LexRAM KUMAR AGARWALLA AND BROTHERS versus COMMISSIONER OF INCOME-TAX, CENTRAL, CALCUTTA
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' . A D E F G .. H RAM KUMAR AGARWALLA AND BROTHERS v. COMMISSIONER OF INCOME-TAX, CENTRAL, CALCUTTA October 26, 1966 [J.C. SHAH, V. RAMASWAMI AND V. BHARGAVA, JJ.j Incomg-tax Act, 1922, s. 4(3) (v!i)-Firm of share brokers and paper merchants-Associating with a solicitor and an accountant in negotiating purchase of controlling interest in large cotton mills company-Amount paid by another party acquiring interests--Whether such amount received for reframing from competing or in course of assessee's business-There- fore whether exempt from tax. The assessee firm which carried on business as share brokers and paper merchants, together with D who was a partner in a firm of Chartered Ac- countants and R whO was a partneJ" of a firm of Solicitors, started n-egc;>- tiations for the purcha9~ of shares representing 'i:he controlling interest 1n S company. At the same time M was also carrying on negotiations to secure the same interest and wrote a letter to D to the effect that he, to- gether with his associates was desirous of purchasing the controlling interest in the S comp·any and that in the event of D and his associates securing the same for them and giving up all claims to purchase the same, M and bis associates would pay a sum of Rs. 6 lakhs upon completion of the. pur- chase. M eventually purchased the shareholding in S company for just over Rs. 4 crores. A sum of Rs. 6 lakhs was thereafter paid by M of which the assessee firm received Rs. 2 Iakhs as their share. In the course of their assessment to income tax for the year 1947..48 the assessee firm claimed that the sum of Rs 2 lakhs received by them was exempt from tax under s. 4(3 )(vii) of the Income.tax .l\ct, 1922 or, alter- natively, was a capital and not a revenue receipt. The Income--tax Officer rejected this claim and his order was confirmed by the Appellate Assistant Commissioner. In appeal, on a difference of opinion between the two members constituting the Appellate Tribunal the matter was referred to a third member, who, after calling for certain findings on evidence from the Appellate Assistant Commissioner .• disposed of the entire appeal against the assessees, holding that the amount was received by ·them for services ren- dered and not as consideration for refraining from competing in the pur- " chase of .the controlling interest. The High Court, on a reference, confirm- ed the view taken by the Tribunal. On appeal to the this Court, HELD : Dismissing the appeal, (i) On the finding recorded by the Tribunal, the receipt of Rs. 2 lakhs arose- from the business of the assessees and was not exempt under s. 4(3 )(vii) . In view of the terms of the letter written by M, the fact that the princi- pal business of the assessees was in paper, and as it was not shown how it was intended to finance such a large transaction, the conclusion record- ed by the Tribunal that the assessees and their two associates had no in- tention to acquire the controlling interest, but were seeking to associate themselves in a "enture in the nature of trade could not be said to be "ithout evidence. [959 B-C, 960 Al Hz'gg'I v. Oliver 33 T.C. 136 and (:ommissioner of lncomtt·tax, 80111. bay v. The Mills Store Co. Karachi 9 I.T.R. 642, distinguished. 9.58 SUl'llBMI OOU.T UPOl.TS (1967) 1 S.CJt. CML APPBLLATB JURISD1cnoN : Civil Appeal No. 176 of A 1966. Appeal by special leave from the judgment and order dated March 11, 1963 of the Calcutta High Court in Income-tax, Re- ference No. 80 of 1959. S.T. Desai and J.P. Goyal, for the appellant. B. Sen, A.N. Kirpa/ and R.N. Sachthey, for the respondent. The Judgment of the Court was delivered by Shah J, M/s. Ram Kumar Agarwalla & Brothers-herein- after called 'the assessees' -were carrying on business at Calcutta as "share-brokers, share dealers and ·paper merchants", Swadeshi Cotton Mills Ltd-a public limited company-operates at Kanpur a large unit producing cotton textiles. It was originally managed by a firm of Managing Agents styled M/s. Horseman Brothers. Some time early in 1946 M/s. Horseman Brothers desired to dispose of their share-holding in the Company, and to part with the Manag- ing Agency. David Mitchell a partner of M/s. Lovelock & Lewis- accountants of the Company-Rowan Hodge of M/s. Orr Dignam & Co.-solicitors of the Company-and the assessees started joint negotiations with M/s. Horseman Brothers to purchase the controlling interest in the Company. About t
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