LAWS(P&H)-1967-1-2

COMMISSIONER OF INCOME TAX Vs. PRABHU DAYAL

Decided On January 04, 1967
COMMISSIONER OF INCOME-TAX, PUNJAB Appellant
V/S
PRABHU DAYAL. Respondents

JUDGEMENT

(1.) THE facts necessary for the decision of this income-tax reference may briefly be stated as under : Prabhu Dayal, working under the name and style of Ganeshi Lal Prabhu Dayal, Dadri, (in the erstwhile Jind State), was instrumental in discovering the existence of kanakar deposit in Jind State and in bringing about an agreement through his good offices between one Shanti Prasad Jain and theerstwhile Jind State (forming part of the Punjab State at the time of the reference and now, after the reorganisation, forming part of Haryana State), for the acquisation of the sole and exclusive monopoly rights of exploiting these deposits and manufacturing cement in the said Jind state, vide an agreement dated 2nd of April, 1938. This agreement was to be operative for 25 years in the first instance, and at the option of the aforesaid Shanti Prasad, was liable to be extended to 100 years. Later a public limited company, named Messrs. Dalmia Dadri Cement Limited (hereinafter referred to as the company), was incorporated and the benefits of the above-mentioned agreement were transferred to that public company. THE assessee also assisted in the promotion of the aforesaid company. THE assessee also assisted in the promotion of the aforesaid company. For the aforesaid services rendered by the assessee of the company entered into an agreement on 27th of May, 1938, by which it agreed to pay to the assessee by way of commission 1 percent. on the yearly net profits earned by the company from the said cement factory. THE assessee was paid his 1 percent. commission regularly till 1950. As no commission was paid thereafter, the assessee filed a suit against the company, and in that suit a compromise was entered into by which the assessee was paid a total amount of Rs. 15,000 as commission for the year 1951 and 1952; another Rs. 15,000 as commission for the year 1953, and Rs. 70,000 were paid by way of compensation for the termination of the agreement dated 27th of May, 1933, and this amount was received by the assessee on 11th June, 1945, and the earlier agreement was to be terminated with effect from 1st January, 1954.

(2.) THE Income-tax Officer treated the sum of Rs. 70,000 as remuneration paid to the assessee for the service rendered once and for all and taxed the same as revenue receipts in the hands of the assessee. This order was upheld by the Appellate Assistant Commissioner of Income-tax but, on appeal by the same as capital and not revenue in the hands of the assessee. At the instance of the Income-tax Commissioner, therefore, the following question of law was referred to this court :

(3.) THE learned counsel for that appellant urged that the learned Tribunal was in error in considering that this case was applicable to the facts of the present case. Here. there was no machinery set up affecting or, in any way, regulating the activities of the assessee or the conduct of his business. In fact, nothing was to be done by the assessee under the agreement. THE contract only provided for payment of certain sum of money to the assessee every year for his past services, and the only thing detailed in the contract was the method of calculating the amount to be paid. It was urged, therefore, that it was the contract itself from which income or the proceeds of the assessee proceeded and that the facts of the present case are on all fours with those of Shove v. Dura Manufacturing Co. Ltd., I feel that there is force in this connection. Out of the two cases discussed above,the facts are similar to those in Shove v. Durga Manufacturing Co. Ltd. and are quite distinct from those in Van den Berghs case. Reference was also made in support of his contention to Kelsall Parsons and Co. v. Commissioner of Inland Revenue, T. Sadasivam v. Commissioner of Income-tax and Commissioner of Income-tax v. R. B. Jairam Valji. In Kelsalls case the appellants carried on business as agents on commission basis for the sale in Scotland of the products of various manufacturers, and entered into agency agreement for that purpose. One of these agreements, which was for a period of three years, was terminated at the end of the second year and Rs. 1,500 were paid as compensation. This was held to be a revenue receipt. At page 623, Lord Moncrieff observed as follows :