Case: Ram Kumar Agarwalla And Brothers Vs. Commissioner Of Income-Tax, Central, Calcutta

and it was not open to the third Member to ignore that finding and to arrive at a different conclusion. We are unable to agree with that contention. On a difference of opinion the appeal in its entirety and not any specific question, was referred to the third Member. Again only the Accountant Member was of the view that the receipt of Rs. 2 lakhs to the assessees arose not in the course of their business, but because they agreed to refrain from competing with M/s. Mangturam Jaipuria in that firms attempt to acquire the controlling interest in the Company: the Judicial Member did not accept that view. 4. The terms of the letter addressed by M/s. Mangturam Jaipuria to David Mitchell make it abundantly clear that Rs. 6 lakhs were agreed to be paid primarily as remuneration for services to be rendered. The expression:"in the event of your securing the same (controlling interest in the Swadeshi Cotton Mills) for us, and upon your giving up all claims to purchase the same, and assigning to us and our associates any interest that you may have acquired, we hereby agree to pay you ** sum of Rs. 6,00,000" evidences that object. The Tribunal had also called for a report from the Appellate Assistant Commissioner and that Officer, as we have already observed expressly recorded that the payment made to the assessees and their associates was for services rendered in acquiring the controlling interest for M/s. Mangturam Jaipuria and not for dissuading them in competing for the purchase of the shares. The Tribunal accepted the report of the Appellate Assistant Commissioner, and observed that the assessees had no intention to buy the controlling interest in the Company. The principal business of the assessees was in paper, and they were doing some business in shares and brokerage in shares. The evidence does not disclose how it was intended by the assessees to finance such a large transaction. The Tribunal was apparently of the view that a solicitor, an auditor and a firm of share-brokers and paper merchants could not have been associated in a genuine project of acquiring the controlling interest in one of the largest textile units in the country which was expected to and did cost Rs. 4 crores. The Tribunal had directed that certain persons including Ram Kumar Agarwalla the principal partner of the assessees be examined as witnesses. The principal partner of the assessees did not give evidence. Ramgopal Agarwalla another partner of the firm who appeared before the Appellate Assistant Commissioner pleaded that he had no personal knowledge about the details of the negotiations or "as to the financial part of the aspect of the matter, since it was being dealt with by the senior partner Ram Kumar Agarwalla." David Mitchell and Rowen Hodge had it appears left India, and they also could not be examined. The conclusion recorded by the Tribunal that the assessees, David Mitchell and Rowen Hodge had no intention to acquire the controlling interest, but were seeking to associate themselves in a venture in the nature of trade, cannot in the circumstances be said to be without evidence. The conclusion that the assessees and their two associates received Rs. 6,00,000 not in consideration of refraining from competing in the purchase of the controlling interest, but as remuneration for services rendered is based on evidence before the Tribunal. The receipt must, therefore, be regarded as a revenue receipt earned in the course of the business of the assessees. 5. It is unnecessary to make a detailed reference to the decisions which were cited at the Bar, e.g., Higgs v. Oliver, (1952) 33 Tax Cas 136 and in Commissioner of Income-tax, Bombay Presidency, Sind and Baluchistan v. Mills Store Co., Karachi, 1941-9 ITR 642: (AIR 1942 Sind 53). In Higgss case, (1952) 33 Tax Cas 136, a professional actor who had agreed to give his, exclusive services to a film company in consideration of a fixed sum, and a proportion of the net profits from exploitation of a film, was, after the agreement was fulfilled, given a sum of ?15,000 as consideration for an undertaking not to act, produce or direct any film for any person for a period of eighteen months. It was held that the amount paid was not for carrying on business, but for refraining from carrying on the business and was not taxable. In the Mills Store Companys case, 1941-9 ITR 642: (AIR 1942 Sind 53), under an agreement for a stated consideration the assessee Company parted with the oil tanks and installations and other structures and goodwill and leasehold rights held by it in respect of the land on which its business of storing petroleum and petroleum products was carried, and agreed not to import petroleum for ten years, and not to act on behalf of any one else as importers of petroleum for five years. By another agreement in consideration of extending the latter restriction to ten years, the assessee was paid Rs. 10,000 annually during the subsistence of the restriction. It was held by the Chief Court of Sind that the sum of Rs. 10.000 was not the direct result of the profit or gains accruing to the assessees as a result of the business actually carried on by them, and did not fall under the head Profits and gains of business, profession or vocation. These cases have, on the findings recorded by the Tribunal, no relevance. 6. Under S. 4 (3) (vii) receipts which are of a casual and non-recurring nature are not liable to be included in the computation of the total income of the assessee; but the rule in express terms does not apply to capital gains, receipts arising from business or the exercise of a profession or vocation and receipts by way of addition to the remuneration of an employee. On the finding recorded by the Tribunal, the receipt arose from the business of the assessees, and is not exempt under S. 4 (3) (vii).

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]5. It is unnecessary to make a detailed reference to the decisions which were cited at the Bar, e.g.,Higgs v. Oliver, (1952) 33 Tax Cas 136and in Commissioner of Income-tax, Bombay Presidency, Sind and Baluchistan v. Mills Store Co., Karachi, 1941-9 ITR 642: (AIR 1942 Sind 53). In Higgss case, (1952) 33 Tax Cas 136, a professional actor who had agreed to give his, exclusive services to a film company in consideration of a fixed sum, and a proportion of the net profits from exploitation of a film, was, after the agreement was fulfilled, given a sum of ?15,000 as consideration for an undertaking not to act, produce or direct any film for any person for a period of eighteen months. It was held that the amount paid was not for carrying on business, but for refraining from carrying on the business and was not taxable. In the Mills Store Companys case, 1941-9 ITR 642: (AIR 1942 Sind 53), under an agreement for a stated consideration the assessee Company parted with the oil tanks and installations and other structures and goodwill and leasehold rights held by it in respect of the land on which its business of storing petroleum and petroleum products was carried, and agreed not to import petroleum for ten years, and not to act on behalf of any one else as importers of petroleum for five years. By another agreement in consideration of extending the latter restriction to ten years, the assessee was paid Rs. 10,000 annually during the subsistence of the restriction. It was held by the Chief Court of Sind that the sum of Rs. 10.000 was not the direct result of the profit or gains accruing to the assessees as a result of the business actually carried on by them, and did not fall under the head Profits and gains of business, profession or vocation. These cases have, on the findings recorded by the Tribunal, no relevance6. Under S. 4 (3) (vii) receipts which are of a casual and non-recurring nature are not liable to be included in the computation of the total income of the assessee; but the rule in express terms does not apply to capital gains, receipts arising from business or the exercise of a profession or vocation and receipts by way of addition to the remuneration of an employee. On the finding recorded by the Tribunal, the receipt arose from the business of the assessees, and is not exempt under S. 4 (3) (vii)We are unable to agree with that contention. On a difference of opinion the appeal in its entirety and not any specific question, was referred to the third Member. Again only the Accountant Member was of the view that the receipt of Rs. 2 lakhs to the assessees arose not in the course of their business, but because they agreed to refrain from competing with M/s. Mangturam Jaipuria in that firms attempt to acquire the controlling interest in the Company: the Judicial Member did not accept that view4. The terms of the letter addressed by M/s. Mangturam Jaipuria to David Mitchell make it abundantly clear that Rs. 6 lakhs were agreed to be paid primarily as remuneration for services to be rendered. The expression"in the event of your securing the same (controlling interest in the Swadeshi Cotton Mills) for us, and upon your giving up all claims to purchase the same, and assigning to us and our associates any interest that you may have acquired, we hereby agree to pay you ** sum of Rs. 6,00,000"evidences that object. The Tribunal had also called for a report from the Appellate Assistant Commissioner and that Officer, as we have already observed expressly recorded that the payment made to the assessees and their associates was for services rendered in acquiring the controlling interest for M/s. Mangturam Jaipuria and not for dissuading them in competing for the purchase of the shares. The Tribunal accepted the report of the Appellate Assistant Commissioner, and observed that the assessees had no intention to buy the controlling interest in the Company. The principal business of the assessees was in paper, and they were doing some business in shares and brokerage in shares. The evidence does not disclose how it was intended by the assessees to finance such a large transaction. The Tribunal was apparently of the view that a solicitor, an auditor and a firm ofs and paper merchants could not have been associated in a genuine project of acquiring the controlling interest in one of the largest textile units in the country which was expected to and did cost Rs. 4 crores. The Tribunal had directed that certain persons including Ram Kumar Agarwalla the principal partner of the assessees be examined as witnesses. The principal partner of the assessees did not give evidence. Ramgopal Agarwalla another partner of the firm who appeared before the Appellate Assistant Commissioner pleaded that he had no personal knowledge about the details of the negotiations or "as to the financial part of the aspect of the matter, since it was being dealt with by the senior partner Ram Kumar Agarwalla." David Mitchell and Rowen Hodge had it appears left India, and they also could not be examined. The conclusion recorded by the Tribunal that the assessees, David Mitchell and Rowen Hodge had no intention to acquire the controlling interest, but were seeking to associate themselves in a venture in the nature of trade, cannot in the circumstances be said to be without evidence. The conclusion that the assessees and their two associates received Rs. 6,00,000 not in consideration of refraining from competing in the purchase of the controlling interest, but as remuneration for services rendered is based on evidence before the Tribunal. The receipt must, therefore, be regarded as a revenue receipt earned in the course of the business of the assessees.