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Cossimbazar Raj Wards Estate Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
Decided On
Reported inAIR1947Cal87
AppellantCossimbazar Raj Wards Estate
RespondentCommissioner of Income-tax
Cases ReferredLtd. v. Dale
- gentle, j.1. this is a case stated by the income-tax appellate tribunal under section 66, income-tax act, at the instance of the assessee, who is the manager of the cossimbazar raj estate appointed by the court of, wards. the question which this court is required to consider is:whether in the facts and circumstances of the case the sum of rs. 1 lakh received by the cossimbazar raj wards estate from the bengal coal company ltd. was, in law, assessable to income-tax.2. the estate of the maharaja of cossimbazar has been in the management of the court of wards since about the year 1920 or 1921. a portion of the estate comprises some colliery lands in moujas gangutia and chhotadhamua, on 25-91916, prior to the court of wards taking charge, the maharaja granted, by a bengali pattah, a mining.....

Gentle, J.

1. This is a case stated by the Income-tax Appellate Tribunal under Section 66, Income-tax Act, at the instance of the assessee, who is the Manager of the Cossimbazar Raj Estate appointed by the Court of, Wards. The question which this Court is required to consider is:

Whether in the facts and circumstances of the case the sum of Rs. 1 lakh received by the Cossimbazar Raj Wards Estate from the Bengal Coal Company Ltd. was, in law, assessable to income-tax.

2. The estate of the Maharaja of Cossimbazar has been in the management of the Court of Wards since about the year 1920 or 1921. A portion of the estate comprises some colliery lands in Moujas Gangutia and Chhotadhamua, On 25-91916, prior to the Court of Wards taking charge, the Maharaja granted, by a Bengali Pattah, a mining lease of that property to the Bengal Nagpur Coal Co. Ltd., upon, inter alia, these terms : (1) The lease to be for a period, of 20 years from date. (2) The lessees would have the right of raising coal from the lands for which they should pay the royalty specified in the lease. (3) The lessees should be at liberty to abandon the lands at any time before the period of the lease expired provided they paid up in full the rents and royalty of every description due to the lessor at the time of abandonment. (i) The lessees to keep coal pillars of specified dimensions and at stated intervals in the mines, and (5) The lessees had an option to renew the lease at its expiration on the same terms, if coal still was unfinished.

3. On 12-2-1919 the lessees assigned the lease to the Bengal Coal Co. Ltd., with the sanction and approval of the lessor. Thereafter, that company raised coal from the lands and paid the stipulated royalty to the lessor and, later, to the Manager of the Court of Wards when the estate came under its jurisdiction. During the currency of the lease of 1916, an agreement, dated 24-4-1933, was made between the estate Manager appointed by the Court of Wards and the Bengal Coal Co., Ltd., by which it was inter alia agreed that:

Clause (3). The company would apply for and would be granted pillar cutting rights in such areas as required upon payment of specified selami;

Clause (6). The company undertook, notwithstanding anything to the contrary contained in the lease of 1916, to continue to hold the lease and the areas thereby demised and to be bound by the terms and conditions of the lease which should be deemed, if and as necessary, to have been renewed so long as any coal remained workable;

Clause (7). In the event of any coal remaining un-worked for any reason whatsoever (otherwise than as provided in clause 6 and to which reference is not material) royalty thereof should be payable to the lessor in the same manner as if the coal had been worked, as soon as the said coal should have been abandoned;

Clause (8). Save and except Clauses (4), (30) and (31) of the lease of 1916 (to which reference is unnecessary) all other terms and conditions laid down therein should remain in force as if no agreement (of 24-4-1933) had been executed.

4. The colliery comprised three seams : Dishergarh the upper seam; Hathnol the middle seam; and Sanatoria the lower seam. Dishergarh has been worked out by 1933, when the agreement in that year was made, Hathnol contained inferior coal and no working took place in that seam after the 1933 agreement. Thereafter working was confined to Sanetoria, which is below Hathnol. About 1939 the coal in the Sanetoria was running out and, substantially, there remained only the coal pillars which had been left pursuant to the terms of the 1916 lease. In that year the company applied for pillar cutting rights of those pillars and paid the required selami which was accepted by the Manager. No formal permission to cut was given. The company thereupon commenced raising the remaining coal in Sanetoria, which was confined to the pillars which had been erected, and with respect to which they had applied for pillar cutting rights.

5. On 16-6-1939 Mr. J.N. Sircar, the Estate Manager appointed by the Court of Wards, wrote to his superior, the Commissioner of the Presidency Division, Calcutta. The letter states as follows : The company had applied for pillar cutting rights; they had paid the required selami; formal permission had not been given but the company contended that permission should be considered as having been granted immediately the selami was paid and they had commenced pillar cutting; this was being done in a manner which had not been approved of by Mr. Carver (apparently the Court of Wards Consulting Engineer) as the method was unsound and dangerous as it would render Hathnol unworkable; the company was depillaring the area in spite of protests and the only way to stop this being done was by means of costly litigation; after consulting the Maharaja, Mr. M.M. Mukherjee has been appointed to take up the matter for a settlement favourable to the estate, out of Court. Elsewhere in the letter the Manager wrote that the company undertook to continue to hold the leases and the areas demised and to be bound by the terms and conditions of the original pattah so long as coal remained workable and the agreement provided that in the event of relinquishment whilst coal still remained unworked for any reason whatsoever, royalty would be payable to the' estate for the coal left unworked. The letter adds that, with a view to escaping liability to pay for the loss caused to the estate, the company proposed to pay Rs. 1,00,000 for the estate's right to receive royalty on the coal of Sanetoria and Hathnol seams ; the proposal had ,been examined; Mr. Carver had reported that, in respect of the remaining coal in Sanetoria and Hathnol seams, royalties on these two seams approximated to RS. 2,28,000 and the company had been asked to pay Rs. 1,50,000 but they had refused to do so.

6. On 7-7-1939 Mr. M.M. Mukherjee wrote to the Court of Wards Manager regarding a visit he had paid to the collieries where he had interviewed Mr. Barraclough, who represented the company. He had expressed objection to that, gentleman to the pillar cutting and had told Mr. Barraclough the legal steps which they contemplated taking in order to stop the work; Mr. Barraclough said that he was confident of the company's right to continue. The letter adds 'I also felt that his contention was probably right irrespective of the consequence.' Ultimately the matter was settled by an instrument of surrender and relinquishment, dated 21-9-1939, made between the company and the manager by which the company paid to the Court of Wards a sum of Rs. 1,00,000 and the instrument witnessed that the company thereby surrendered and relinquished to the Court of Wards all the coal mines, seams, lands and rights granted by the lease of 1916 and the agreement of 1933 and the Court of Wards released, discharged and absolved them from all obligations, claims, demands and liabilities arising thereunder. The company vacated the coal mines and, at the time they did so, there still remained, in Sanetoria and Hathnol seams, coal which was unworked and which the company had abandoned.

7. In the assessment to tax. upon the income of the estate, for the year 1940-1911, the above sum of Rs. 1,00,000 was included, under Section 12, as the amount of royalty on unworked coal. The assessee, the Manager of the Estate, appealed to the Appellate Assistant Commissioner and from him to the Income-tax Appellate Tribunal - both appeals being dismissed. On application by the assessee the case was stated by the tribunal which is now the subject of consideration. On behalf of the assessee Dr. Pal conceded that, if the payment of Rs. 1,00,000 was for royalty in respect of the abandoned coal in the collieries at the time the company ceased to work there, that sum is properly assessable to income-tax under Section 12. He contended, however, that the payment was not made for royalty but was for the purchase of the right to relinquish the lease and agreement and this is the price for the relinquishment. As such, he argued, it is either a capital receipt or is a casual receipt within the contemplation of Section 4(3)(vii), Income-tax Act, and, in either event, it is not liable to be assessed to tax.

8. The question whether receipts and payments are attributable to capital or to yearly trading or income has been the subject of several decisions many of which were mentioned and to some I propose to refer. In Van den Berghs Ltd. v. Clark (1935) 1935 A.C. 431 there was an agreement between two rival manufacturers of margarine for friendly alliance between them and for sharing their respective profits; the House of Lords held that such agreement was not an ordinary commercial contract usually made to carry on their trade and a receipt by one party from the other in consideration of the termination of the agreement was a capital receipt. In British Insulated & Helsby Cables Ltd. v. Atherton (1926) 1926 A.C. 205 (214) the House of Lords held that the sum provided as a nucleus of a pension fund for employees was a capital receipt. A similar decision, regarding the payment by a coal merchant for the acquisition of a right to a number of current contracts to supply coal is found in John Smith & Son v. Moore (1921) 2 A.C. 13 (20) Similarly, a sum received by a fire-clay company as compensation for leaving unworked fire clay under a Railway was held to be a capital receipt. Glenboig Union Fire Clay Co. v. Commissioner of Inland Revenue (1922) 1922 S.C. (H.L.) 112. On the other hand, in The Commissioner of Inland Revenue v. Newcastle Breweries Ltd. (1925) 96 L.J.K.B. 735 (737) compensation paid to a Brewery company for requisitioned stocks was held to be a trade or income receipt. Similarly the sum paid to a ship builder for cancellation of a contract to build a ship was held to have been received in the ordinary course of the company's trade. Sunderland Shipbuilding Co. Ltd. v. The Commissioner of Inland Revenue (1925) 12 Tax Cas. 955. Likewise a lump sum received by a quarry company, in lieu of four annual payments, as consideration for relieving a customer of his contract for ten years The Commissioners of Inland Revenue v. North Fleet Coal & Ballast Co. Ltd. (1925) 12 Tax Cas. 1102. A sum recovered from an Insurance Company in respect of the destruction of a timber company's stock, was held to be an income receipt J. Gliksten and Son Ltd. v. Green 1929 A.C. 381 (384).

9. Dr. Pal particularly relied upon Mallett v. Staveby Coal and Iron Co. Ltd. (1928) 2 K.B. 405 (410). In that case a company held two mining leases; the earlier one, of 1882, empowered the company to surrender the whole, but not a part, of the demised property; the lease of 1919 conferred no power whatever of surrender, in 1922 the company agreed with the lessor for a surrender of a part of the lands demised in the 1882 lease and the whole of the lands demised by the 1919 lease and it was held that such payment was a capital expenditure and not a payment out of income.

10. From the authorities to which reference has been made, the nature of the payment is dependent upon the particular facts of each case and I now turn to the facts of the present case. Under the lease of 1916 the lessees were entitled to abandon the colliery lands at any time during its currency provided they paid all royalties and rents due at the time of relinquishment or abandonment; the lessor could not require any payment beyond the amount due under the lease as consideration for its termination. Before the expiration of the 1916 lease and, it would follow, before the lessee had exercised the option to continue, which was contained in that lease, the agreement of 1933 was made which, as I see it, in effect was a fresh demise upon the terms contained in the earlier lease subject to certain modifications expressed in the later agreement. The period of the later grant was not expressed in terms of years but was for a period during which coal remained in the lands which could be won. One of the terms, in Clause 6 of the agreement, is that the company, who are the lessees, undertook.-notwithstanding anything to the contrary contained in the lease of 1916, to continue to hold the lease and areas thereby demised so long as any coal remained workable. Dr. Pal argued that this term cancels or expressly negatives the term in the lease entitling the lessees to terminate the contractual relationship at any time. He contended that the lessees were bound to continue the agreement until all coal had been, in fact, raised or worked out and, until that event occurred, they had no right under the agreement to terminate the contractual relationship. Consequently, he further argued, the lessor was in a position to demand a payment in consideration for permitting the lessees to terminate, relinquish or abandon and, without that permission, the lessees had no right to cease working the colliery; the Rs. 1,00,000 was a payment for this permission and was received as consideration for the termination of the agreement; it was not a payment of royalty in respect of the coal abandoned in the colliery but was a capital receipt.

11. Clause 6 of the agreement expressly provides that the lessees were to be bound by the terms and conditions of the lease. Clause 8 incorporates, by reference, all the terms and conditions contained in the lease (except 3 terms which are immaterial for the present consideration), and the clause does not exclude the term entitling the lessees to abandon the lands at any time. Clause 7 provides that if any coal remained unworked for any reason whatsoever royalty should be payable in the same manner as if the coal had been worked, as soon as the coal should have been abandoned. When by reference to it, the terms of one contract are incorporated into another contract, those terms are the terms of the other contract subject to any term contained in the latter. Clauses 6 and 8, more particularly Clause 8, embody the abandonment term of the lease as a term of the agreement. Then Clause 7 must be examined. That clause requires payment of royalty in respect of coal abandoned for any reason whatsoever. That is an express term, to which the embodied abandonment term from the 1916 lease is subject. When these two are read together it is clear that the lessees were entitled to terminate the agreement at any time but they were required, upon abandonment or termination, to pay royalties upon all coal which remained unworked, in addition, as under the lease, to paying any royalty or other amounts due to the lessor at that date. The agreement did not, in my view, cancel or withdraw the right which the lessees had under the lease of termination at any time but expressly, by incorporation of the terms of the lease, continued that right which was one enuring to them under the agreement but there was an additional liability, in the event of it being exercised, namely, payment of royalty in respect of the coal still remaining in the mines.

12. In my opinion the agreement, instead of specifying its term by a period of years, was for such time during which coal remained to be worked. The word 'undertakes', in Clause 6, did not prevent the lessees from availing themselves of the term of the lease, embodied in the agreement, to terminate at any time. But if they did so they were required under the agreement to pay for abandoned coal as well as to pay the dues in respect of royalties which were recoverable at that time. In those circumstances the lessor was not in a position to require a payment in consideration of, or for permission for, earlier termination of the agreement. The lessees had that right, provided they fulfilled the terms in the lease, to leave at any time and having that right there was no need for them to purchase that right. The circumstances in the present case are clearly distinguishable from those in (1928) 2 K.B. 405 (410). There, there was no right under the lease to determine during the currency of one lease and, in regard to the other lease, to determine or surrender a portion of the whole. Consequently, when the lessees required and wished to surrender, the lessor was then in at position to demand a sum of money as consideration for permitting a surrender. Here, the-lessees always had the right to determine at any time.

13. The Tribunal has found, as a fact, that the sum of one lakh of rupees was paid to the assessee as royalty on abandoned coal. The facts-appear in the two interdepartmental letters, previously mentioned. Prom those letters it emerges that the estates officers were not-satisfied that the lessees were doing anything which infringed the terms of the agreement, by raising coal by means of pillar cutting, which was the sole matter of complaint and of a potential claim. The lessees offered one lakh of rupees for the estate's right to receive royalties in future which, in my view, was an offer of payment of royalty in respect of abandoned coal upon ceasing to work the mines. Thereupon the estates officers ascertained approximately the amount of that royalty was Rs. 2,28,000 and an offer to accept 1,50,000 was made. A reduction can well be understood, inasmuch as the unown coal would remain in the seams and be available for future work. I appreciate fully that it does-not always follow that when an amount of a payment is calculated upon the basis of what would be due under an agreement, the sum so ascertained is not necessarily a payment pursuant to the agreement but, in this case, I am satisfied that the payment of Rs. 1,00,000 was one which, came within the terms of the agreement. The findings of fact, expressed by the Appellate Tribunal, are binding upon us provided there was evidence to justify the findings. Here, the facts are to be ascertained from the construction, and interpretation of the two inter-departmental letters.

14. In my view the Tribunal has correctly construed and interpreted those letters. The sub-stance of the transaction must be considered and, when that is done in this case, it is clear that the? assessee did not receive the payment of one lakh of rupees as consideration for terminating the lease and the agreement but as royalty on abandoned coal pursuant to a term in the agreement. It was appreciated as appears from Mr. M.M. Mukherji's letter, that a claim in respect of wrongful working of the mines was unlikely to be established and the payment which could be demanded from the lessees would have reference only to royalty upon abandoned coal a payment which falls within Clause 7 of the agreement. In my view the present case is covered by the latter part of the observations of Lord Macmillan in (1935) 1935 A.C. 413, where, in the coarse of his speech, he said, as reported at p. 431:

Now what where the appellants giving up? They gave up their whole rights under the agreements for 13 years ahead. These agreements are called in the stated case 'pooling agreement' but that is a very inadequate description of them, for they did much more than merely embody a system of pooling and sharing profits. If the appellants were merely receiving in one sum down the aggregate of profits which they would otherwise have received over a series of years, the lump sum right be regarded as of the same nature as the ingredients of which it was composed.

15. That passage has been cited with approval in Commissioner of Income-tax, Madras v. Harveys Ltd. ('40) 27 A.I.R. 1940 Mad. 602 (607). In my view the latter part of that observation has direct reference to the present case. In (1925) 12 Tax Cas. 1102 to which I have previously referred, there was a contract, subsisting for 10 years, for the sale of chalk and also for the building of a wharf. It was agreed between the quarry company and the purchaser that in consideration of the payment of 900 yearly for the remaining 4 years of the term the purchaser should be relieved of his liability; subsequently the company accepted a lump sum payment of 3,000 in lieu of the annual payments; it was held that the payment of 3,000 was chargeable to excess profits duty as a trading profit as it represented profits in a new form and it was tantamount to income. In the present case, if the lessees had continued to work the seams and raise coal, the assessees would have obtained the royalty in respect of that coal. Instead of that, a sum has been paid, with respect to that royalty pursuant to a term in the agreement which required it to be paid at once in the event which has happened. In my view that can be only a receipt by way of income or profit. This payment was contemplated and provided for by Clause 7 of the agreement and it; was anticipated, it cannot in the circumstances, be a casual receipt.

16. There is one matter which remains for which a few observations are required. The instrument of surrender, dated 2lst September 1939, recites the lease and the agreement and other matters and then there is a recital of an agreement, made shortly prior to the date of the instrument, by which it was agreed that the company should be at liberty to relinquish and determine the lease and the agreement with effect as from 18th July 1939 and, the company should pay a sum of Rs. 1,00,000 to the Court of Wards which the Court of Wards should accept in full satisfaction of all their claims against the company. Later the deed witnessed, as previously I have set out.

17. Dr. Pal argued that, the nature of the payment should be ascertained from the contents of the surrender deed and from which he contended, it is clear that Rs. 1,00,000 was received in consideration for the termination of the agreement of lease. That is not as I read the instrument. The payment is expressed to be made in satisfaction of the claims by the Court of Wards. Nowhere is the payment expressed to be with respect to the termination of the lease and agreement. The claim made was with respect to the royalty upon coal which was abandoned and that claim is included in the word 'claims' in that part of the recital to which reference has been made. As I have said previously the substance of the bargain must be examined but, even when that is done by reference to the deed of instrument, I see no reason to disagree with the findings of fact which have been expressed by the appellate Tribunal. I would, for the reasons which I have given, answer the question of law raised in this reference in the affirmative.

Ormond, J.

18. I agree and desire only to add certain remarks. It was contended on behalf of the assessee by Dr. Pal that after the agreement for extension of the lease made in 1933 (printed at p. 29 of the Paper Book) there was no right to the Bengal Coal Co., Ltd., to terminate the lease at will. On a perusal of the original lease made in 1916 and the agreement for its extension made in 1933 I am unable to accept this construction of these documents. In my view the term expressed in the last sentence of Clause 1 of the lease of 1916, viz. 'you shall be at liberty to abandon the lands at any time before the period of the lease expires provided you pay up in full the rents and royalty of every description due to me up to the time of abandonment and no objection will be made to that effect' continued operative in so far as it gave a right to terminate the lease at will and was modified only as to the terms on which such right to terminate were to be exercised. It appears to me therefore that after the agreement of 1933 the position as to the right of the Bengal Co., Ltd., to terminate at will remained and was modified only to this extent that whereas in 1916 the Bengal Coal Company Ltd., bad a right to terminate at will without payment of any royalties for the balance of coal in the seams left uncorked, after 1933 it can only terminate with payment of royalty for the unworked coal.

19. Dr. Pal pursuing the contention made by him that the Bengal Coal Co., Ltd., after 1933 had no right to terminate the lease at will, relied strongly on such cases as (1928) 2 K.B. 405 (410) and (1935) 1935 A.C. 431. In Mallett's case (1928) 2 K.B. 405 (410) it will be seen the money was paid by way of consideration or compensation for the surrender of two leases. The one lease (of 1882) contained power to the company to surrender the lease only as to the entirety for the hereditaments demised and did not empower the company to surrender any part or parts of the demised seams as distinct from the entirety of the hereditaments demised, as appears from the report at p. 774. In the case of the other lease (of 1919) this contained no power to the company to surrender the whole or any part of the seams before the fulfilment of the period of the lease. The company when entering into the agreement for surrender did not purport to be exercising any right of surrender under the lease of 1882. The payment was thus made by agreement as to the amount, for settlement of what, had the parties not agreed, would have given grounds for a claim for damages for wrongful termination of the leases. The payment was held to be capital expenditure to get rid of an onerous liability arising from a permanent asset of the business; and not to be an admissible deduction in calculation of profits for income-tax purposes in the assessment of the party making the payment. In (1935) 1935 A.C. 431 also there was no right given to the company to terminate the agreement before its due date of completion. It was held that the payment received was for surrender of a capital asset and therefore not assessable as profits to income-tax in the hands of the receiving company. It was in those circumstances in those cases that the payments made for compensation for termination of agreements not terminable in themselves before due date were held to be capital payments or capital receipts respectively and not in the nature of revenue.

20. Taking the view that we take on the documents in the present case that the mining lease was terminable at will in terms of the lease itself, it will be seen that there is an important difference between the present case and the class of cases such as the two abovementioned, where the payment (held to be of a capital nature) was being made as compensation settled in a special agreement for termination of an otherwise non-terminable agreement. In such cases it could well be said that, by the special agreement, there was being effected, on capital account, either in certain cases (as where the party adjudicated on was making the payment), a payment to get rid of an onerous capital liability, or, in other cases, (as where the party adjudicated on was receiving the payment), a receipt as a capital receipt for the sale or surrender of a capital asset; in both instances by the purchase or sale, as the case might be, of the right to terminate, for an agreed amount as compensation, an otherwise non-terminable agreement. Here in the present case the termination of the lease is in accordance with the express terms stated in the lease of 1916 itself read with the subsidiary agreement of extension of 1933. The company is thus merely exercising its right of termination of the lease in accordance with express terms in the lease. Under Clause 7 it was expressly provided that royalty for unworked coal should be payable in the event of the lease being determined as I read that clause.

21. It was argued on behalf of the assessee that Clause 7 referred only to a position when the lease was continuing. Though this might well be the natural meaning of the words, were royalties made payable only in the event of the coal being 'rendered inaccessible', it cannot, in my view, be the meaning to be attributed to the other circumstances contemplated by the clause when coal should have been 'abandoned'. It is true that when the lease was continuing and the working of the colliery by the Bengal Coal Co., Ltd., was continuing, it might have been open to the company to make a definite expression of a decision in advance saying that 'is had abandoned certain coal.' In that event royalty would no doubt have become then payable even before completion of working. There is, in this case, however, no question of any abandonment by express declaration; and the clause, as I read, it, must necessarily cover abandonment also' when the lease is determined and where there is no express declaration of abandonment.

22. In the present case, therefore, since the contract was terminated as provided for in the contract itself and in accordance with the terms of the contract, it thus becomes unnecessary to look outside the contract in order to ascertain the nature of the payment of Rs. 1,00,000 made. I find this money was paid directly under Clause 7. It is of course immaterial that the amount paid was agreed in a round sum as monies such as were payable under Clause 7. This sum of Rs. 1,00,000 which was an agreed amount to be paid for the dues under Clause 7 was, in my view, therefore, clearly a payment of royalties. In this view of the matter it is unnecessary further to consider cases such as those in (1928) 2 K.B. 405 (410) and (1935) 1935 A.C. 431 mainly relied on by Dr. Pal. I do not, however, wish to be taken to say that even if the payment had here been made not directly under the contract but as compensation fixed by special agreement for that would but for the special agreement have been its wrongful termination, it could not also, in the circumstances of the present case, have been held still to be income and not capital. As was observed by Lord Macmillan in (1935) 1935 A.C. 431 at p. 429:

The reported eases fall into two categories, those in which the subject is found claiming that an item of receipt ought not to be included in computing his profits and those in which the subject is found claiming that an item of disbursement ought to be included among the admissible deductions in computing his profits. In the former ease the Crown is found maintaining that the item is an item of income; in the latter, that it is a capital item. Consequently the argumentative position alternates according as it is an item of receipt or an item of disbursement that is in question, and the tax-payer and the Crown are found alternately arguing for the restriction or the expansion of the conception of income.

23. Various cases on both sides are then considered in that judgment. I need only for the present purpose refer as an illustration to the case in Anglo-Persian Oil Co., Ltd. v. Dale (1932) 1 K.B. 124. There that was a case where there was an agreement between the Anglo-Persian Oil Co., Ltd. and another company to act as an agent of the former. The agreement was made for ten years and remuneration was fixed on She basis of commission on business done. There was in that case, just as in (1928) 2 K.B. 405 (410) and in (1935) 1935 A.C. 431, no right to terminate the agreement before due time. The agreement was for ten years. The Anglo-Persion Oil Co., Ltd. having decided that, as a matter of business, it would be preferable to terminate the agreement of agency, entered into a separate agreement with the other company by which the agency was terminated. In consideration for this the Anglo-Persion Oil Co., Ltd. was to pay and did, in fact, pay a sum of 3,00,0CO. It was finally decided in that case that this sum was not capital but a payment in the nature of a revenue payment, and in the accounts of the company making the payment an admissible deduction in calculation of profits the basis of the decision, as I understand it, being that had the agreement of agency continued, the agent company would have been entitled to commission yearly. As the parties had agreed to terminate the agency agreement the lump sum paid was, to look at the matter in substance, commission or in lieu of commission, and as such was not a payment of a capital nature.

24. It is true that in that case the matter was being considered from the point of view of the liability to tax of the party making the payment, whereas in the present case the matter is to be considered before us from the point of view of the liability to tax of the party receiving payment. But in the present case if it is correct to decide that in so far as the payment was made by the Bengal Coal Co., Ltd., this was for royalties, in my view it must equally be decided that that sum of one lakh of rupees was received, by the assessee as royalty. While it is unnecessary, in the view that we take of the document in this case, to consider what would have been the position had there been no right for the Bengal Coal Co., Ltd. to terminate the lease at will, I have referred to this single case as a mere illustration to show that it would not conclusively follow, simply because the payment was made in consideration of terminating a lease not terminable but for mutual special agreement at the time when it was being terminated, that therefore it should necessarily be held that the payment was of a capital nature.

25. In regard to the contention of Dr. Pal for the assessee that this was a casual receipt under Section 4(3)(7), Income-tax Act, on the facts in my view it is not. This payment was expressly provided for in the lease and therefore it was foreseen, known, anticipated and provided for, as it was put by Dr. Gupta. It has its source in the agreement itself where it is clothed with the nature of a royalty. In these circumstances it cannot be held to be a casual receipt. For these reasons besides those expressed by my learned brother I agree that the answer to the question referred to us should be in the affirmative.

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