The main legal point established in the judgment is that the nature of a payment and its impact on income tax assessment should be determined based on the character of the business of the payer and payee, and other related factors.

JUDGMENT

RANKIN, C.J. - The assessees are the Anglo-Persian Oil Company (India), Limited, a company incorporated in England. They have since 1921 carried on in India the business of selling fuel oil and other products through selling agents paid by commission on sales. Until 1928, the selling agents were Messrs. Shaw Wallace and Company but in that year the assessees determined this agency and a new company called the "Burma Shell Oil Storage and Distributing Company of India" became the selling agents of the assesses. Pursuant to certain verbal negotiations, the assessees in August 1928, paid to Messrs. Shaw Wallace & Co., the sum of Rs. 3,25,000 as compensation for the loss of their office as agents to the assessees.

The payment made in 1928 came to be considered by the Income Tax authorities when dealing with assessments for the year 1929-30. In that year of assessment, the present assessees - the Anglo Persian Oil Company (India), Ltd. -put forward the payment as a permissible deduction from their gross profits and their claim was allowed. Messrs. Shaw Wallace & Co., the recipients, were at first assessed upon that sum as part of their profits of the previous year, but the question was taken by them to this High Court, were it was decided (13th January 1931) that the sum received was not income, profits or gains within the meaning of the Income Tax Act. The Income Tax authorities appealed from this decision to the Privy Council, but meanwhile proceeded under Sec. 34 of the Act to re-open the question with the present assessees, claiming that as the High Court had held that in the hands of the recipients it was a receipt on capital account, it must needs follow that in relation to the business of the assessees it was in the nature of capital expenditure, or a "capital payment." The Income Tax Officer, the Assistant Commissioner, and the Commissioner have all agreed in this and appear to regard it as a simple and obvious truth.

The two questions referred to us by the Commissioner under Sec. 66 of the Act are as follows :-

"1. Whether the sum of Rs. 3,25,000 being money paid by the Company in a lump sum as compensation for loss of agency whereby the Company relieved itself of future annual payments of Commission chargeable to revenue account, can be disallowed as being an improper deduction from the income, profits or gains of the business and whether an equivalent part of the Companys income was chargeable to tax therefor."

"2. Whether Sec. 34 of the said Act could in law be applied in the circumstances of the case re-open the assessment and review a deduction made and allowed and whether an equivalent part of the income could be subsequently held to be a part of the income which had escaped assessment."

Now, after this Reference had been made, the appeal in the case of Messers Shaw Wallace & Co., was decided by the Judicial Committee (14th March, 1932). The appeal was dismissed, but the fielding that the money received by Messers Shaw Wallace & Co., was not income, profits or gains within the meaning of the Indian Act was in no way based upon the view that it was a receipt on capital account. Indeed, upon the facts as stated in the case then before their Lordships, they do not appear to me to have thought that view correct in the absence of any assignment of good-will or other asset.

Now, the present assessees, who after all were no parties to the proceedings to assess Messrs. Shaw Wallace & Co., and had no opportunity their in own at any time to put forward any facts about their own business and how they came to make this payment, took the proper steps to do so before the Commissioner in so far as this was necessary to meet the adverse findings of the Income Tax Officer and Assistant Commissioner. Their partition the commissioner has on all material points accepted as a statement of truth and has, very fairly, incorporated in his own statement of the facts. In particular, he has in formulating the first of the two questions submi