CHUNDURI VENKATA REDDI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question has been referred to us by the Income-tax Appellate Tribunal, Madras Bench :

(2.) THE facts which led to the reference being made by the Appellate Tribunal may be briefly stated :

(3.) THE Income-tax Officer before whom exemption was claimed held that the four expellers that were given to the assessee were given to him in order that he might make good the loss of profits in consequence of the failure of the Lahore firm to implement the terms of the agreement of 15th February, 1938. Coming to that conclusion he held that the sum of Rs. 40, 000 represented a trading receipt. On appeal, the Appellate Assistant Commissioner concurred with the Income-tax Officer and confirmed the assessment and dismissed the appeal. In his view also the expellers were given free of cost to make good the loss of profits sustained by the assessee on account of the failure of M/s. Chisty & Co. to conform to the terms of the agreement. THE matter was taken up in further appeal before the Income-tax Appellate Tribunal, and the Appellate Tribunal, while modifying the order of the Appellate Assistant Commissioner in other respects, held with regard to the sum of Rs. 40, 000 received by the assessee that the sum did not represent the compensation for terminating the business, but in a sense the receipt of the expellers was "the receipt of stock-in-trade for the injury inflicted on him in the trade carried on in that line of business." THE Tribunal, therefore, treated it as a revenue receipt liable to tax. Learned counsel appearing for the assessee contended that by no stretch of imagination could this sum be regarded as revenue receipt, for under the terms of the agreement and the circumstances that have been set out already the amount was given to the assessee as compensation for the termination of the sole agency which was to last for some time. According to him the case fell directly under the decision of the Privy in Commissioner of Income-tax v. Shaw Wallace and Company. Counsel for the Department argued that the amount received was for loss of profit and further this amount was invested in another partnership concern which the assessee was running along with others and therefore the amount should be treated as one received in lieu of profit in the regular carrying on of the business. Reliance was sought to be placed on the case of Commissioners of Inland Revenue v. Fleming and Company.