JUDGMENT

GUPTA, J.:— The appellant is a private limited company. The assessment year is 1955-56 for which the relevant previous year ended on June 30, 1954. The shareholders of the appellant company are Mulraj Kersondas, members of his family, allied concerns and nominees only. In 1944 the appellant purchased the managing agency of the Elphinston Spinning and Weaving Mills Ltd. for Rupees six lakhs and thereafter entered into a separate managing agency agreement with the managed company for a period of seventeen years. The appellant s only source of income was this managing agency in the relevant year. Mulraj and his group also held among themselves 25,000 ordinary and 10,000 preference shares of the Elphinston Spinning and Weaving Mills Ltd. Mulraj entered into an agreement for sale of these shares with K. D. Jalan of Calcutta for a consideration of Rupees forty-five lakhs; one of the terms of the agreement was that Mulraj would have the managing agency of the appellant company terminated. In implementation of this agreement Mulraj wrote to the appellant company on October 21, 1953 asking the company to give up the managing agency on receipt of a sum of Rupees ten lakhs as compens