COMMISSIONER OF INCOME-TAX, BOMBAY versus THE PROVIDENT INVESTMENT CO., LTD.

Citation: [1957] 1 S.C.R. 1141 · Decided: 15-05-1957 · Supreme Court of India · Bench: NATWARLAL HARILAL BHAGWATI · Disposal: Dismissed

Judgment (excerpt)

.. 
S.C.R. 
SUPREME COURT REPORTS 
COMMISSIONER OF INCOME-TAX, 
BOMBAY 
ti. 
• 
THE PROVIDENT INVESTMENT CO., LTD. 
'[BHAGWATI, S. K. DAs and J. L. KAPUR JJ.J 
1141 
Income Tax-Capital gains-Managing 
agent 
of 
company 
holding shares therein-Agreement of sale of shares and Managing 
Agency-Sale of shares-Relinquishment of Managing Agency by 
"'•')' of resignation-If amounts to a sale or transfer of Managing 
Agency-Agreed Statement of Case for reference to High Court--
Whether binding on the parties-Indian Income-tax Act, 1922 (XI of 
1922), s. 128. 
The respondent company was the managing agent ot two 
other companies holding certain 
shares therein. 
D wrote two 
letters to 
the 
responJ~nt on September 
14, 
1946, offering to 
purchase some of those shares together with the managing agency 
and agreeing to pay certain sums as earnest money on the accept-
ance of the offer and to pay the balance after the transfer of the 
managing agency was sanctioned by the general body of share-
holders. 
By a letter dated September 30, 1946, the respondent 
accepted the offer on condition of a sum of Rs. I crore being paid 
out of the consideration as compensation for the loss of the manag-
ing agency, and on receipt of the letter, D paid the earnest money. 
Subsequently, D wrote a letter on October 7, .1946, whereby, in 
modification of the arrangement previously made, it was agreed 
that instead of the managing agency 
being 
transferred by the 
respondent, the latter would resign the office of managing agents 
and certain indi\'iduals would be appointed Directors of the two 
companies. 
Accordingly, the respondent relinquished the manag-
ing agency and thereupon the balance of consideration money was 
paid to it. The Income-tax Officer consi<lered that s. 12B of the 
Indian Inrnme-tax Act, 1922, was applicable 
to 
the transaction 
and on the footing that the managing agency, which was valued 
at Rs. I crore, was a capital asset, he computed the capital gains 
at Rs. 81,81,900. The Income-tax Appellate Tribunal held that the 
respondent, as the owner of the shares and the managing agency, 
sold the shares to D anJ handed back the managing agency to the 
managed companies, and 
that this handing back constituted a 
tr<msfer. On a reference to the High Court by the Tribunal, the 
agreed 
statement of the case proceeded on the basis that 
the 
dispute between the parties was whether the 
transaction 
with 
regard to the managing agency resulted in capital gains and the 
I iigh Court held that there was neither a sale nor a transfer of the 
manlging agency within the meaning of s. 12B of the Act. 
On 
appeal to the Supreme Court by the Commissioner of Income-tax, 
it was contended for him (I) that there was a concluded contract 
,',/" 
1957 
M11115 
1957 
T hr Commissioner of 
Jncom~-tax, 
Bombqy 
, .. 
Thr Provident 
lnriutnunt Co., Ltd. 
S. K. Das]. 
1142 
SUPREME COURT REPORTS 
[1957] 
of sale as a result of the letters 
of 
September 14, 1946, and 
September 30, 1946, and a sale having taken place, the letter of 
October 7, 1946, merely changed the mode of performance of the 
contract and did ~ot affect the true legal character of the trans.. 
action which was a sale of the managing agency, and (2) that as 
there was one indivisible consideration for 
the whole transaction, 
including the sale of the shares an<l of the mal-iaging agency, the 
sale of the shares having taken place and the entire consideration 
having been paid, there was a sale within the ineaning of s. 12B 
of the Act and the transaction reSulte<l in capital gains. 
Held ( l} that on a true construction of the letters there was 
originally only an agreement to sell the shares together with the 
managing agency and before the sale could take place the letter 
of October 
7, ] 946, 
substituted a new 
contract, a contract 
of 
relinquishment rather than a contract of sale, so far as. the manag-
ing ag~ncy was concerned, and ( 2) that it was not open to the 
appellant to go behind the agreed statc1nent of the case and raise 
a question of law based on different facts and circumstances. 
Accordingly, the transaction in question was a relinquishment 
of the 1nanaging agency and was neither a sale nor a transfer 
within the meaning of s. 128 of the Indian Inco1nc-tax Act. 
CIVIL 
APPELLATE 
JURISDICTION : Civil Appeal No. 
179 of 1954. 
Appeal from the judgment and order dated March 
12, 1953, of the Bombay High Court in Income-tax 
Reference No. 43 of 1952. 
C.

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