l Appeal Nos 1840 and 1841 of 1979
From the Judgment and Order dated 2411979 of the Madras High Court in Appeal Nos 67 and 68 of 1975
JRamamurthy K Ram Kumar N Sridhar and Ms Anjani for the Appellant
891 ATM Sampath Ms Pushpa Rajan section Balakrishnan Srinivasan and Ms Revathy Raghavan for the Respondents
The Judgment of the Court was delivered by KASLIWAL J
These appeals by grant of special leave are directed against the judgment of the Madras High Court dated 2411979
Abdul Salam and his mother Razia Begum sold their agricultural lands measuring 3 acres and 25 acres respectively by executing two sale deeds Exhibits A2 and A1 dated 1741962 in favour of Satyanarayana Rao and his father Mahadeva Rao
The consideration of the respective sale deeds was Rs10000 and Rs75000
On the same day both the vendees took Rs500 back and executed two separate agreements in favour of the respective vendors under Exhibits A3 and A4 giving a right of repurchase to the vendors at any time after 1741969 but before 1641972
Thereafter Razia Begum and Abdul Salam executed agreements of sale in favour of the appellant TM Balakrishna Mudaliar on 411963 for a consideration of Rs130000 in all
The appellant also paid an amount of Rs30000 from time to time till April 1963 to Razia Begum and Abdul Salam towards the said agreements
For the balance of Rs100000 which was to be apportioned between Razia Begum and Abdul Salam Exhibits A10 dated 1541963 and A11 dated 1531963 registered deeds of agreement of sale were executed by Razia Begum and Abdul Salam respectively for Rs87500 and Rs12500
The appellant paid further sums of Rs4000 under Exhibit A10 to Razia Begum and Rs1000 under Exhibit A11 to Abdul Salam and Exhibits A3 And A4 were handed over to the appellant
Mahadeva Rao died leaving behind his widow Pushpavathi Ammal and Satyanarayana Rao his son as his legal representatives
In view of the fact that Satyanarayana Rao and his mother Pushpavathi Ammal refused to execute the reconveyance deed the appellant TM Balakrishna Mudaliar filed two suits for specific performance of the agreements of reconveyance delivery of possession and mesne profits in the Court of Subordinate Judge Tirupattur
OS No67 of 1969 was filed against Satyanarayana Rao Pushpavathi Ammal and Abdul Salam and OSNo73 of 1969 was filed against Satyanarayana Rao Pushpavathi Ammal and Razia Begum
In OS No67 of 1969 the appellant deposited the amount of Rs9900 in the Court for payment to Satyanarayana Rao and Pushpavathi Ammal and Rs 1600 for payment to Abdul Salam
In OS No73 of 1969 the appellant deposited 892 Rs74500 for payment to Satyanarayana Rao and Pushpavathi Ammal and Rs9000 to Razia Begum
Both the above suits were decreed ex parte on 711974
Razia Begum and Abdul Salam did not file any application for setting aside the ex parte decree and as such the decrees passed against them became final
On an application filed by Satyanarayana Rao and Pushpavathi Ammal the ex parte decrees passed against them were set aside and they were allowed to contest the Suit
The trial court after recording the evidence decreed the suit against Satyanarayana Rao and Pushpavathi Ammal also
Satyanarayana Rao and Pushpavathi Ammal aggrieved against the judgment of the trial court filed appeal Nos67 and 68 of 1975 in the High Court
The High Court by its judgment dated 2411979 allowed the appeals and set aside the judgments of the trial court and dismissed both the suits
TM Balakrishna Mudaliar the plaintiff aggrieved against the judgments of the High Court has filed the aforesaid two appeals
The facts are almost admitted and there is no controversy as regards the execution of Exhibits A4 and A3 the deeds of reconveyance by Satyanarayana Rao and Mahadeva Rao in favour of Razia Begum and Abdul Salam respectively and Exhibits A10 and A11 registered deeds of agreement of sale by Razia Begum and Abdul Salam in favour of the appellant
The High Court however took the view that under the terms and conditions set out in Exhibit A10 and A11 Razia Begum and Abdul Salam had not assigned the rights of reconveyance of the properties which they had got under Exhibits A4 and A3
According to the High Court Exhibits A10 and A11 contemplated the performance of agreements of sale within a period of two years namely 1741969 to 1641971 while under the terms and conditions of Exhibits A3 and A4 such period for reconveyance in favour of Abdul Salam and Razia Begum was three years ie from 1741969 to 1641972
According to the High Court this difference relating to the period was important from the point of view of considering the question whether the plaintiff could stand in the shoes of Razia Begum and Abdul Salam to enforce the agreement entered into between Razia Begum and Abdul Salam on the one hand and Satyanarayana Rao and Mahadeva Rao on the other
The High Court took the view that on account of such curtailment of the period in Exhibits A10 and A11 it was reasonable to infer that if the plaintiff did not enforce his rights under Exhibits A10 and A11 within the period of two years me 893 tioned therein still Razia Begum and Abdul Salam in their own right would be in a position to enforce their right under Exhibits A3 and A4 because there was still one more year available to them to enforce the obligations undertaken by Satyanarayana Rao and Mahadeva Rao under Exhibits A3 and A4
The High Court further took the view that from the terms of the documents Exhibits A10 and A11 it was clear that no privity was intended between the plaintiff on the one hand and Satyanarayana Rao and Mahadeva Rao directly and it was only Razia Begum and Abdul Salam who could have enforced the terms of the contract of reconveyance under Exhibits A4 and A3
The High Court also took the view that the plaintiff did not fall within the expression representative in interest  as contemplated under Section 15 clause b of the hereinafter referred to as the Act  and as such was not entitled to bring a suit for specific performance of the contract on the basis of the deeds of reconveyance Exhibits A3 and A4
It was also held that having regard to the language of Exhibits A10 and A11 no question of assignment of any right in favour of the plaintiff can arise
We have heard learned counsel for the parties and have thoroughly perused the record as well as the contents of Exhibits A3 A4 and A10 and A11 on which the entire case hinges
Exhibits A3 and A4 are agreements of resale executed on 1741962 by Mahadeva Rao and Satyanarayana Rao in favour of Abdul Salam and Razia Begum respectively
Both the documents contained the terms of the resale at any time after 7 years but within 10 years of the date of execution of the documents
It was clearly stipulated that after 1741969 but before 1741972 Mahadeva Rao and Satyanarayana Rao shall sign the sale deed on receiving the sum of Rs74500 in favour of Razia Begum and on receiving Rs9900 in favour of Abdul Salam
Both these documents Exhibits A3 and A4 do not contain any condition that such right was personal and was in favour of Abdul Salam and Razia Begum and such right could not be exercised by a stranger
The documents also do not contain any condition that such right could be exercised by the heirs of such persons or any other named persons and that such right could not be assigned by Abdul Salam and Razia Begum in favour of any other person
The High Court was wrong in taking the view that the plaintiff Balakrishna Mudaliar was not a representative in interest of Abdul Salam and Razia Begum even after such right being assigned in his favour by agreements Exhibits A10 and A11
Exhibits A10 is a sale agreement for Rs87500 executed on 1541963 by Razia Begum 894 in favour of the plaintiff Balakrishna Mudaliar
It has been clearly stated in the aforesaid deed that in order to raise funds for expenses required for the family and also for repayment of the amount of Rs75000 and recover back the properties from Ms Mahadeva Rao and Satyanarayana Rao and that Razia Begum party No1 had a right to have it reconveyed as per reconveyance agreement she agreed to assign such right in favour of Balakrishna Mudaliar the second party
It further provided that Razia Begum had received Rs4000 and out of the balance amount of Rs83500 an amount of Rs74500 shall be paid to Mahadeva Rao and Satyanarayana Rao and the balance amount of Rs9000 shall be paid to Razia Begum
It was also mentioned that in case Mahadeva Rao and Satyanarayana Rao who had already executed the agreement of resale refuse to receive the sum of Rs74500 as per the said resale agreement Razia Begum at her own expense shall get the sale deed executed by the said Mahadeva Rao and Satyanarayana Rao in her favour and then shall execute the sale deed in favour of the plaintiff
At the time of executing Exhibit A10 a copy of the sale deed made in favour of Mahadeva Rao and Satyanarayana Rao and the agreement for resale executed by them in favour of Razia Begum was also handed over to the plaintiff
Exhibit A11 has been executed by Abdul Salam in favour of the plaintiff and contains identical terms and conditions as in Exhibit A10 except the difference of amount
Thus a combined reading of the documents Exhibits A3 A4 A10 and A11 there remains no manner of doubt that Razia Begum and Abdul Salam had made an agreement to sell the properties in favour of the plaintiff and had also given a right to make the payment of such amount to Mahadeva Rao and Satyanarayana Rao which they were entitled under the terms and conditions of Exhibits A3 and A4 the agreements of resale made in favour of Abdul Salam and Razia Begum respectively
The plaintiff had filed a suit for specific performance of the agreement for sale impleading Razia Begum and Mahadeva Rao and Satyanarayana Rao as defendants in the one case and Abdul Salam and Mahadeva Rao and Satyanarayana Rao in another care and had also deposited the amount of consideration in Court which clearly proved that the plaintiff was always ready and willing to perform his part of the contract
In our view there was no ground or justification for the High Court to dismiss the suits filed by the plaintiff
The High Court was wrong in taking the view that it was only Razia Begum and Abdul Salam who were entitled to get reconveyance from Mahadeva Rao and Satyanarayana Rao and the plaintiff was not entitled 895 to enforce such right by a suit for specific performance against Mahadev Rao and Satyanarayana Rao
The High Court further erred in holding that the restriction of the period during which the plaintiff could have got the sale deeds executed in his favour was two years while Razia Begum and Abdul Salam under Exhibits A3 and A4 could have exercised such right within a period of three years and such difference in the period deprived the plaintiff of his right to enforce the agreement of specific performance
Admittedly the plaintiff was exercising the right of specific performance of agreement of sale within the stipulated period of two years and we are unable to accept the reasoning of the High Court as to how the period of three years granted in favour of Razia Begum and Abdul Salam in any manner affected of took away the right of the plaintiff to bring a suit for specific performance
It may also be noted that an ex parte decree for specific performance of sale had become final against Razia Begum and Abdul Salam and so far as Mahadeva Rao and Satyanarayana Rao are concerned they were bound to make a resale or reconveyance of the property in favour of Abdul Salam and Razia Begum as well as their assignee under Exhibits A3 and A4
So far as Mahadeva Rao and Satyanarayana Rao are concerned they have not pleaded that they had not executed Exhibit A3 and Exhibit A4 or that Razia Begum and Abdul Salam had lost the right of repurchase or reconveyance of the property in question in their favour
The Privy Council in Sakalaguna vs Munnuswami AIR 1928 PC 174 has held that the benefit of a contract of repurchase which did not show that it was intended only for the benefit of the parties contracting could be assigned and such contract is enforceable
Beaumount CJ in Vishweshwar vs Durgappa AIR 1946 Bombay 339 held that the both under the common law as well as under Section 23 b of the  an option given to repurchase the property sold would prima facie be assignable though it might also be so worded as to show that it was to be personal to the grantee and not assignable
On the particular facts of that case it was held that the contract was assignable
In Sinnakaruppa vs Karuppuswami AIR 1965 Madras 506 it was held In our view generally speaking the benefits of a contract of repurchase must be assignable unless the terms of the contract are such as to show that the right of repurchase 896 is personal to the vendor
In the latter case it will be for the person who pleads that the contract is not enforceable to show that the intention of the parties thereto was that it was to be enforced only by the persons named therein and not by the assignee  In our view the above statement of law appears to be correct
We have already held above that under the terms and conditions laid down in Exhibits A3 and A4 the right of repurchase was not given as personal to Razia Begum and Abdul Salam and they were entitled to assign such right and the plaintiff having got such right under Exhibits A10 and A11 was entitled to enforce such contract by filing a suit for specific performance
The plaintiff in the present case also falls within the meaning of representative in interest as contemplated under Clause b of Section 15 of the Act
On such assignment the plaintiff appellant acquired a valid titled to claim specific performance
In the result we allow these appeals with costs and set aside the Judgment of the High Court and restore and Judgments and decrees passed by the trial court
VPR Appeal allowed


Summary:
In 1931 the respondent a registered firm was appointed the sole selling agents and distributors for the Hyderabad State of 376 cigarettes manufactured by V a limited company under the terms of a resolution of the Board of Directors the agency commission being a discount of 2 on the gross selling price
In 1939 another arrangement was made whereby the respondent s agency was extended to the rest of India
By a resolution dated June 16 1950 the agency of 1939 was terminated on payment of Rs 226263 to the respondent by way of compensation but the respondent continued to be distributors for the Hyderabad State
For the assessment year 1951 52 the Income tax Officer included the aforesaid sum in the respondent s total income and taxed it as a revenue receipt under the head of  business 
The respondent claimed that it did not carry on business of acquiring and working agencies that the agency acquired in 1931 was a capital asset of its business of distributing cigarettes in the Hyderabad State that the expansion of territory outside the Hyderabad State in 1939 was an accretion to the capital asset already acquired by it that the resolution Of 1950 was in substance a termination of the agency qua territory outside the Hyderabad State which resulted in the sterilisation of the capital asset qua that territory that the sum of Rs 219343 received by it in the year of account was by way of compensation for the termination of the agency outside Hyderabad State and being therefore compensation for the sterilisation Pro tanto of a capital asset of its business was a capital receipt and therefore was not liable to tax
It was contended on behalf of the Incometax Authorities that the sole selling agency which was granted by the company to the assessee in the year 1931 was merely expanded as regards territory in 1939 and what was done in 1950 was to revert to the old arrangement that the structure or the profit making apparatus of assessee s business was not affected thereby that the expansion as well as the restriction of the assessee s territory were in the ordinary course of the assessee s business and were mere accidents of the business which the assessee carried on and that the sum of Rs 219343 received by the assessee as and by way of compensation for the restriction of the territory was a trading or an income receipt and was therefore liable to tax
It was also urged that the agency agreement between the respondent and the company was terminable at the will of the latter and so it could not be considered as an enduring asset
Held per Bhagwati and Sinha JJ Kapur J dissenting that the agency agreements in question did not constitute the business of the respondent but formed a capital asset being the profit making apparatus of its business of distribution of the cigarettes manufactured by the company within the respective territories and consequently any payment made by the company as compensation for terminating the agency would only be a capital receipt in the hands of the respondent
Commissioner of Income tax vs Shaw Wallace  Co 1932 LR 59 I A 206 relied on
377 Commissioner of Income Tax and Excess Profits Tax Madras vs The South India Pictures Ltd Karaikudi  and Commissioner of Income tax Nagpur vs Rai Bahadur jairam Valji 1959 Supp 1 SCR 110 distinguished
Case law reviewed
Held further that the fact that the agency agreements were terminable at will or that only one of them was terminated would not make any difference because in either case when the agency was terminated and the amount was paid as compensation for such termination it resulted in the sterilisation of the capital asset Pro tanto and it was received as a capital receipt in the hands of the respondent
Glenboig Union Fire Clay Co Ltd vs The Commissioners of Inland Revenne  relied on
Per Kapur J The true effect of the facts of the present case was that in 1939 the respondent s area of distribution was increased from the State of Hyderabad to the whole of India and in 1950 it was again reduced to the original area of 1931 so that the respondent did not lose its agency
Consequently the termination of the agency in 1950 did not affect the trading activities of the respondent and therefore viewed against the background of the respondent s business Organisation and profitmaking structure the compensation for the termination of the agency was no more than that for the loss of future profit and commission
The compensation therefore was in the nature of surrogatum and in this view of the matter it was revenue and not capital
The answer to the question as applied to agencies whether the compensation is capital or revenue is that it will be a capital receipt if it is received as the value of the agency i e it is a price of the business as if it is brought to sale
On the other hand it is revenue receipt if it is paid in lieu of profits or commission
In view of the decision The Commissioner of Income tax vs The South India Pictures Ltd Karaikudi   and the observations of Bose J in the case of Raghuvanshi Mills Ltd vs Commissioner of Income tax   the authority of Commissioner of Income tax vs Shaw Wallace considerably shaken