J. & K., HIMACHAL PRADESH versus PRABHU DAYAL

Citation: [1972] 1 S.C.R. 991 · Decided: 06-10-1971 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Judgment (excerpt)

\ 
A 
B 
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H 
{K. S. HEGDE, A. N. GROVER AND H. R. KHANNA, JJ.] 
J. & K., ffiMACHAL PRADESH 
v. 
PRABHU DAYAL 
October 6, 1971 
9.91 
[K. s. HEGDE, A. N. GROVER AND H. R. KHANNA, JJ.] 
Jncome-ttU-Cc.pital or R.evenue-Co1}1pensation for 
giving 
HI' 
a 
capital asset is capital receipt. 
The assessee was instrumental in discovering the existence of Kankar 
deposits in the erstwhile Jind State. He also brought about an agreement 
between .one S and the State of Jind for the acquisition of sole and exclu-
sive monopoly rights of manufacturing cement in the State. 
The agree-
ment was entered into an April 2, 1938 and was to remain operative 
initially for a period of 25 years which could be extended to 100 years 
at the option of S. The latter transferred his rights to a public limited com-
pany on May 4, 1938. For the Services rendered by the asse.see the com-
pany by agreement dated May 27, 1938 agreed to pay him a Commission 
of I% on the yearly net profits earned by the company from the said cement 
factory. 
The agreement was to subsist so long as the original agreement 
dated April 2. 1938 subsisted. The company paid the assessee's commis-
sion up to 1950 but not thereafter. 
The assessee filed a suit which 
11~sulted in a comoromise decree under which the assessee was to be· 
paid Rs. 15,000 as eommission for the yeal"s 1951 & 1952 and Rs. 15,000 
as commission for the year 1953. 
Further he was to be paid Rs. 70,000 
by w.iv of compensation for the termination of the agreement between 
him arid the company as from January l, 1954. That compensatioo. was 
n'ceived by the assessec on June 11, 1954 .. The Income-tax Officer held 
that the sum of Rs. 70i000 was a remuneration paid once and for all 
for the services rendered by the assessee and as such taxable in his hands. 
The Appellate Assistant Commissioner upheld the said order. . The Tribu-
nal however held that the amount in question was a capital receipt and 
the same view was taken by the High Court in answering the reference. 
In appeal to this Court by the Revenue, 
HELD : (i) Business as understood in the income-tax law connotes 
some real, substa;;.tial and systematic or organised course of activity or 
conduct with a set purpose. 
Even a single transaction may sometimes 
amount to a business transaction but the present transaction was not one 
such. 
This was a case dealing with the stray activity of a non·busine6s 
man. 
Hence it was difficult to agree with the Revenue in its contention 
that the agreement entered into by the assessee with the company should 
be considered as a business acti\ity. [994 E--F] 
In the determination of the question whether a particular receipt is 
capital at an income it is not possible to lay doivn any single test as 
infallible or any single criterion as decisive. The question must ultimately 
depend on the facts of the particular case and the authorities bearing on 
the question are valuable only as indicating the matters that have to be 
taken into account in reaching a decision. 
That however is not to sav 
that the question is one of fact, for these questions between capital and 
income, trading profit and non-trading profit, are questiom which though 
they may depend to a very great extent on the particular facts of each 
case do involve conclusions of law to be drawn from those facts. 994 0-H] 
992' 
SUPREME COURT REPORTS 
[ 1972] l S.C.R. 
ll is now well settled that a distinction has to be dra\\10 between a 
payment made f.i:tr past services or discharge of past liabilities and that 
n1ade for compensation fo'r termination of an income pro<lucirig asset.·Thc 
former does not lose its revenue nature but the lalt1::r being a payment 
for destruction of a capital asset, must be considered as a capital receipt. 
1997 OJ 
'fhc 
assessee pos:-;ibly by som.! fonuitous circumstance discovered 
K.unkar· in some place in Jind· State. 
This circumstance gave him an 
oppo'rtunity to bring about an agrccmcnl between the State of Jin<l and 
·s. a,nd \Vhcn S transferred his right to n niw· company in the formation 
of which the aS~J~sscc had a hand, he \\ti.IS promisi:d certain yearly com-
rnission on the net profits earned by the company. 
None of these activi· 
ti.:s of the assesscc can be COl1$i<lerecJ as ;.1 business activity hut yet b~ did 
:1..:quirc an inCOilJC "yielding asset as a result of thCsc actjvitics. 
But the 
..:ompromis.:: 
decree~ dcsfroycd that i.lSSCt an<l in its place he 
\Vas given 
'R'i. 70,

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