JUGGI LAL KAMLAPAT versus COMMLISIONER OF INCOME-TAX, U.P.

Citation: [1969] 1 S.C.R. 988 · Decided: 04-09-1968 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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0 988 
JUGGI l,AL KAMLAPAT 
A 
v . 
COMML'iSIONER OF INCOME-TAX, U.P. 
September 4, 1968 
[J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.J 
B 
lncon1e-tax-Assessee firm a managing a1:ent-A1annginR agency ter-
miw.ted and a Corpornlion appointed in its place-Partners of assessee firm 
n1ajor shaN·holders and directors of Corporation-Payment to firm b.v 
managed cornpany co111pr.nsation for premc.ture 1e1mina:1on of 1nana1Jing 
agency--!/_ revenue receipt. 
Corporate \:eil-When can be pierced 
for 
finding 
the 
nalure of 
transaction. 
The asscsscc-firm \\'<IS the managing agent of a company. 
·rhrce of 
the partners in the asscsscc-finn were brothers \•1~,1 held :1 51 per cCDl 
share in the finn. 
They and the members of their families held a large 
majority of the shares in the managed companv and also in a Corp0ration. 
On the false allegation that the managing agent had to provide finance to 
the company and as the assessec "-'as not able to do .'\O, the 1nan3gcd com· 
pany resolved that the only alte"rnative was to seek a party who might be 
willing to finance even if such a course oecesst~ate<l a change of n1anaging 
agents. 
TIY.!re~tfter, lhc managed company 
te;·1n:n~teJ the 
managing 
agency of the asscssee, appointed the Corporari0n :ts the managing agent 
and paid the a'\~cssce a sum of Rs. 2 lacs as ..:on1pensa:ion for premature 
termination or the managing agency. The assc.\:-.ce claimed that this ~um 
of Rs. 2 lacs \\'as no! a revenue receipt and \'t:J.S not liable to tax .under 
the Income-tax Act. 1922. and Excess Profits Tax Act, 1940. The Income-
tax Officer. the Appellate Assistant Comniis.sionc'r, and tho:! Appellate 
Tribun;1l held against the assessee. 
The High Court. on reference, held 
that lhcrc was material on \vhich the ·rribunal could hold that the receipt 
was a revenue rccci!'t liable to tax. 
In ar1nal to this Court. it was contended th•t : (I) As the a.sessee-
firm and the Corporation were two di<;tinct legal entities the mere 
fact 
that the partners in the a.~sessee.firm held a .;::c:~siderah!e proportion of 
the shares in the Corporation should not have led to 1he inference that 
the rights of the assessce·firm were not dcslioyc.t, steirilized or lost on 
account of the transaction; (2) the mere intention on the part of the 
asscssee to cv;1de income-ta:t will not nullify an otherwise lawful transac-
tion; and (3) there y.·as no material heforc tl:c ·rrihunal for holding that 
the amount of Rs. 2 lacs v.·as a revenue rcceilJ~· liable to tax. 
HELi) : ( 1) From a juristic point of view the Corporation may be 
a legal personality distinct from its members. 
Hut the Court is entitled 
to lilt the mask of corporate entity if the con;;cp1ion is 
used 
for 
tax 
evasion, or 10 circumvent tax obligation or 10 perpetrate a fraud. 
The 
real intention in the present case \\"as that the three hrothers Y.·ho were 
partners in the assessce-firm should continue to carry on lhe managing 
agency in a d"."lminant capacitv in the guise of a limited 
company 
and 
there was in fact no loss or de~truction of the profit 
yiclclin~ apparatu~, 
namely, the managing agency, (995 E-F; 996 E-F; 997 G-H] 
Apthorope v. Peter Schoenhofrn HrewinR Co., 4 T.C. 41 and Fireston~ 
Tyre and R11bbcr Co v. Ucwel/in, ( 1957) I W.L.R. 464 applied. 
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D 
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G 
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B 
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G 
H 
J, L. KAMLAPAT V. C.I.T. (Ramaswami, J.) 
999. 
(2) The transaction of termination was not a lawful termination but 
a sham and colourable one._ 
A collusive 
device was 
practised by the 
managed company and the assessee-firm for the 
purpose 
of 
evading 
income-tax, bo'h in the hands of the payer and th·e oayee, by handing 
over a sum of Rs. 2 lacs to the assessce-firm. [995 D-E; 997 F-G] 
(3) As a result of the apparent termination of the assessee's managing 
agency and the appointment of the Corporation, the individuals who con-
stituted the assessee-firm undertook the conduct of the managing agency 
business in the capacity o'f directors and shareholders of the Corporation. 
They continued to benefit from the profits of that business, fto\ving to 
them in the shape df dividends instead of as a share of profits. from the 
assessee-firm. 
There was thus material beiore the Tr:bunal in suppdrt 
of ils finding that the amount of R·s. 2 lacs \V3S received by the assessee~ 
furn by virtue of its office of managing agency and in the course of its 
managing agency business and that therefore lt was a revenue receipt. 
[99

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