GILLANDERS ARBUTHNOT AND CO., LTD. versus THE COMMISSIONER OF INCOME-TAX, CALCUTTA

Citation: [1964] 8 S.C.R. 121 · Decided: 01-05-1964 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

.S S.C.R. 
SUPREME COURT REPORTS 
121 
in principle is disclosed. Where on a consideration of the 
196'# 
circumstances, payment is made to compensate a person Kettlew-;u-Bullen 
for cancellation of a contract which does not affect the 
and Co. 
v. 
trading structure of his business, nor deprive him of what 
CJ.T. 
in substance is his source of income, termillation of the 
Shah 1• 
-contract being a normal incident of the business, and such 
cancellation leaves him free to carry on his trade 
(freed 
from tbe contract terminated) the receipt is revenue: Where 
by the cancellation of an agency the trac! ing structure of 
the assessee is impaired, or such cancellation results in loss 
-Of what may be regarded as the source of the assessee's 
income, tbe payment made to compensate for cancellation 
of the agency agreement is normally a oapital receipt. 
In the present case, on a review of all the circumsc:mces, 
we have no doubt that what the assessee was paid was to 
compensate him for loss of a capital asset. It matters little 
whether the assessee did continue after the determination of 
its agency with tbe Fort William Jute Co. Lid to conduct 
the remaining agencies. 
The transaction was not in the 
nature of a trading transaction, but was one in which the. 
assessee parted with an asset of an enduring value. 
We 
are, therefore, unable to agree with the High Court that 
the amount received by the appellant was in the nature of 
· a revenue receipt. 
We accordingly record the answer on the question sub-
mitted by the Tribunal in the negative. 
The appellant 
would be entitled to its costs in this Court. 
GILLANDERS ARBUTHNOT AND CO., LTD. 
v. 
THE COMMISSIONER OF INCOME-TAX, CALCUTTA 
(K. SUBBA RAO, J. c. SHAH AND S. M. S!KRI, JJ.) 
Income Tax-Capital or revenue-Termination of 
agencY-Compensa~ 
tion-Business of several agencies-Cancellation of single agency-
Nature of compensation. 
The appellant company was carrying on business in diverse Jines 
as managing agents of some concerns, distributing agents of others and 
u secretaries of still other class of concerns. It also dealt as an ex-
1964 
May I. 
1964 
Gillanders 
Arbu-
thnot and Co. 
"· 
C.l.T. 
Shah J. 
122 
SUPREME COURT REPORTS 
porter and importer. shipping agent, and as buyer and dealer in dive"" 
commodities. A large amount of business wu done by the appellant 
as an agent of foreign companies in respect of different kinda of goods. 
In respect of explosives manufactured by the Imperial Chemical Indus-
tries (Export) Ll'd .• Glasgow, Scotland, the appellant wu acting u the 
sole agent and distributor of that company. The agency agreement was 
terminable at the option of the principal company, and by a Jetter dated 
March 11, 1947. the latter informed the appellant that the agency would 
stand terminated from April I, 1948 and that compensation would be 
paid for termination of the agency. 
The appellant was be paid 
an 
amount which was computed on the basis of the profits of the business. 
In the course of the proceedings 'for asaessment to income-tax appellant 
claimed that the amount was received on determination of the agency 
being receipt of a capital nature and was not liable to be included in 
total income of the appellant, but the 
Income~tax Officer rcjcctett 
the claim holding that cancellation of a single contract of agency out 
of a number of selling agencies held by the appellant was in the ordinary 
course of business 
and that the sum received as compensation 
was 
revenue taxable under the Indian Income-tax Act, 1922 . 
. Held: Having regard to the vast array of business done 
by 
the 
appellant as agents, the acquisition of agencies was in the normal course 
of business and the determination of individual agencies, a normal inci-
dent, could not affect or impair the trading structure of the appallant, nor 
involve a loss of an enduring trading asset. and the compensation receiv-
ed by the appellant, therefore, did not represent the price paid for loss 
of a capital asset but only a payment made for the loss of profit it 
suffered by the cancellation of its agency and was income chargeable 
to the income-tax. 
CIVIL 
APPELLATE 
JURISDICTION: 
Civil 
Appeals 
Nos. 825-828 of 1963. 
Appeals from the judgment and order dated January 10, 
1962, of the Calcutta High Court in Income-tax Reference 
No. 33 of 1957. 
B. Sen, P. K. Chatterjee and D. N. Gupta, for the 
appellant. 
K. N. Rajagopal Sastri and R. N. 
Sachthey, for the 
respondent. 
M

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