KETTLEWELL BULLEN AND CO. versus COMMISSIONER OF INCOME-TAX, CALCUTTA

Citation: [1964] 8 S.C.R. 93 · Decided: 01-05-1964 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Set Aside

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

Judgment (excerpt)

8 S.C.R. 
SUPREME COURT REPORTS 
93 
to the authority concerned to make a fresh assessment on the 
members of that as~ociation individually. 
The answer given 
by the High Court to the question propounded is correct. 
In the result, the appeal fails and is dismissed with costs. 
Appeal dismissed. 
KETTLEWELL BULLEN AND CO. 
v. 
COMMISSIONER OF INCOME-TAX, CALCUTTA 
(K. SuB!lA RAo, J. C. SHAH ANDS. M. S1KRI, JJ.) 
Income-tax-Compensation received for surrendering managing agency-
]/ capital or revenue-Test-lncome .. tax ... tct, 1922 (11 of 1922), 
ss. 2(6c), 10, 12. 
By an agreement \vith the Fort Willi:in1 Jute Company in 1925 the 
appellant company becm1e its Managing Agent. 
The terms, inter .ilia, 
were that the appellant or its successors, unless they chose to resign, 
were to continue as l\1anaging Agent until they ceased to hold certain 
shares in the capital of the company and were on that account re1noved 
by a resolution of the company or their tenure of office was determined 
by the winding U? _of the company. 
On termination of the agency, the 
Managing Agent was to get such reasonable compensation as was agreed 
upon bet\'leen the !\1a0aging Agent and th~ comvany.. Besides 
this 
managing agency the appellant held five other man<iging agencies. 
In 
1952, the appellant by tn agreement with ~T/s. Mugneeram Bangur & 
Co., agreed to relinquished the managing agency of the ·Fort William Jute 
Co., Ltd., in their favour in consideration of M/s. ~1ugneeram Bangur 
and Co. taking over the shares held by the appellant, procuring repayfl1ent 
of loans advanced by the appellant to the Fort William Jute Con1p:.1ny 
and further procuring that the Fort William Jute Company will pay com .. 
pensation to the appellant. The appellant intimated the members of the 
latter company that it would be in the best interest of the share-holders 
to terminate the appellant's agency which would otherwise continue till 
1957 and that .M/S. Mugneeratn Bengur & Co. had agreed to reimburse 
the Fort William Jute Co. Ltd. for payment of Rs. 3,50,000 as compen-
sation to the appeIIant. 
The 
arrangement 
with 
M/s. 
Mugneeram 
Bangur & Co. was accepted 
by the Fort William Jute Co. 
and the 
appellant tendered 
resignation. 
M/s. Mugneeram 
Bangur and 
C9. 
1964 
Cl.T. 
v 
Kanpur Coal 
Syndicate 
Subba Rao }. 
1964 
May I. 
1964 
lCtttlew•ll Bun.n 
and Co. 
... 
CJ.T. 
94 
SUPREME COURT REPORTS 
[rg64] 
became the Managing agent. 
The appellant received 
the 
sum 
ol 
Rs. 3,50,000 and credited the sum in its profit and 1068 account as having 
been received from the Fort William Jute Co. Ltd. on account of com· 
pensation for loss of office and in calculating the net profit for the pur-
pose of income-tax for the year 1953-54 did not include this amount 
in the return. The Income-tax Officer in assessment included the 
amount in the appellant's taxable income. The Assistant Appellate Com· 
missioner on appeal modified the assessment holding that the sum received 
by the appellant as compensation for surrendering the managing agency, 
which was to enure for five years more and might have continued for 
another twenty years, was a capital receipt. The Appel1ate Tribunal con-
firmed the order of the Appellate 
Assistant 
Commissioner. 
At the 
instance of the Commissioner ,of Income-tax the following question was 
referred to the High Court: 
Whether on the facts and circumstances of the case the sum of 
Rs. 3,50,000 received by the 
assessee 
to 
relinquish 
the 
managing agency was a revenue receipt assessable under the 
Indian Income-tax Act?. 
The High Court answered the question in the affirmative. 
HELD: that the answer should be in the negative. The transaction in 
question was not a trading transaction, but one in which the 
asses.,ee 
parted with an asset of enduring value. The compensation received was 
compensation for loss of capital. 
It was inconsequential whether the 
appellant conducted the remaining agencies after the determination of 
the one in question. 
Where payment is made as compensation for cancellation of a con-
tract which does not affect the trading structure of the business, 
nor 
causes 'deprivation of what in substance is ~c of income, and is a 
normal incident Gf the business, the compensation is revenue. But 'vb.ere 
the cancellation impairs the trading structure or results in loss of tbe 
source of income, the compensation paid for the cancellation of the 
aareement is normally rapital receipt. 
Commissione

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