COMMISSIONER OF INCOME TAX Vs. D MONDAL

JUDGEMENT

(1.) At the instance of the Commissioner of Income-tax, West Bengal-II, the following question of law has been referred to this court under Section 256(2) of the Income-tax Act, 1961, for the assessment year 1962-63 :

(2.) The facts relating to this application are that the assessee, who is the owner of the collieries known as Pure Shampoor Collieries, appointed one Mr. Mehta for proper and efficient management of the said collieries by an agreement dated March 2, 1954. The agreement was effective from March 1, 1954, for a period of five years. The agreement was renewed and was operative till January 1, 1964. However, before the expiry of the second period of five years, the agreement was terminated on February 23, 1962. The managing contractor, Mr. Mehta, was paid a sum of Rs. 50,000 as compensation for the premature termination of the agreement. Clause 29 of the agreement provided for the settlement of compensation by arbitration. In pursuance of this clause, the matter was referred to two arbitrators, Sri Balaram Chakraborty, nominated by Mr. Mehta, and Shri Nagendra Nath Mondal, nominated by the assessee. The arbitrators decided on a compensation of Rs. 50,000 in favour of Mr. Mehta. This compensation was paid in view of the unexpired period of 22 months of the agreement which should have normally come to an end only on January 1, 1964. The assessee terminated the service of the managing contractor as it was not satisfied with the manner in which he conducted the collieries. There were frequent violations of the coal mines regulations and as an owner, the assessee was repeatedly called upon to explain the remissness of the managing contractor, Shri Mehta. According to the agreement, Mr. Mehta was to run the collieries himself and pay commission on the basis of coal raised by him at a specified rate. The assessee actually received commission ranging from Rs. 33,000 to Rs. 37,000 for the assessment years 1960-61 to 1962-63. After the agreement was terminated, the assessee resumed the running of the mines and for the assessment year 1964-65, it was assessed on an income of about Rs. 38,000 from this colliery. Similarly, he was assessed on an amount of Rs. 33,000 for the assessment year 1963-64. On the above facts, the Income-tax Officer added back the sum of Rs. 50,000 in the assessment on the ground that the expenditure was on capital account. The bona fides of the transaction or the fact of the payment were not, in any manner, challenged by him.

(3.) The matter was taken in appeal to the Appellate Assistant Commissioner who found that the agreement was terminated on grounds of commercial expediency and that the settlement made between the two parties was a bona fide and genuine one. As for the legal issue, the Appellate Assistant Commissioner held that it was revenue expenditure. The Tribunal affirmed the findings and reasoning of the Appellate Assistant Commissioner.