Judgement

Appeal (No. 108 of 1931) from a judgment of the High Court (January 1.3, 1931) upon a reference by the Commissioner of Income-tax under s. 66, sub-s.2, of the Indian Income-tax Act, 1922.

The matter for consideration in the appeal was, in substance, whether the respondents, who carried on business as merchants and agents in Calcutta and elsewhere in India, were chargeable to income-tax under the above Act in respect of compensation paid to them for the termination of agencies for two oil-producing companies,

The facts of the case and the three questions referred appear from the judgment of the Judicial Committee.

The High Court, by a judgment delivered by Rankin C.J. and concurred in by C. C. Ghose and Buckland JJ., answered the first question in the affirmative, thereby holding that the sum of Rs.9, 83,361 (being the compensation received less admitted deductions) was a capital receipt and therefore did not come within the computation of the profits of the respondents business. Having regard to that conclusion no answer was returned to the second and third questions. The Court was however of opinion, upon the authority of In re Turner Morrison & Co. (( 1928) I. L. R. 56 C 211.), that the receipt arose out of the business; also, that the exemption in s. 4, sub-s. 3 (vii), of the Act did not apply to the case. The proceedings are reported at I. L. R. 58 C. 1053.

1932. Feb. 5, 9, 11. Dunne K.C. and R. P. Hills for the appellant. The compensation (less the admitted deductions) is chargeable to tax under s.6 (iv) of the Indian Income-tax Act, 1922, under the head "business." The agencies in respect of which the compensation was paid were part only of the respondents business, and their business as merchants and agents continued after the payment; the compensation was a profit of the business in the year of account. There was no transfer of goodwill or any other dealing with the capital assets. As both the Commissioner and the High Court found that the compensation arose out of the business, it was chargeable to tax unless the assessees showed that it came within the exemptions in s. 10 or that it was a capital receipt not chargeable to tax. The Indian Act does not make the clear distinction between capital and income which there is under the English statutes; that is shown by s. 4, sub-s.3 (v). The judgment of the High Court is not consistent with its judgment in In re Turner Morrison & Co, (( 1928) I. L. R. 56 C. 211) It was based upon Glenboig Union Fireclay Co. v. Commissioner of Inland Revenue (( 1922) 12 Tax Cas. 427 (H. L.).) and Chibbett v. Joseph Robinson & Son (( 1924) 9 Tax Cas. 48.), both of which are distinguishable. The former was decided upon the ground that there had been a sterilization of a capital asset. In the latter case the assessees had rights under the articles of association and received a capital sum to release them. The decision was merely that there was evidence to support the finding of the Commissioner, whereas in the present case the Commissioner held that the receipt was not of a capital nature; the observations of Rowlatt J., relied on, were obiter. That the compensation received in this case was chargeable to tax is supported by Hancock v. General Reversionary and Investment Co. ([ 1919] 1 K. B. 25.); Commissioners of Inland Revenue v. Newcastle Breweries (( 1926) 12 Tax Cas. 927.); Short Brothers v. Commissioners of Inland Revenue (( 1926) 12 Tax Cas. 955; 136

L. T. 689.); Commissioners of Inland Revenue v. Gloucester Railway Carriage and Wagon Co. (( 1925) 12 Tax Cas. 720; [ 1925] A. C. 469); Ensign Shipping Co. v. Commissioners of Inland Revenue (( 1928) 12 Tax Cas. 1169.); Burmah Shipping Co. v. Commissioners of Inland Revenue (( 1930) 16 Tax Cas. 67.); J. Gliksten & Son v. Green.([ 1929] A. C. 381.) In Anglo-Persian Oil Co.

v. Dale ([ 1932] 1 K. B. 124.) it was held that compensation paid by the then appellant company in the same circumstances as in this case was a revenue payment an