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Commissioner of Income-tax Vs. Siewart and Dholakia Private Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 175 of 1966
Judge
Reported in[1974]95ITR573(Cal)
ActsIncome Tax Act, 1922 - Sections 10, 10(5A) and 66(1)
AppellantCommissioner of Income-tax
RespondentSiewart and Dholakia Private Ltd.
Appellant AdvocateB.L. Pal and ;C.K. Banerjee, Advs.
Respondent AdvocateNone
Cases ReferredGillanders Arbuthnot & Co. Ltd. v. Commissioner of Income
Excerpt:
- a.n. sen, j.1. this is a reference under section 66(1) of the indian income-tax act, 1922.2. the assessee, m/s. siewart & dholakia (p.) ltd., is a private limited company and its main activity is acting as tea brokers and tea agents for foreign buyers. one of the assessee's principal foreign constituents was m/s. joseph tetley & co. ltd. of london for whom the assessee acted as the sole buying agent of tea on commission. one mr. r. t. gardner was employed by the assessee on the recommendation of m/s. joseph tetley & co. ltd. as a tea tester for a term of three years from april, 1951. there was, however, no written agreement of service between the assessee-company and mr. gardner. in november, 1952, mr. gardner left the assessee's service after giving one mouth's notice and took employment.....
Judgment:

A.N. Sen, J.

1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922.

2. The assessee, M/s. Siewart & Dholakia (P.) Ltd., is a private limited company and its main activity is acting as tea brokers and tea agents for foreign buyers. One of the assessee's principal foreign constituents was M/s. Joseph Tetley & Co. Ltd. of London for whom the assessee acted as the sole buying agent of tea on commission. One Mr. R. T. Gardner was employed by the assessee on the recommendation of M/s. Joseph Tetley & Co. Ltd. as a tea tester for a term of three years from April, 1951. There was, however, no written agreement of service between the assessee-company and Mr. Gardner. In November, 1952, Mr. Gardner left the assessee's service after giving one mouth's notice and took employment with M/s. Duncan Bros. Ltd., a well-known firm of tea brokers of Calcutta. Shortly thereafter, M/s. Joseph Tetley & Co. Ltd. transferred their business from the assessee to M/s. Duncan Bros. Ltd. The assessee filed a suit in the Calcutta High Court against M/s. Duncan Bros. Ltd. and Mr. Gardner (being Suit No. 1687 of 1953), claiming a sum of Rs. 6 lakhs as damages under the following heads :

Rs.

(1)Damages for loss of service of Mr. Gardner 51,000(2)Expenses incurred by the assessee for Mr. Gardner 49,000(3)General damages arising from loss of business 1,50,000(4)Special damages resulting from the transfer of business from Messrs. Joseph Tetley & Co. Ltd. 3,50,000

Rs.6,00,000

3. On the 28th of February, 1955, a consent decree was passed and the material portion of the decree provides :

' It is ordered and decreed that the defendants (i.e., Robert Tomson Turner and Duncan Bros. & Co. Ltd.) do pay to the plaintiff (i.e., the assessee) a sum of Rs. 50,000 in full satisfaction of its claim and costs of this suit and it is further ordered and decreed that the plaintiff-company do retain the sum of Rs. 5,000 or any other sum already paid or held by the attorneys for the defendants. And it is further ordered and decreed that the said attorneys for the defendants do pay to the attorneys for the plaintiff-company the said sum of Rs. 5,000 if held by them. '

4. M/s. Sandersons and Morgans were acting in the said suit as solicitors for the assessee who was the plaintiff in the said suit and M/s. Orr, Dignam & Co., solicitors, were acting as solicitors for the defendants an the said suit. It appears that the decretal amount of Rs. 55,000 was paid by the defendants through their solicitors to the solicitors of the plaintiff who happens to be the assessee. On the 9th of March, 1955, M/s. Sandersons & Morgans made over the said amount to the assessee along with their letter which reads :

' Sandersons and Morgans, Solicitors,

5 & 7, Netaji Subhas Road,

Calcutta 1.

NDPD/MK/4/4388

9th March, 1955,

M/s. Siewart & Dholakia, (P.) Ltd.,

P. 35, Royal Exchange Place Extn.,

Calcutta.

Dear Sirs,

Yourself v. T. T. Gardner and Anr.

We send herewith our cheque for Rs. 55,000 drawn in your favour representing the decretal amount sent to us by M/s. Orr, Dignam & Co. on behalf of their clients the defendants abovenamed. The sum of Rs. 55,000 is made up as follows;

(1) Rs. 5,000 represents your costs of the execution of the commission in England.

(2) Rs. 50,000 represents the compensation for the injury done to your business by the defendants plus your costs of the suit incurred in the High Court at Calcutta.

Yours faithfully,

Sd. Sandersons and Morgans. '

5. The assessment year concerned in this reference is 1955-56 for which the accounting year is the financial year 1954-55. The Income-tax Officer included the sum of Rs. 50,000 received by the assessee under the said consent decree to the profit shown by the assessee in his return for the relevant assessment year. Before the Income-tax Officer the assessee contended that this amount was not a revenue receipt and this amount could be treated as income only under the head ' Business ' and that the transaction had no characteristic of business activities. The Income-tax Officer rejected the contention of the assessee and held :

' The judgment of Hon'ble P. B. Mukharji in Suit No. 1687 of 1953 filed by the assessee against Mr. Gardner and another shows that there was no contract binding Mr. Gardner to work for any fixed period with the assessee-company. What really happened is that by Mr. Gardner's leaving service with the assessee, the assessee had made less profit than if a man of his qualification and experience were functioning in the administration of the assessee. The case can be compared to the receipt of insurance moneys by a business man for loss of profits insurance or insurance moneys received to cover the employer against revenue loss which he suffered by being deprived of the services of the experienced and valuable employees. The sum of Rs. 50,000 is, therefore, added to the profit shown by the assessee in his return. '

6. It may be noted that at the time of passing of the consent decree no judgment was delivered and the judgment referred to by the Income-tax Officer is the judgment of the Hon'ble Mr. Justice P.B. Mukharji on an interlocutory application for injunction. The said judgment does not form a part of the records. Against the order of the Income-tax Officer the assessee preferred an appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that the amount of Rs. 50,000 was taxable under Section 10(5A) of the Indian Income-tax Act, 1922, as the assessee described itself as the sole buying agent of M/s. Joseph Tetley & Co. Ltd. of London and in the opinion of the Appellate Assistant Commissioner the amount of Rs. 50,000 was received as compensation for the loss of such agency. The Appellate Assistant Commissioner did not go into the ground on which the Income-tax Officer had assessed this amount. On a further appeal by the a'ssessee to the Tribunal, the departmental representative wanted to support the assessment before the Tribunal on the basis of the Income-tax Officer's order. As, however, the Appellate Assistant Commissioner had not gone into this ground, the Tribunal felt that the assessee should be given an opportunity to meet this ground before the Appellate Assistant Commissioner himself and the Tribunal accordingly set aside the order of the Appellate Assistant Commissioner and restored the appeal to his file and directed the Appellate Assistant Commissioner to dispose of the appeal on the merits after taking into account the reasons given by the Income-tax Officer for adding this amount of Rs. 50,000 and recording his findings thereon. According to the directions of the Tribunal the appeal was re-heard by the Appellate Assistant Commissioner who, however, was not the same person who had previously heard the appeal. The assessee contended before the Appellate Assistant Commissioner that in view of the direction given by the Tribunal he had to decide the appeal only on the basis of the reasons given by the Income-tax Officer and he could not decide the appeal on any other ground and it was not open to the Appellate Assistant Commissioner to consider the applicability of Section 10(5A) of the Indian Income-tax Act, This contention was not acceptable to the Appellate Assistant Commissioner as, in his opinion, the Tribunal's order directed him to determine the appeal on the merits after taking into account the reasons given by the Income-tax Officer and he recorded his findings on the appeal before him. The Appellate Assistant Commissioner on the merits, however, found that the amount of Rs. 50,000 could not be assessed under Section 10(5A), as it could not be said to be a compensation or payment received on termination of any agency. The Appellate Assistant Commissioner held :

'I agree with the learned representative that the receipt of the amount of Rs. 50,000 from M/s. Duncan Bros, cannot be made liable under any clause of Section 10(5A). My predecessor had relied on one letter dated 16th of June, 1958, written by the appellant to the Income-tax Officer which reads as follows: We do business with M/s. Joseph Tetley & Co. Ltd., London, as, sole buying agent of tea on commission'. On the strength of this letter my predecessor held that the appellant were the buying agents of M/s. J. T. & Co. from whom the commission was being earned by them and for loss of, their agency they received a compensation of Rs. 50,000. The fallacy in this conclusion lies in the fact that the amount of Rs. 50,000 was not received by the appellant from M/s. Joseph Tetley & Co. Ltd. If it was only receipt from that company then only it could be said that it was compensation for the loss of agency. The amount was admittedly received from M/s. Duncan Bros. for certain damages discussed later in this order and, therefore, the amount cannot be made taxable under Section 10(5A) of the Act.'

7. The Appellate Assistant Commissioner, however, negatived the contention of the assessee that the said amount was not a trading receipt of the assessee and could not be included in its profits. For reasons stated in his order the Appellate Assistant Commissioner held that the said sum of Rs. 50,000 was a trading receipt of the company and was rightly included by the Income-tax Officer.

8. A further appeal was preferred by the assessee to the Tribunal against the said order of the Appellate Assistant Commissioner. In the appeal before the Tribunal the assessee raised a contention that the Appellate Assistant Commissioner was not justified in going beyond the direction given by the Tribunal and sustaining the assessment on a ground not taken either by the Income-tax Officer or by the Appellate Assistant Commissioner at the first instance. The Tribunal rejected this contention of the assessee. The departmental representative sought to argue before the Tribunal that Section 10(5A)(d) applied to the amount received by the assessee and the said amount was, therefore, liable to tax. The argument of the departmental representative was that the assessee described itself as the sole buying agent on commission of M/s. Joseph Tetley & Co. Ltd. and the amount was, therefore, received in connection with the termination of agency. It was contended on behalf of the assessee that the amount of Rs. 50,000 was not received by the assessee from M/s. Joseph Tetley & Co. Ltd. at or in connection with the termination of any agency as held by the assessee but was received as damages caused to the assessee's business by the tortious act of M/s. Duncan Bros. Ltd. and Mr. Gardner. The Tribunal held that Section 10(5A)(d) did not apply to the case. The Tribunal in its order observed :

' ......Section 10(5A) contemplates compensation payable to the agent in consideration of premature termination of the agency. Such compensation must move either from the principal or from somebody on behalf of the principal.'

9. The Tribunal held :

' In this case, the amount of Rs. 50,000 received by the assessee under the compromise could not be said to be compensation received at or in connection with the termination of its business with M/s. Joseph Tetley & Co. Ltd.'

10. I The Tribunal accepted the contention of the assessee that the amount received by the assessee under the said consent decree could not be considered to be a trading receipt liable to be taxed as business income of the assessee and the Tribunal had allowed the appeal of the assessee in so far as it related to the said sum of Rs. 50,000. The departmental representative had argued before the Tribunal that the business connection with M/s. Joseph Tetley & Co. Ltd. was a small fraction of the assessee's business and even if the amount of Rs. 50,000 was considered to be a receipt for the loss of such business it would not affect the capital structure of the assessee-company and would, therefore, go towards its trading receipts. On behalf of the assessee it was contended before the Tribunal that when Mr. Gardner left the service of the assessee and joined M/s. Duncan Bros. Ltd. he could influence M/s. Joseph Tetley & Co. Ltd. and transfer the customer to M/s. Duncan Bros, and the action was brought against Duncan Bros. for damages for seducing Mr. Gardner from the assessee's employment and inducing M/s. Joseph Tetley & Co. Ltd. to sever the business connection with the assessee; and the assessee's claim was two-fold--(i) loss for the wrongful deprivation of the service of Mr. Gardner, and (ii) loss for the deprivation of the business of M/s. Joseph Tetley & Co. Ltd. The assessee had urged before the Tribunal that the amount received in satisfaction of the assessee's claim could not be held to be trading receipt of the assessee as the payment was in relation to the damages caused to the assessee's business structure and not to any apprehended loss or the carrying on of the assessee's business; and it was further argued that even if the amount could be held to be a receipt of compensation for termination of the agency with M/s. Joseph Tetley & Co. Ltd., the receipt of such compensation would be capital receipt in view of the decision of the Supreme Court in the case of Commissioner of Income-tax v. Vazir Sultan & Sons, : [1959]36ITR175(SC) The Tribunal in its order held :

' The principles governing the receipt of damages are more or less well settled. Where damages are recovered for an injury inflicted on a man's trading, making a hole in his profit the amount of damages would go to fill that hole and would be trading receipt. But, on the other hand, where the injury is inflicted on the capital assets of that trade, making a hole in them the damages recovered are meant to be used to fill that hole and are capital receipts. The main point for our decision, therefore, is whether the amount of Rs. 50,000 was recovered for an injury inflicted on the assessee's trading or, in other words, to compensate it for any loss in its trading or whether the amount was received for an injury inflicted on the capital asset of the assessee's, in other words, an injury to the assessee's business itself. It appears from the letter of the defendant's solicitor in the High Court proceedings that the amount of Rs. 50,000 was as compensation for injury done to the assessee's business. In other words, the amount was paid by M/s. Duncan Bros. Ltd. as compensation for the injury caused to the assessee for the transfer of its business with M/s. Joseph Tetley & Co. Ltd. to M/s. Duncan Bros. Ltd. The compensation must, therefore, be held to be a compensation for an injury to the business itself and its receipt must, therefore, be held to be a capital receipt. In our opinion, the cases cited on the compensation received for termination of managing agency have no application to the facts of this case. We are, therefore, of the opinion that the amount of Rs. 50,000 received by the assessee from M/s. Duncan Bros. Ltd. under the compromise decree was a capital receipt and was not assessable as income.'

11. On the application of the Commissioner and on the above facts the Tribunal has referred the following question to this court:

' Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 50,000 received from M/s. Duncan Bros. Ltd. was a capital receipt and was not assessable as the assessee's business profits either under Section 10 or under Section 10(5A)(d) of the Indian Income-tax Act, 1922 ?'

12. Mr. B. L. Pal, learned counsel for the revenue, has submitted that in the facts of the instant case, the provisions of Section 10(5A)(d) apply. The material provisions of Section 10(5A)(d) are :

' Any compensation or other payment due to or received by any person, by whatever name called, holding an agency in the taxable territories for any part of the activities relating to the business of any other person at or in connection with the termination of its agency or the modification of the terms and conditions relating thereto, shall be deemed to be profits and gains of a business carried on by such person and shall be liable to tax accordingly. '

13. Mr. Pal has argued that the assessee acted as the sole buying agent of Joseph Tetley & Co. Ltd. and the said agency of the assessee had terminated inasmuch as the business had been transferred from the assessee to M/s. Duncan Bros. Ltd. and the amount that the assessee recovered by way of damages in the suit on the basis of consent decree is nothing but compensation for termination of the agency of the assessee. Mr. Pal has contended that the Tribunal has refused to apply the provisions of Section 10(5A)(d) mainly on the ground that ' such compensation must move either from the principal or from somebody on behalf of the principal. ' It is the contention of Mr. Pal that there is no warrant for any such proposition in the said Section 10(5A)(d) and the said section does not postulate or require that such compensation must necessarily be paid by the principal or from somebody on behalf of the principal. According to Mr. Pal, the said section only speaks of compensation or other payment received by any person by whatever name called holding an agency at or in connection with termination of agency and the said section does not require that such payment must necessarily be made by the principal or somebody on his behalf. Mr. Pal has argued that so long as the amount is received as compensation by an agent at or in connection with the termination of his agency, the section comes into play and it really does not matter from whom the payment is received. It is the argument of Mr. Pal that the character of the payment and not the person who makes the payment is the determining factor.

14. It may be noted that in the present reference nobody has appeared on behalf of the assessee before us. Mr. Pal has very fairly pointed out that apart from the finding of the Tribunal that the assessee acted as the sole buying agent of tea on commission there is no other material or finding which goes to show that the assessee was holding an agency and the fact that the assessee acted as the sole buying agent of tea on commission of M/s. Joseph Tetley & Co. Ltd. does not necessarily establish that the assessee was holding an agency under Joseph Tetley & Co. Ltd. In the facts of the instant case I am not satisfied that the assessee was holding any agency of M/s. Joseph Tetley & Co. Ltd. of London as required under Section 10(5A)(d). The fact that the assessee acted as the sole buying agent of tea on commission does not necessarily establish that the assessee was holding any agency. It is quite possible that the assessee acted as such agent in respect of individual consignment and was being appointed as such in respect of each business transaction. The fact that the assessee did not file any suit against M/s. Joseph Tetley & Co. Ltd. for damages for any wrongful breach of contract of agency or did not implead the said party in the suit filed by the assessee against Mr. Gardner and M/s. Duncan Bros, Ltd. and had not also made any claim for damages for any wrongful termination of the assessee's agency, to my mind, goes to indicate that the assessee was- not holding any agency. It is to be noted that the basis of the suit filed by the assessee was not any claim for damages for wrongful termination of any agency but for damages for loss of service of Mr. Gardner and for wrongful seduction of the assessee's custom of M/s, Joseph Tetley & Co. Ltd. to Duncan Bros. Ltd. As the basic requirement of holding an agency is not established, the provisions of Section 10(5A)(d) cannot have any application. Further, the nature of the claim made in the suit and the payment received by the assessee on the basis of the consent decree in the said suit do not establish that the said payment was received by the assessee at or in connection with the termination of any agency, even if it could be held that the assessee was holding any agency of M/s. Joseph Tetley & Co. Ltd. The amount received by the assessee cannot, therefore, be considered to be profits and gains of the assessee's business by virtue of the provisions contained in Section 10(5A)(d), as the said section does not have any application to the facts of the instant case.

15. Mr. Pal has next contended that in any event the said sum of Rs. 50,000 received by the assessee cannot, in the facts of the instant case, be considered to be a capital receipt and must be held to be a trading receipt of the assessee ; and, as such, it is the contention of Mr. Pal that the said sum is liable to be taxed as income of the assessee. Mr. Pal has argued that the said amount of Rs. 50,000 was received by the assessee on the basis of the consent decree in full settlement of the assessee's claim in the suit and also the costs of the suit. It is the argument of Mr. Pal that the claim in the suit was in respect of 4 heads and there cannot be any doubt that in respect of any receipt made in respect of the first three items of claim, namely, (1) damages for loss of service of Mr. Gardner, (2) expenses incurred by the assessee for Mr. Gardner, and (3) general damages arising from loss of business, the receipt must be considered to be a trading receipt and not a capital receipt. Mr. Pal points out that the said sum of Rs. 50,000 also covered the costs of the suit of the assessee and Mr. Pal submits that any amount recovered by the assessee on account of costs incurred by the assessee must be considered to be revenue receipt of the assessee as the amount spent by the assessee on account of such costs in the litigation are allowed by way of deduction in the assessment of the assessee's income. Mr. Pal has argued that the said sum of Rs. 50,000 received by the assessee on the basis of the consent decree in the suit cannot be considered to be a payment by way of compensation for the injury done to the business of the assessee only on the basis of the solicitor's letter and the provision of the consent decree should not be construed on the basis of the said letter. It is the argument of Mr. Pal that by way of settlement of the suit the said sum of Rs. 50,000 was a lump-sum payment in satisfaction of all the claims of the assessee made in the suit including the assessee's costs of the suit. Mr. Pal has further contended that even if the said sum of Rs. 50,000 is considered to represent the compensation for the injury done to the assessee's business, the said amount cannot be considered, in the facts of the instant case, to be a capital receipt of the assessee. It is the contention of Mr. Pal that the facts found by the Tribunal clearly show that the assessee was acting as tea brokers and buying agents of tea for foreign buyers and one of such foreign buyers was M/s. Joseph Tetley & Co. Ltd. Mr. Pal submits that in view of the above fact, it cannot be said that the injury which the assessee suffered for loss of custom of Joseph Tetley & Co. Ltd, who happened to be only one of its many foreign customers, affected the capital structure of the company and was inflicted on the capital assets of the trade of the company making a hole in them. Mr. Pal, in this connection, has referred to the decision of the Supreme Court in the case of Gillanders Arbuthnot & Co. Ltd. v. Commissioner of Income-tax, : [1964]53ITR283(SC) .

16. In the instant case the claim of the assessee in the suit filed by it against Mr. Gardner and M/s. Duncan Bros. Ltd. was for damages for wrongful act done by them in consequence whereof the assessee suffered loss, including the loss of custom as of M/s. Joseph Tetley & Co. Ltd. In the suit the assessee has based its claim under 4 heads, viz.:

(1) damages for loss of service of Mr. Gardner,

(2) expenses incurred by the assessee for Mr. Gardner,

(3) general damages arising from loss of business, and

(4) special damages for transfer of business from M/s. Joseph Tetley & Co. Ltd.

17. The decree which was passed by consent in the suit was in full satisfaction of the assessee's claim in the suit and also its costs incurred in the suit. The sum of Rs. 50,000 which was received by the assessee on the basis of the consent decree was, therefore, a receipt in satisfaction of the assessee's claim for damages and also of the costs incurred by the assessee.

18. The sum of Rs. 50,000 received by the assessee on the basis of the consent decree cannot, therefore, be said to have been received only on account of compensation for the injury done to the assessee for the transfer of its business with M/s. Joseph Tetley & Co. Ltd. to M/s. Duncan Bros. Ltd. Even the letter of the solicitor to which the Tribunal has referred does not state that the said amount of Rs. 50,000 represented the compensation for the injury to the assessee's business only and the said letter mentions that the said amount represented such compensation and also the costs of the suit incurred by the assessee in the High Court at Calcutta. The said letter of the solicitor is not of any great assistance in construing the consent decree and the consent decree will have to be construed with reference to the claim made in the suit.

19. The question whether a particular receipt is a revenue receipt or a capital receipt is often beset with considerable difficulty and whenever any such question arises the revenue and the assessee are ranged on different sides raising such contentions as will suit their respective purposes. The answer to the question will, however, depend on the true character of the receipt in the facts and circumstances of a particular case. If any amount is received as compensation for an injury which affects a capital asset of the assessee or the capital structure of the assessee's business such amount may normally be considered to be a capital receipt. If, however, any amount is received by an assessee as compensation or damages for any wrong done which does not affect any capital asset or the capital structure of the assessee's business but injures the assessee in its trade, such amount will normally constitute a trading receipt of the assessee.

20. As indicated by me earlier, the facts of the present case do not establish that the assessee was holding any agency of M/s, Joseph Tetley & Co. Ltd. and that the sum paid to the assessee on the basis of the consent decree was a payment for termination of any such agency. The assessee undoubtedly lost the custom of Joseph Tetley & Co. Ltd. which happened to be one of its many foreign customers. Even if the said sum of Rs. 50,000 could be said to have been received by the assessee in its entirety as compensation for loss of such custom, the question will still remain whether the loss of custom by the assessee of Joseph Tetley & Co. Ltd. affects any capital asset or the capital structure of the assessee.

21. In the case of Gillanders Arbuthnot & Co. Ltd. v. Commissioner of Income-tax the Supreme Court observed, in dealing with the question of receipt of compensation for cancellation of an agency, held that there was no immutable principle that compensation received on cancellation of an agency must always be regarded as capital. The Supreme Court observed at pages 289-290 :

' The appellant was conducting business as selling or distributory agent of numerous principals. The agency which was terminated was one of many such agencies in which the appellant functioned as distributing agent of a foreign principal. There is not even a suggestion that, by the determination of the agency held by the appellant in explosives from the principal company, the trading structure of the assessee's business was impaired. It is manifest that the agencies of the companies conducted by the appellant must have been obtained at different times. There is no evidence that these agencies were of any fixed duration. It would be reasonable to infer that some of the agencies may be cancelled and fresh agencies obtained. The list furnished by the appellant before the Tribunal analysing the different classes of business carried on by it disclosed that the business was done in many lines. The appellant acted as managing agent of some concerns, distributing* agent of others, and as secretary of still other class of concerns. Again it dealt as an exporter and importer, shipping agent, and as a buyer and dealer in diverse commodities. A large amount of business was done by the appellant as an agent of foreign companies. The appellant had obtained agencies for paints, varnishes, petroleum, kerosene oil, medicines and toilet preparations, cement, timber, stationery, metals, tea, engineering goods, air-conditioning equipment and a large number of other commodities. It may reasonably be held, having regard to the vast array of business done by the appellant as agents, that the acquisition of agencies was in the normal course of business and determination of individual agencies, a normal incident, not affecting or impairing the trading structure of the appellant. The appellant was compensated by payment to it for the loss of profit it suffered by the cancellation of its agency, leaving it free to conduct its remaining business. '

22. In the instant case there is nothing to suggest that the custom of Joseph Tetley & Co. Ltd. constituted any capital asset of the company. In the normal course of the assessee's business Joseph Tetley & Co. Ltd. was one amongst its very many foreign customers. There is no evidence that the assessee was entitled to the custom of Joseph Tetley & Co. Ltd. for any fixed duration. It was a part of the assessee's business to secure custom or orders from very many foreign customers to enable the assessee to earn income by way of commission or otherwise and Joseph Tetley & Co. Ltd. just happened to be one of such customers. There is nothing to indicate that by losing the custom of Joseph Tetley & Co. Ltd. the trading structure of the assessee's business was impaired. The facts go to show that the assessee was compensated by payment to it for the loss of income or profit it suffered by the wrongful acts done by Gardner and Duncan Bros. Ltd. which led to the withdrawal of the custom of M/s. Joseph Tetley & Co. Ltd., only one of the assessee's very many foreign customers. Therefore, even on the basis that the amount received by the assessee under the consent decree could be considered to have been paid to the assessee as compensation for the injury done to the assessee's business, the said amount cannot be considered to be a capital receipt of the assessee.

23. The true character of the money received by the assessee on the basis of the consent decree, therefore, represents compensation for loss to the assessee in its trade and not for any loss of any capital asset and the said amount must, therefore, be considered to be a trading receipt of the assessee. We must, therefore, hold that the Tribunal was not right in holding that the sum of Rs. 50,000 received from M/s. Duncan Bros. Ltd. was a capital receipt and was hot assessable as the assessee's business profits under Section 10 and we answer the question accordingly in the negative in favour of the revenue against the assessee. There will be no order as to costs.

Masud, J.

I agree.


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