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HIGH COURT OF CALCUTTA
CHAKRABARTI, SARMA SARKAR
DAVID MITCHELL - Appellant
Versus
COMMR. OF INCOMETAX, WEST BENGAL - Respondent
Income-Tax Ref. 38 Of 1953
Decided On : JANUARY 25, 1956
INCOME TAX - Assessment - Payment of premia by promoters of a company to assessee under an agreement - Whether such payment is assessable as income in the hands of the assessee - Whether the value of shares received by the assessee from the promoters is taxable in his hands - Whether the assessee is entitled to set off the loss claimed to have been suffered by him by the transfer of certain amounts from his personal account to the Taxation Reserve Account of the firm against the capital gains made by him - Whether the annuities received by the assessee under the policies of insurance effected by the promoters are taxable in his hands.
Fact of the Case:
The assessee, an accountant by profession, was engaged by the promoters of a company to assist them in its floatation. After the company was formed, the promoters entered into an agreement with the assessee under which he was to act as the Administrative Organiser and Financial Adviser to the promoters for a period of three years. The promoters undertook to pay all premia that might be payable under the policies of insurance effected by them. During the relevant accounting years, the promoters paid a sum of Rs. 2,75,191/- and Rs. 78,052/- as premia on the policies. The assessee received two thousand and five hundred shares of the newly-formed company from the promoters as an unsolicited gift. The assessee claimed that the premia paid by the promoters were not assessable as income in his hands, that the value of the shares received by him was not taxable, that he was entitled to set off the loss claimed to have been suffered by him by the transfer of certain amounts from his personal account to the Taxation Reserve Account of the firm against the capital gains made by him, and that the annuities received by him under the policies of insurance effected by the promoters were not taxable in his hands.
Finding of the Court:
1. The premia paid by the promoters were not assessable as income in the hands of the assessee as they were not paid to or received by him. 2. The value of the shares received by the assessee from the promoters was taxable in his hands as it was given to him as a token of appreciation for the assistance rendered by him in connection with the floatation of the company. 3. The assessee was not entitled to set off the loss claimed to have been suffered by him by the transfer of certain amounts from his personal account to the Taxation Reserve Account of the firm against the capital gains made by him as the transfer was not a transfer of a capital asset and there was no loss arising out of the transfer. 4. The annuities received by the assessee under the policies of insurance effected by the promoters were taxable in his hands as they were his only income under the agreement.
Issues: 1. Whether the premia paid by the promoters of a company to the assessee under an agreement are assessable as income in the hands of the assessee? 2. Whether the value of shares received by the assessee from the promoters is taxable in his hands? 3. Whether the assessee is entitled to set off the loss claimed to have been suffered by him by the transfer of certain amounts from his personal account to the Taxation Reserve Account of the firm against the capital gains made by him? 4. Whether the annuities received by the assessee under the policies of insurance effected by the promoters are taxable in his hands?
Ratio Decidendi: 1. The premia paid by the promoters were not assessable as income in the hands of the assessee as they were not paid to or received by him. 2. The value of the shares received by the assessee from the promoters was taxable in his hands as it was given to him as a token of appreciation for the assistance rendered by him in connection with the floatation of the company. 3. The assessee was not entitled to set off the loss claimed to have been suffered by him by the transfer of certain amounts from his personal account to the Taxation Reserve Account of the firm against the capital gains made by him as the transfer was not a transfer of a capital asset and there was no loss arising out of the transfer. 4. The annuities received by the assessee under the policies of insurance effected by the promoters were taxable in his hands as they were his only income under the agreement.
Final Decision: Questions Nos. 2, 3, 4 and 5 are answered in the following manner: Question No, 2 : 'not pressed. Question No. 3 : 'yes. ' Question No. 4 : 'no. Question No. 5 : 'no. ' As regards questions Nos. 1 and 6, the case is remitted to the Tribunal under Section 66 (4) of the Act in order that the Tribunal may draw up and forward to this Court a further statement of Case, incorporating therein its findings on the several matters indicated in this judgment as also such other matters as the Tribunal may consider relevant.
( 1 ) THERE are two References before us which are really one. They comprise six questions o law, two referred at the instance of the Commissioner of Income-tax and four referred at the instance of the assessee. The original Reference, which is Reference No. 70 of 1951, comprised five questions. The assessee wanted a sixth question to be referred and applied successfully to this Court under Section 66 (2) of the Act. In pursuance of the directions given on that application, the Tribunal has referred a further question by a supplementary statement of case. That Reference is Reference No. 38 of 1953.
( 2 ) THE References cover two assessment years namely, 1947-48 and 1948-49. The relative accounting years are different, according as the income concerned is the partnership income of the assessee or income from other sources. With respect to the partnership income, the accounting years are those ended on 30,4-1946 and 30-4-1947, but with those accounting years, we are not concerned. The accounting years relative to income from other sources are the years ended on 31-3-1947 and 31-3-1948.
( 3 ) OF the six questions, two concern only the assessment year 1947-48. With the remaining four, both the assessment years are concerned.
( 4 ) THE assessee is one Mr. David Mitchell who was an Accountant by profession and a partner of Messrs. Lovelock and Lewes, a well-known firm of Chartered Accountants of Calcutta. It appears that sometime before 1946, the promoters of a company, called the Chrestien Mica Industries Limited, engaged the services of Messrs. Lovelock and Lewes to assist them in its floatation and, as it so often happens, the engagement was attended to by Mr. Mitchell as a partner of the firm. After the company had been formed and the engagement of Messrs. Lovelock and Lewes terminated, the promoters who were two persons of the names of Karnkumar Agarwalla and Elbridge Watson, became desirous of retaining the service of Mr. Mitchell, who was apparently about to retire from India, and entered into an agreement with him on 12-8-1946. It was provided in that agreement that Mr. Mitchell would act as the Administrative Organiser and Financial Adviser to the promoters for a period of three years without liberty to engage directly or indirectly in any other profession or employment or as adviser or organiser of any other company, but with liberty to fulfil his obligations as a member of the firm of Messrs. Lovelock and Lewes. His duties would lie chiefly in England. For his services to the promoters, Mr. Mitchell was to receive no remuneration, but he would be entitled "to retain any profits received by him by way of Director's fees or otherwise as a result of this agreement. " The profits he would receive as a result of the agreement were stated to be as follows. The promoters, it was said, had effected five policies of insurance, the names of which were set out in a Schedule to the deed and it was said that all the benefits under the policies would come to belong to and become the property of Mr. Mitchell "for his sole use absolutely" upon the completion of the agreement. The agreement might be terminated either on a six months' notice given by either side or necessarily, by the death of Mr. Mitchell, if that event happened. Some provision was made as to how the benefit of the policies or the policy moneys would be apportioned between the promoters and Mr. Mitchell or a nominee of bis or his heirs and legal representatives in the event of a termination of the agreement by death or otherwise. It is not necessary for the purposes of this judgment to state what that provision was. The only other term of the agreement to which 1 need refer is that the promoters undertook jointly and severally to pay all premia that might be payable under the policies as and when the same fell due for payment.
( 5 ) DURING the accounting year relative to the assessment year 1947-48, the promoters paid a sum of Rs. 2,75,l9l/- by way
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