellate Assistant Commissioner on the ground that in its view also the receipt of Rs. 41,471 by the estate was essentially a capital receipt. The Tribunal took the view that the amount was receivable by the estate by virtue of agreement between the deceased and his employers, that the consideration for the receipt of this amount was services rendered by the deceased and what the estate received was not something due to it by reason of its undertaking any activity yielding profits or gains but all that the estate did was to realise the value of the right under that agreement which was essentially a capital right and a part of its assets. It, therefore, took the view that the amount realised was not income from that asset but a realisation of money for that asset and was essentially of a capital nature in the hands of the estate. The Tribunal also opined that there was not a single feature in the instant case that would distinguish it from the case in Commissioner of Income-tax v. Amarchand N. Shroff : 36ITR124(Bom) or take it out of the application of the ratio of that case. At the instance of the Commissioner of Income-tax, Bombay City III, Bombay, the question set out at the commencement of the judgment has been referred to us for our determination.
6. At the outset we would like to observe that, having regard to the facts which are clearly obtainable on record, it is really unnecessary for us to go into the question as to whether the instant case is or is not distinguishable from the reported case in Amarchand N. Shroff : 36ITR124(Bom) and whether the instant case would fall within the ratio of that case or not. We have already set out above the material portions of clause 2 of the agreement under which the second item of remuneration was payable to the deceased, as has been set out, which was by way of commission at a certain rate mentioned therein on the price of all goods sold by the company in the territories specified in that clause and we have also set out above the purport of clause 4 of the agreement under which it had been provided that, excepting in certain cases, upon termination of the agreement, the deceased or his heirs, executors or administrators were entitled to the commission at the rate specified in clause 2 of the agreement on all business booked for a period of one year after such termination and admittedly this amount of Rs. 41,471 represented commission of one year's sales after the death of Shri Summersgill which was given by the company as per the aforesaid provisions contained in the agreement. It cannot, therefore, be disputed that the aforesaid amount was paid by the company to the executors of the will of the deceased in recognition or for consideration of services which the deceased had rendered to the company before he dies and the aforesaid amount is not referable to any profit activity undertaken by the executors under the will. Secondly, in the litigation which ensued between the heirs of the deceased on the one hand and the executors on the other in this court, this court made a declaration by its order dated February 10, 1959, that the aforesaid amount being the commission ascertained by the said company in respect of business booked by the said company for one year after the death of Shri Summersgill belonged to the estate of the deceased to be administered by the executors under the directions of the will left by the deceased and that the said amount did not belong to the heirs of the deceased in their own right. In other words, the declaration of this court makes the position quite clear that this amount formed part of the estate of the deceased which came to the hands of the executors and as such the amount could by no stretch of imagination be regarded as any income received by the executors during the previous year relevant to the assessment year in question. Thirdly, either as a result of declaration made by this court on February 10, 1959, or otherwise, admittedly, the estate duty had been paid on this aforesaid amount by the executors, which could only be on the basis that the said amount was included in the principal value of the estate passing on the death of the deceased under the Estate Duty Act. Having regard to these aspects which appear clear on record and having regard to the relevant clauses which are to be found in the agreement dated 29th October, 1948, it seems to us clear that the receipt of this amount in the hands of the assessees will have to be regarded as receipt of a capital nature and not an income of revenue nature. On the facts which are obtaining in this case, therefore, we are of the view that the Tribunal was right in coming to the conclusion that the aforesaid amount received by the executors was not assessable in their hands as their income for the relevant assessment year.
7. Having regard to the above discussion, the question referred to us is answered in the negative and in favour of the assessees. Revenue will pay costs of the reference to the assessees.