GOYAL M R Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference made by the Income -tax Tribunal to this court under section 66(1) of the Indian Income -tax Act at the instance of the assessee.

(2.) THE assessee carried on his business in the name and style of Milkhiram Brothers. His business consisted of imports and sale of silk goods like nylons and parachute silk and other types of luxury articles like crockery, etc. On the 29th of October, 1946, the assessee made an offer of Messrs. Tata Aircraft Limited of purchase from them a whole lot of parachutes on certain terms and conditions as contained in the said letter of offer. Some of the terms of this offer were that the purchase price was to be Rs. 95,00,000; deposit of Rs. 5 lakhs was to be made by the purchaser and delivery of the goods purchased was to be completed by the 31st January, 1947. In anticipation of the contract the purchase of parachutes materialising, the assessee entered into an arrangement with three financiers, Messrs. Nathmal Nihalchand, Pokhraj Hirachand and Hiralal Hargovindas. This arrangement was as contained in the letter written by the assessee to Messrs. Nathmal Nihalchand and Pokhraj Hirachand on the 31st of October, 1946.

(3.) MR . Kolah, learned counsel for the assessee, has argued that the sum of Rs. 1,87,000 received by the assessee could not be regarded as an income receipt. He has argued that the agreement, which the assessee had entered into with the Tata Aircraft Ltd., was a capital asset or a source of possible income. What was transferred by the assessee was not the goods, which he had purchased under this contract, because no goods were actually purchased by the assessee under the said contract. What he had transferred to Messrs. Pokhraj Hirachand was the benefit of the agreement, which, in its working out, was to produce profits. The transfer of the benefit of the agreement, therefore, was a transfer of the benefit of the source of income and was, therefore, a transfer of a capital asset. According to Mr. Kolah, therefore, the amount of Rs. 1,87,000, which the assessee got for disposing of the source of his income, was a capital receipt and not a revenue receipt. He has, in support of his submissions, invited our attention to a decision of the Supreme Court in E.D. Sassoon and Co Ltd. v. Commissioner of Income -tax and a decision of this court in Commissioner of Income -tax v. Asiatic Textile Co. Ltd. These two decisions related to the managing agency or selling agency rights and it was held in these cases that a managing agency or a selling agency was a source of profit and, therefore, a capital asset. Mr. Kolah has argued that the agreement entered into by the assessee with the Tata Aircraft Limited was a source of income as a managing agency or selling agency is and the consideration received by the assessee for the transfer of the benefit under that agreement was like the consideration received for the transfer of the rights and benefits of a managing or selling agency, a capital receipt.