Case: Messrs. Godrej &amp; Company, Bombay Vs. Commissioner Of Income-Tax, Bombay

to be. Nor can this amount be said to have been paid as compensation for the cancellation or cessation of the managing agency of the assessee firm; for the managing agency continued and, therefore, the decision of the Judicial Committee of the Privy Council in Commr. of Income-tax v. Shaw Wallace and Co., 59 Ind App 206: (AIR 1932 PC 138 ) cannot be invoked. It is, however, urged that for the purpose of rendering the sum paid as compensation to be regarded as a capital receipt, it is not necessary that the entire managing agency should be acquired. If the amount was paid as the price for the sterilisation of even a part of a capital asset which is the framework or entire structure of the assessees profit making apparatus, then the amount must also be regarded as a capital receipt, for, as said by Lord Wrenbury in Glenboig Union Fireclay Co. Ltd. v. Commrs. of Inland Revenue, (1928) 12 Tax Cas 427, "what is true of the whole must be equally true of part"-a principle which has been adopted by this Court in Commr. of Income-tax, Hyderabad, Deccan v. Vazir Sultan and Sons, Civil Appeal No. 340 of 1957, D/- 20-3-1959: (AIR 1959 SC 814 ). The learned Attorney General however, contends that this case is not governed by the decisions in Shaw Wallaces case 59 Ind App 206: (AIR 1932 PC 138 (supra) or Vazir Sultan and Sons case, Civil Appeal No. 340 of 1957, D/- 20-3-1959: (AIR 1959 SC 814 ) (supra) because in the present case there was no acquisition of the entire managing agency business or sterilisation of any part of the capital asset and the business structure or the profit-making apparatus, namely, the managing agency, remains unaffected. There is no destruction or sterilisation of any part of the business structure. The amount in question was paid in consideration of the assessee firm agreeing to continue to serve as the managing agent on a reduced remuneration and, therefore, it bears the same character as that of remuneration and, therefore, a revenue receipt. We do not accept this contention. If this argument were correct, then, on a parity of reasoning, our decision in Vazir Sultan and sons case, Civil Appeal No. 340 of 1957, D/20-3-1959: (AIR 1959 SC 814 ) (supra) would have been different, for, there also the agency continued as before except that the territories were reduced to their original extent. In that case also the agent agreed to continue to serve with the extent of his field of activity limited to the State of Hyderabad only. To regard such an agreement as a mere variation in the terms of remuneration is only to take a superficial view of the matter and to ignore the effect of such variation on what has been called the profit making apparatus. A managing agency yielding a remuneration calculated at the rate of 20 per cent, of the profits is not the same thing as a managing agency yielding a remuneration calculated at 10% of the profits.There is a distinct deterioration in the character and quality of the managing agency viewed as a profit making apparatus and this deterioration is of an enduring kind. The reduced remuneration having been separately provided, the sum of Rs. 7,50,000 must be regarded as having been paid as compensation for this injury to or deterioration of the managing agency just as the amounts paid in Glenboigs case, (1928) 12 Tax Cas 427 or Vazir Sultans case, (AIR 1959 SC 814 ) (supra) were held to be.This case is also very nearly covered by the majority decision of the English House of Lords in Hunter v. Dewhurst, (1932) 16 Tax Cas 605. It is true that in the later English cases of Prendergast v. Cameron, (1940) 23 Tax Cas 122 an Wales v. Tilley, (1942) 25 Tax Cas 136, the decision in (1932) 16 Tax Cas 605 (supra) was distinguished as being of an exceptional and special nature but those later decisions turned on the words used in R. I of Sch. E to the English Act. Further, they were cases of continuation of personal service on reduced remuneration simplicitor and not of acquisition, wholly or in part, of any managing agency viewed as a profit making apparatus and consequently the effect of the agreements in question under which the payment was made upon the profit-making apparatus did not come under consideration at all. On a construction of the agreements it was held that the payment made were simply remuneration paid in advance representing the difference between the higher rate of remuneration and the reduced remuneration and as as such a revenue receipt. The question of the character of the payment made for compensation for the acquisition, wholly or in part, of any managing agency or injury to or deterioration of the managing agency, as a profit making apparatus is covered by our decisions hereinbefore referred to. In the light of those decisions the sum of Rs. 7,50,000 was paid and received not to make up the difference between the higher remuneration and the reduced remuneration but was in reality paid and received as compensation for releasing the company from the onerous terms as to remuneration as it was in terms expressed to be. In other words, so far as the managed company was concerned, it was paid for securing immunity from the liability to pay higher remuneration to the assessee firm for the rest of the term of the managing agency and, therefore, a capital expenditure and so far as the assessee firm was concerned, it was received as compensation for the deterioration or injury to the managing agency by reason of the release of its rights to get higher remuneration and, therefore, a capital receipt within the decisions of this Court in the earlier cases referred to above.9. In the light of the above discussion it follows, therefore, that the answer to the referred question should be in the negative.

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

Explanation:
1[ds]It is, therefore, necessary to approach the problem keeping in view the particular facts and circumstances in which it hasis true, as said by the High Court and as reiterated by the learned Attorney General, that the language used in the document is not decisive and the question has to be determined by a consideration of all the attending circumstances; nevertheless, the language cannot be ignored altogether but must be taken into consideration along with other relevant circumstances.8. This sum of Rs. 7,50,000 has undoubtedly not been paid as compensation for the termination or cancellation of an ordinary business contract which is a part of the dock-in-trade of the assessee and cannot, therefore, be regarded as income, as the amounts received by the assessee in 1956 SCR 223: ( (S) AIR 1956 SC 492  ) (supra) and in Commr. of Income-tax, Nagpur v. Jairam Valji, 1959-35 ITR 148  : (AIR 1959 SC 291  ) had been held to be. Nor can this amount be said to have been paid as compensation for the cancellation or cessation of the managing agency of the assessee firm; for the managing agency continued and, therefore, the decision of the Judicial Committee of the Privy Council in Commr. of Income-tax v. Shaw Wallace and Co., 59 Ind App 206: (AIR 1932 PC 138  ) cannot bethe light of those decisions the sum of Rs. 7,50,000 was paid and received not to make up the difference between the higher remuneration and the reduced remuneration but was in reality paid and received as compensation for releasing the company from the onerous terms as to remuneration as it was in terms expressed to be. In other words, so far as the managed company was concerned, it was paid for securing immunity from the liability to pay higher remuneration to the assessee firm for the rest of the term of the managing agency and, therefore, a capital expenditure and so far as the assessee firm was concerned, it was received as compensation for the deterioration or injury to the managing agency by reason of the release of its rights to get higher remuneration and, therefore, a capital receipt within the decisions of this Court in the earlier cases referred to above.9. In the light of the above discussion it follows, therefore, that the answer to the referred question should be in the negative.