Judgment

HEGDE J.- This is an assessee s appeal by certificate. The concerned assessment year is 1952-53 and the relevant accounting year is the year ended on 31st March, 1952.

2. From the statement of the case submitted by the Income-tax Appellate Tribunal A Bench, Calcutta to the High Court of Calcutta under Section 66 (2) of the Indian Income-tax Act, 1922 (in short the Act"), the following facts are available,

3. The assessee is a private limited Company (which will hereinafter be referred to as the company). It was functioning as the managing agents of 27 companies including M/s. Greaves Cotton & Co. Ltd. M/s. Greaves Cotton Co. Ltd., was incorporated as a private company in about 1922 and its managing agents was the firm styled Messrs Greaves Cotton & Co. The company acquired a large block of shares in the managing agency company. M/s. Greaves Cotton Co. released their managing agency rights in favour of the company on receiving Rs. 27.34,325/-. On May 8, 1950, the managed company viz. M/s, Greaves Cotton & Co. Ltd. was converted into a public company. There after the company was not entitled to any commission on sales etc., in view of the provisions of the Indian Companies Act, 1913 as amended in 1939. Hence a fresh agreement was entered into between the company and the managed company, on May 10, 1950, under which the company was entitled to an office allowance of Rs. 5,000 per month and a commission of 10 per cent, of the net profits. The new managing agency agreement was to subsist for a period of 20 years with effect from May 8, 1950. On February 28, 1951, the Directors of the managed company appointed a sub-committee to enquire into the question whether the managing agency of the company should be terminated leaving the management of the managed company to the Board of Directors. The sub-committee reported on March 16, 1951 that the managing agency of the company should be terminated. On, March 17, 1951 the Board of Directors of the managed company approved the recommendations. An extraordinary General Meeting of the shareholders of the managed company approved the resolution of the Board of Directors on March 31, 1951. That meeting also recommended a payment of Rs. 18 lakhs to the company as compensation. That resolution was communicated to the company on April 3, 1951 and the latter accepted it on April 10, 1951.

4. In the assessment for the assessment year 1952-53, the Income-tax Officer included a sum of Rs. 18 lakhs in the total income of the company. He took the view that the payment of 18 lakhs by the managed company was an advance remuneration and not a compensation on account of loss of employment. On appeal by the company the Appellate Assistant Commissioner differed from the view taken by the Income-tax Officer and held that the amount in question represented compensation received by the company for the termination of its managing agency. The Income-tax Officer took the matter in appeal to the tribunal. On his behalf, two contentions were advanced before the tribunal viz (1) that the transactions leading to the termination of the managing agency were not genuine transactions but are mere manipulations and (2) that in view of the fact that as the company was managing agents of 27 managed companies, it must be held that the managing agencies were the stock-in-trade of the company and the amount received as a result of the termination of one off the agencies must be considered as revenue receipt. The tribunal negatived both these contentions. It held that the transactions whereby the managing agency of the company was terminated were genuine and real business transactions. It further held that the managing agencies held by the company represented sources from which it received its income by way of commission and, therefore, the termination of managing agency would represent destruction of a source of income. As a consequence of those findings, the tribunal held that the receipt in question was a capital rece