THE COMMISSIONER OF INCOME-TAX, HYDERABAD-DECCAN versus MESSRS. VAZIR SULTAN & SONS

Citation: [1959] SUPP. 2 S.C.R. 375 · Decided: 20-03-1959 · Supreme Court of India · Bench: NATWARLAL HARILAL BHAGWATI · Disposal: Dismissed

Judgment (excerpt)

' 
(2) S.C.R. SUPREME COURT REPORTS 
375 
executed, the amount realised by the execution by the 
I959 
Collector has to be taken into account. 
When the 
Ada·r 
1 
Subordinate Judge, Purnea, has to decide the question Collector'. '°;:nares 
whether the application for execution made to him is 
v. 
in continuance of an existing execution proceeding, he 
Maharaj 
has to recognise the proceeding before the Additional Kishore Khanna 
Collector, Banares, as a proceeding in execution under 
the Code for it is so under the Act. In doing this, for 
Sarkar ]. 
the reasons earlier mentioned, he would not be giving 
any extra-territorial operation _to the Act. It seems 
to us therefore that the execution of the decree by the 
Collector must be deemed to be execution of a decree 
for all purposes and therefore an application l)'.lade to 
the Subordinate Judge, Purnea, for execution of the 
same decree while an execution proceeding was pend-
ing before the Collector, must be a continuation of the 
r 
oo:ecution last mentioned. 
No question of limitation 
can arise in regard to such an application. 
We think therefore that this appeal must succeed. 
We set aside the order of the High Court and restore 
the order of the Subordinate Judge, Purnea. The 
respondent will pay the costs of the appellant in this 
Court and in the High Court. 
Appeal allowed. 
THE COMMISSIONER OF INCOME-TAX, 
HYDERABAD-DECCAN 
v. 
MESSRS. VAZIR SULTAN & SONS 
(N. H. BHAGWATI, B. P. SINHA and 
J. L. KAPUR, JJ.) 
Income Tax-Capital or income-Compensation for termination 
of agency-Agency terminable at will-Partial termination of agency 
-Sterilisation of asset or loss of profit-Indian Income-tax Act, r922 
(XI of r922). 
In 1931 the respondent, a registered firm, was appointed the 
sole selling agents and distributors for the Hyderabad State of 
I959 
March 20. 
I959 
The Commissioner 
of Income-tax, 
Hyderabad-Deccan 
v. 
Af essrs. Vazir 
Sultan & Sons 
376 
SUPREME COURT REPORTS [1959] Supp. 
cigarettes manufactured by V (a limited company) under the 
terms of a resolution of the Board of Directors, the agency 
commission being 
a discount of 2% on the gross selling 
price. In 1939 another arrangement was made whereby the 
respondent's agency was extended to the rest of India. 
By a 
resolution dated June 16, 1950, the agency of 1939 was terminat-
ed on payment of Rs. 2,26,263 to the respondent by way of com-
pensation, but the respondent continued to be distributors for 
the 1-:Iyderabad State. For the assessment year 195r-52 the 
Income-tax Officer included the aforesaid sum in the respondent's 
total income and taXed it as a revenue receipt under the head 
of "business". The respondent claimed that it did not carry on 
business of acquiring and working agencies. that the agency 
acquired in 1931 was a capital asset of its business of distributing 
cigarettes in the Hyderabad State, that the expansion of terri-
tory outside the Hyderabad State in 1939 was an accretion to the 
capital asset already acquired by it, that the resolution of 1950 
was in substance a termination of the agency qua territory out-
side the Hyderabad State which resulted in the sterilisation of 
the capital asset qua that territory, that the sum of Rs. 2,19,3~3 
received by it in the year of account was by way of compensa-
tion for the termination of the agency outside Hyderabad State 
and'being therefore compensation for the sterilisation pro tanto of 
a capital asset of its business was a capital receipt and therefore 
was not liable to tax. It was contended on behalf of the Income-
tax Authorities that the sole selling agency which was granted 
by the company to the assessee in the year r931 was merely 
expanded as regards territory in r939 and what was done in r950 
was to revert to the old arrangement, that the structnre or the 
profit-making apparatus of assessee's business was not affected 
thereby, that the expansion as well as the restriction of the 
assessee's territory were in the ordinary course of the assessee's 
business and were mere accidents of the business which the 
assessee carried on and that the sum of Rs. 2,19,343 received by 
the assessee as and by way of compensation for the restriction of 
the territory was a trading"' or an income receipt and was there-
fore liable to tax. It was also urged that the agency agreement 
between the respondent and the company was terminable at 
the will of the latter and so it could not be considered as an 
enduring asset. 
H

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