GODREJ AND CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE principle of law that we have to consider on this reference is clear and well established. The only question is how we shall apply it to the facts of the present case.

(2.) THE assessee is a registered firm and its business was to act as the managing agents of Godrej Soaps, Ltd. The agreement of managing agency was executed on October 29,1928, and the agreement provided that the assessee firm should act as the managing agents of the managed company for a period of 30 years from November 9,1933. The agreement fixed the remuneration that was to be paid to the managing agency firm, and the remuneration fixed was that it was to get every year 20 per cent, on the net profits of the company. There was also a provision that if during any year the net profit exceeded a sum of Rs. 1,00,000, the amount of such excess over Rs. 1,00,000 up to a limit of Rs. 24,000 was to be paid to the managing agents as their remuneration, and it was further provided that if the profits exceeded Rs. 1,24,000, half of such excess over Rs. 1,24,000 shall be paid to the managing agents. Pursuant to this agreement the assessee company worked as the managing agents of the managed company.

(3.) THE assessee company was paid Rs. 7,50,000 in the year of assessment and the question that arises for our consideration is whether this sum of Rs. 7,50,000 is a capital or revenue receipt.