{"id":179818,"date":"1965-04-09T00:00:00","date_gmt":"1965-04-08T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/the-commissioner-of-income-tax-vs-chari-and-chari-ltd-on-9-april-1965"},"modified":"2019-03-15T03:28:18","modified_gmt":"2019-03-14T21:58:18","slug":"the-commissioner-of-income-tax-vs-chari-and-chari-ltd-on-9-april-1965","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/the-commissioner-of-income-tax-vs-chari-and-chari-ltd-on-9-april-1965","title":{"rendered":"The Commissioner Of Income-Tax, … vs Chari And Chari Ltd on 9 April, 1965"},"content":{"rendered":"
Supreme Court of India<\/div>\n
The Commissioner Of Income-Tax, … vs Chari And Chari Ltd on 9 April, 1965<\/div>\n
Equivalent citations: 1966 AIR 54, \t\t 1965 SCR (3) 692<\/div>\n
Author: S C.<\/div>\n
Bench: Shah, J.C.<\/div>\n
           PETITIONER:\nTHE COMMISSIONER OF INCOME-TAX, MADRAS\n\n\tVs.\n\nRESPONDENT:\nCHARI AND CHARI LTD.\n\nDATE OF JUDGMENT:\n09\/04\/1965\n\nBENCH:\nSHAH, J.C.\nBENCH:\nSHAH, J.C.\nSUBBARAO, K.\nSIKRI, S.M.\n\nCITATION:\n 1966 AIR   54\t\t  1965 SCR  (3) 692\n CITATOR INFO :\n R\t    1966 SC1325\t (5,6)\n RF\t    1971 SC1590\t (8)\n RF\t    1975 SC1945\t (14)\n\n\nACT:\n    Income  Tax Act, 1922, s.  10(2)(xv)--Deduction\nclaimed by assessee of commission paid to  director\nfor  special duties--Rate of commission\t bona  fide\ndetermined by assessee--Whether open to revenue\t to\nreview such rate.\n\n\n\nHEADNOTE:\nManaging   Agency--Compensation\t  for\ttermination\nof--Circumstances  in  which such  compensation\t is\nrevenue.\nThe respondent, a private limited company,  carried\non  business in tobacco and other  commodities\tand\nalso acted as managing agents for the N company and\nfor  two other companies.  It had three\t directors,\nall  of\t whom were paid a  fixed  remuneration\tfor\nattending to the business of the company.  On June,\n21,  1951, the respondent company was appointed\t an\nagent\tof  the\t Central  Government  for   buying,\nchecking, leaf drying, and retaining and  reselling\ntobacco\t under, and in accordance with,\t directions\nissued\tfrom  time to time.  On June  22  1951\tthe\nrespondent passed a resolution\tplacing one of\tthe\ndirectors,  A, in \"special charge\" of all the  work\nunder the contract with the Central Government\tand\nagreed\tto pay him 30 per cent of the  net  profits\nfrom the contract. Under this arrangement, for\tthe\nyear  ended 31st March 1952, commission at  30\tper\ncent  was calculated and paid to A and was  claimed\nin  the\t assessment year 1952-53 as  a\tpermissible\ndeduction under s. 10(2)(xv) of the Income-tax Act,\n1922.\tThe Income-tax Officer allowed only 10\tper\ncent of the net profit for the services rendered by\nA and disallowed the balance :amount claimed by the\nrespondent.\n The  managing agency agreement of  the\t respondent\nwith  the  N Company was  terminated  in  September\n1'951,\twhen  the  State  Government  acquired\tthe\nundertaking of that company, and the respondent was\npaid  Rs.  17,346  as  compensation  for  premature\ntermination  of its agency.  This amount was  taken\ninto account by the Income-tax Officer in computing\nthe  respondent's income for the year  ended  March\n31, 1952.\n   Appeals  against  the order\tof  the\t Income-tax\nOfficer to the Appellate Assistant Commissioner and\nto  the\t Tribunal challenging the  disallowance\t of\npart  of  the  commission  and\tinclusion  of\tthe\ncompensation for termination of the managing agency\nwere  unsuccessful.  On a reference on\tboth  these\npoints,\t  the  High  Court  decided  them  in\tthe\nrespondent's favour.\n    HELD: (i) The contract with the Government was,\nfor the respondent, an important contract requiring\nspecial attention by a person well acquainted  with\nthe practical details of the business. If for  such\nspecial services the management as prudent business\nmen  for advancing the interest of respondent  bona\nfide  regarded\t30 per cent of the net\tprofits\t as\nreasonable  remuneration, the  revenue\tauthorities\nwere  not justified in reviewing that  opinion\tand\nreducing the rate of remuneration. [697B, C]\n693\n    Where,  on\ta  consideration  of  the  relevant\nmaterials the Appellate Tribunal is of the  opinion\nthat a particular remuneration is not bona fide, or\nis unreasonable, the High  Court, in exercising its\nadvisory  jurisdiction, has no power  to  interfere\nwith  that  opinion;  but  in  the  present   case,\nmaterial  circumstances relating to the\t nature\t of\nthe  contract  and  the\t special  services  to\t be\nperformed were not at all taken into account by the\nrevenue authorities. [697C-E]\n    (ii)  Ordinarily,\tcompensation  for  loss\t of\noffice or agency. is regarded as a capital receipt;\nbut  this  rule\t is subject to\tan  exception  that\npayment received even for termination of an  agency\nagreement,  where the agency is one of\tmany  which\nthe  assessee  bolds, and the  termination  of\tthe\nagency does not impair the profit-making  structure\nof  the assessee, but is within the  frame-work\t of\nthe business, it being a necessary incident of\tthe\nbusiness  that existing agencies may be\t terminated\nand fresh agencies may be taken, is revenue and not\ncapital.  However, in the absence of evidence as to\nwhat  effect  the  determination  of  the  managing\nagency\tof the N company had upon the  business\t of\nthe  respondent,  the mere  circumstance  that\tthe\nrespondent  had\t managing  agencies  of\t two  other\ncompanies without more would not bring the  present\ncase within the exception [698H; 699 A-c]\n    Kelsal Parsons & Co. v. Commissioners of Inland\nRevenue,   21T.C.  and\tKettlewell  Bullen  &\tCo.\nv.C.I.T. Calcutta, [1964] 8 S.C.R. 93 explained and\ndistinguished.\n\n\n\nJUDGMENT:\n<\/pre>\n
    CIVIL APPELLATE JURISDICTION: Civil Appeal\tNo.
\n215 of 1964.\n<\/p>\n
    Appeal from the judgment and order dated August
\n24, 1961 of the Madras High Court in Case  referred
\nNo. 102 of 1957.\n<\/p>\n
    Niren  De,\tAdditional  Solicitor-General,\t R.
\nGanapathy   Iyer   and\tR.N.  Sachthey,\t  for\tthe
\nappellant.\n<\/p>\n
R. Thiagarajan, for the respondent.
\nThe Judgment of the Court was delivered by
\n    Shah,  J.  The respondent is a private  limited
\nCompany.   It  carried\ton business  in\t hides\tand
\nskins, minerals, tobacco and other commodities, and
\nalso acted as managing agents for the Nellor  Power
\nand Light Company Ltd. and for two other Companies.
\nT.M.   Ayyadurai,   T.M.   Rangachari\tand    P.C.
\nChakrabarti  were directors of the  Company.   Each
\ndirector  was  paid  a fixed  remuneration  of\tRs.
\n4,800\/- per annum for attending to the business\t of
\nthe  Company. On June 21, 1951 the  respondent\twas
\nappointed  by the Central Government as\t its  agent
\nfor   buying,  checking,  weighing,  leaf   drying.
\nstoring.  transporting,\t retaining  and\t  reselling
\ntobacco under and in accordance with the directions
\nissued\tfrom time to time.  The Central\t Government
\nagreed\tto  pay\t to the\t respondent  price  of\tthe
\ntobacco\t purchased, charge at the rate of one  anna
\nper lb. for tobacco not redried, and at the rate of
\ntwo   annas  per  lb.  for  tobacco  redried.\tand
\ncommission on all purchases.  On June 22, 1951\tthe
\nrespondent   passed  a\tresolution   placing   T.M.
\nAyyadurai   in\t“special  charge”   for\t  arranging
\npurchases of tobacco on credit,
\n694<\/span>
\ninspecting  tobacco at Guntur and at  Madras  Port,
\nand for supervising shipment of tobacco, and agreed
\nto  pay\t him  30  per cent of  the  net\t profit\t as
\nremuneration.\tUnder  the   contract\twith\tthe
\nGovernment  of India Rs. 1,38,454\/- became  due\t to
\nthe respondent\t  as commission in the account year
\nending March 31. 1952. After providing Rs. 41,473\/-
\nfor expenses, 30 per cent of the balance being\tRs.
\n29,094\/-  was paid to T.M. Ayyadurai as\t commission
\nand was claimed in the assessment year 1952-53 as a
\npermissible  deduction\tunder s. 10(2)(xv)  of\tthe
\nIndian Income-tax Act, 1922. The Income-tax Officer
\nallowed only 10 per cent of the net profit for\tthe
\nservices rendered by T.M. Ayyadurai in the contract
\nfor  tobacco purchase and sale. and disallowed\tRs.
\n19,796\/-   out\tof  the\t amount\t claimed   by\tthe
\nrespondent.\n<\/p>\n
    The managing agency agreement of the respondent
\nwith the Nellore Power and Light Company Ltd.,\twas
\nterminated with effect from September 28, 1951 when
\nthe  Government of the State of Madras in  exercise
\nof the powers conferred\t upon it by the\t Electrical
\nUndertakings Acquisition Act, 1949 compulsorily ac
\nquired\tthe  undertaking of that Company,  and\tthe
\nrespondent  was paid Rs. 17,346\/-  as  compensation
\nfor  premature\ttermination of\tits  agency.   This
\namount\twas  taken into account by  the\t Income-tax
\nOfficer\t in computing the income of the\t respondent
\nin the assessment year ending March 31. 1952.
\n    Appeals against the order passed by the Income-
\ntax Officer to the Appellate Assistant Commissioner
\nand to the Tribunal challenging the disallowance of
\npart   of   the\t  commission   and   inclusion\t of
\ncompensation for termination of the managing agency
\nagreement were unsuccessful.\n<\/p>\n
    The\t Tribunal thereafter being directed by\tthe
\nHigh Court of Judicature, Madras under s. 66(2)\t of
\nthe  Indian Income-tax Act, drew up a statement\t of
\nthe  case and referred the following two  questions
\nto the High Court:-\n<\/p>\n
\t\t “(1) Whether on the facts and in the
\n\t      circumstances    of   the\t  case\t  the
\n\t      disallowance  of a sum of Rs.  19,796\/-
\n\t      out  of  the remuneration paid  to  Mr.
\n\t      T.M. Ayyadurai is justifiable; and
\n\t\t  (2)  Whether a sum of Rs.  17,346\/-
\n\t      which represented compensation received
\n\t      by  the  assessee for the loss  of  the
\n\t      managing\tagency of the  Nellore\tPower
\n\t      and Light Company Ltd. is income liable
\n\t      to tax?”\n<\/p><\/blockquote>\n
The  High Court answered both the questions in\tthe
\nnegative.\n<\/p>\n
    Allowance in respect of the\t amount\t covered by
\nthe  first  question was sought by  the\t respondent
\nunder  s.  10(2)(xv) of the Income-tax\tAct,  1922,
\nwhich provided:\n<\/p>\n
\t\t “any\texpenditure  not   being   an
\n\t      allowance\t of the nature\tdescribed  in
\n\t      any   of\tthe  clauses  (i)  to\t(xiv)
\n\t      inclusive. and
\n\t      695<\/span>
\n\t      not  being  in the  nature  of  capital
\n\t      expenditure or personal expenses of the
\n\t      assessee\tlaid out or  expended  wholly
\n\t      and exclusively for the purpose of such
\n\t      business, profession or vocation.”\n<\/p><\/blockquote>\n
The   question\t whether  an  amount   claimed\t as
\nexpenditure  was  laid out or expended\twholly\tand
\nexclusively  for  the  purpose\tof  such  business,
\nprofession  or\tvocation has to be decided  on\tthe
\nfacts  and  in the light of circumstances  of  each
\ncase.\tBut  as observed by this Court\tin  Eastern
\nInvestments  Ltd.  v. Commissioner of  Income<\/a>  tax,
\nWest   Bengal(1)  the  final  conclusion   on\tthe
\nadmissibility  of  an allowance claimed is  one\t of
\nlaw.  The  High Court had therefore power  to  call
\nupon the Tribunal to submit a statement of the case
\nunder  s.  66(2) of the Indian Income-tax  Act.\t In
\nconsidering whether the expenditure to remunerate a
\nperson for services rendered is allowable under\t s.
\n10(2)(xv)  the Income-tax Officer must have  regard
\nto  all\t the  circumstances, such  as,\tnature\tand
\nspecial\t character of the service, practice if\tany
\nin the trade for payment of a percentage of  profit
\nto   an\t   employee   in   similar   circumstances,
\nqualifications\tof the employee for  rendering\tthe
\nservice,  amount  if any paid by  the  assessee\t to
\nanother\t person\t for  rendering\t similar   service,
\nnormalcy  of  the allowance having  regard  to\tthe
\npractice  in  the  trade, existence  of\t any  other
\nextraordinary  and  abnormal circumstances  in\tthe
\narrangement  or\t special reasons  or  circumstances
\nwhich\tmay  suggest  that  the\t  transaction\twas
\nabnormal, and the like.\n<\/p>\n
    The\t normal business of the respondent  was\t in
\nhides and skins, minerals and tobacco.\tIt does not
\nappear,\t however, that the turnover of the  Company
\nwas  large.   The contract to purchase\ttobacco\t on
\nbehalf\tof the Government of India  was\t apparently
\nout  of\t the  way of the  normal  business  of\tthe
\nrespondent and demanded the setting up of a special
\norganisation.  Under the terms of the contract\tthe
\nrespondent  was\t to  be the agent  of  the  Central
\nGovernment  for\t buying, checking,  weighing,  leaf
\ndrying,\t  storing,  transporting,   retaining\tand
\nreselling tobacco under and in accordance with\tthe
\ndirections  given  to it from time to time  by\tthe
\nGovernment.   The respondent agreed to buy  tobacco
\nwithin the ceiling price fixed as and when directed
\nby  the Government, and was responsible for  buying
\nproper\tgrades of tobacco, for\tcorrectly  checking
\nthe weights, for taking delivery from the  sellers,
\nfor redrying it whenever so directed, for  securing
\nproper packing for transport by rail road or sea so
\nas  to\tconform\t to standards  of  packing  usually
\nemployed  in the export of tobacco or standards\t to
\nthe satisfaction of the purchaser, and for  getting
\nthe  tobacco  inspected\t by  the  Tobacco   Grading
\nInspectorate   of   the\t Indian\t  Central   Tobacco
\nCommittee  according to the AGMARK standards.\tThe
\nrespondent  had to place a go down at the  disposal
\nof the Government within their premises at  Guntur.
\nThe  respondent had to use its best
\n(1) 20 I.T.R. I.\n<\/p>\n
696<\/span><\/p>\n
endeavour to buy as cheaply as possible within\tthe
\nceilings prescribed and to sell it for such maximum
\nprice  as  may be obtainable, not being\t below\tthe
\nprice  prescribed  by the  Government,\tto  re-sell
\ntobacco which the Government may direct it to  sell
\nby  instructions in writing, in such manner and\t at
\nsuch  price as may be specified by the\tGovernment,
\nand to finance the entire transaction of purchasing
\ntobacco in the first instance out of its own funds.
\nThe  respondcat was to take all necessary steps\t to
\nsafeguard the stocks and to maintain  fire-fighting
\nservices.  Goods purchased by the respondent if not
\nof the grade or quality were liable to be  rejected
\nby   order  of\tthe  Tobacco   Grading\t Inspector.
\nPerformance  of\t the  contract\tevidently  required
\nexpert\tknowledge  of  the practical  side  of\tthe
\nbusiness of purchasing tobacco, getting it  redried
\nif   it\t  was  raw,  and   of\tpacking,   storing,
\ntransporting and shipping it.\n<\/p>\n
    The\t respondent had entered into  a\t profitable
\ncontract,   but\t any  negligence   in\tpurchasing,
\nstoring,  packing,  transporting and  shipping\tthe
\ngoods might have resulted in serious losses to\tthe
\nrespondent.   The Income-tax Officer accepted  that
\nthe  expenditure  for payment of  remuneration\tfor
\nattending  to  the contract was laid  out  for\tthe
\npurpose\t of  the business of  the  respondent,\tbut
\nreduced the stipulated\trate to 10 per cent on\ttwo
\ngrounds:  that\tT.M. Ayyadurai was the\tbrother\t of
\nT.M. Rangachari, and that he was, as a director\t of
\nthe Company, bound to attend to all the\t activities
\nof the Company including the contract.
\n    There  is  no evidence that the  agreement\twas
\nmotivated  by  considerations other  than  strictly
\nbusiness considerations. There is also no  evidence
\nthat  as  a director T.M. Ayyadurai  was  bound\t to
\nattend\tto  all\t the  activities  of  the   Company
\nincluding  the\tspecial contract with  the  Central
\nGovernment.   The  duties which\t the  director\twas
\nbound  to perform for earning the  remuneration\t of
\nRs. 400\/- per month are not on the record, but even
\nin the opinion of the taxing authorities the duties
\nof  T.M.  Ayyadurai  as\t director  did\tnot   cover
\nattendance  to the contract  with  the\tGovernment.
\nT.M.  Ayyadurai and T.M. Rangachari  are  brothers,
\nbut that by itself is not sufficient to justify\t an
\ninference    that   unreasonable    or\t  excessive
\nremuneration was agreed to be paid.  The person who
\nwas  called  upon to attend to a contract  of  this
\nmagnitude was required to have expert knowledge\t of
\nthe  business, apply his time exclusively  thereto,
\ntravel from time to time, maintain supervision\tand
\ncontrol\t  at  the  stage  of  purchase,\t  redrying,
\npacking,   transport  and  loading  for\t  shipment.
\nPresumably  T.M. Ayyadurai was such a  person,\tand
\nthat  is  why he was selected for earning  for\tthe
\nrespondent  a  large amount of commission  by  duly
\nperforming the contract.\n<\/p>\n
    The\t Appellate  Assistant  Commissioner  merely
\nparaphrased the decision of the Income-tax  Officer
\nand  regarded  10 per cent of the  net\tprofits\t as
\nreasonable.   The Appellate Tribunal observed  that
\nthe  Appellate\tAssistant  Commissioner\t had  given
\n“clear and
\n697<\/span>
\nconvincing reasons in support of the  disallowance”
\nto which they had nothing more to add.\tAn analysis
\nof  the\t reasons given by  the\tIncome-tax  Officer
\ndiscloses  no  grounds\tto support  the\t view  that
\nremuneration at a rate exceeding 10 per cent of the
\nnet  profit was excessive or unreasonable.  We\tare
\nof    the   view   that\t  the  contract\t with\tthe
\nGovernment  was\t for the  respondent  an  important
\ncontract    requiring\tconstant    and\t   vigilant
\napplication  and  supervision  by  a  person  well-
\nacquainted  with  the  practical  details  of\tthe
\nbusiness.   If the management of the respondent\t as
\nprudent\t businessmen for advancing the interest\t of
\nthe  respondent bona fide regarded 30 per  cent\t of
\nthe  net  profits as reasonable\t remuneration,\tthe
\nrevenue authorities were not justified in reviewing
\ntheir\topinion\t  and\treducing   the\t rate\t of
\nremuneration.\t It   is   true\t that\tif   on\t  a
\nconsideration\tof  the\t relevant  materials,\tthe
\nAppellate  Tribunal  is\t of  the  opinion  that\t  a
\nparticular  remuneration stipulated to be  paid\t is
\nnot  bona fide, or is unreasonable, the High  Court
\nin  exercising\tits advisory  jurisdiction  has\t no
\npower  to  interfere  with that\t opinion.  But\tthe
\nmaterial  circumstances relating to the\t nature\t of
\nthe contract, the services to be performed and\tthe
\nnature\tof the duties by the employee were  not\t at
\nall  taken  into account by the\t Tribunal  and\tthe
\nincome-tax authorities. We  therefore  agree   with
\nthe  High Court that the first question\t should\t be
\nanswered in the negative.\n<\/p>\n
    The contract under which the respondent Company
\nwas appointed managing agent for the Nellore  Power
\nand  Light Company Ltd., was to ensure\ttill  1960,
\nbut it had to be prematurely terminated because the
\nGovernment  of Madras exercising its  powers  under
\nthe Madras Electrical Undertakings Acquisition Act,
\n1949  had  compulsorily\t acquired  the\telectricity
\nundertaking.\tWith   the  acquisition\t  of   that
\nundertaking the right of the respondent as managing
\nagent  ceased.\t Under\ts.  15\tof  the\t Electrical
\nUndertakings  Acquisition Act, the  Government\twas
\nbound  to  pay\tcompensation  which  would  include
\ncompensation for termination of the managing agency
\nagreement.  The respondent received  Rs.  17,346\/as
\ncompensation   for  termination\t of   the   agency,
\ncomputed  in the manner laid down in s. 15 of  that
\nAct.  Prima facie, such a receipt being in lieu\t of
\nextinction  of\tan  asset of  the  assessee,  is  a
\ncapital receipt.  It was urged, however, on  behalf
\nof the revenue that the respondent was carrying\t on
\nbusiness of taking up managing agencies and that by
\nthe extinction of one of the managing agencies, the
\nbusiness  structure  of\t the  respondent  was\tnot
\nimpaired.   In a recent judgment delivered by  this
\nCourt  in  Kettlewell Bullen and Company  Ltd.,\t v.
\nCommissioner  of  Income-tax, Calcutta<\/a>(1).  it\twas
\npointed out that:\n<\/p>\n
\t\t “It may be broadly stated that\t what
\n\t      is  received for loss of capital\tis  a
\n\t      capital  receipt: what is\t received  as
\n\t      profit  in  a  trading  transaction  is
\n\t      taxable income. But the
\n\t      (1)  [1964] 8 S.C.R. 93.\n<\/p><\/blockquote>\n
\t      698<\/span><\/p>\n
\t      difficulty   arises  in\tascertainting
\n\t      whether  what  is received in  a\tgiven
\n\t      case  is\tcompensation for  loss\tof  a
\n\t      source  of  income,  or  profit  in   a
\n\t      trading transaction.”\n<\/p><\/blockquote>\n
\t      The Court further observed:
\n\t\t  “It  cannot  be said as  a  general
\n\t      rule. that what is determinative of the
\n\t      nature of the receipt is extinction  or
\n\t      compulsory  cessation of an  agency  or
\n\t      office.\tNor  can  it  be  said\t that
\n\t      compensation received for extinction of
\n\t      an  agency may always be\tequated\t with
\n\t      price received on sale of goodwill of a
\n\t      business.\t   The\ttest  applicable   to
\n\t      contracts\t for termination of  agencies
\n\t      is:  what has the assessee parted\t with
\n\t      in  lieu\tof  money  or  money’s\tworth
\n\t      received\tby him which is sought to  be
\n\t      taxed?  If  compensation\tis  paid  for
\n\t      cancellation  of a contract of  agency.
\n\t      which  does  not\taffect\tthe   trading
\n\t      structure\t  of  the  business  of\t  the
\n\t      recipient,   or  involve\tloss  of   an
\n\t      enduring\tasset, leaving\tthe  taxpayer
\n\t      free  to\tcarry on his  trade  released
\n\t      from  the contract which is  cancelled,
\n\t      the receipt will be a trading  receipt:
\n\t      where the cancellation of a contract of
\n\t      agency  impairs the trading  structure,
\n\t      or involves loss of an enduring  asset,
\n\t      the  amount paid for  compensating  the
\n\t      loss is capital.”<\/p><\/blockquote>\n
    Turning  to the facts of the present  ease,\t it
\nmust  in the first instance be observed that it\t is
\nfor  the  revenue to establish\tthat  a\t particular
\nreceipt is income liable to tax, and beyond stating
\nthat  the respondent was the managing agent of\tthe
\nNellore\t Power\tand Light Company Ltd. and  of\ttwo
\nother Companies, there\tis  no other evidence about
\nthe  nature  of\t the  business\tof  the\t two  other
\nCompanies of which the respondent was the  managing
\nagent.\tabout  their relative  importance  qua\tthe
\nmanaging  agency  of the Nellore  Power\t and  Light
\nCompany\t  Ltd.,\t and  whether  by  reason  of\tthe
\nextinction  of the managing agency of  the  Nellore
\nPower  and Light Company Ltd., any  enduring  asset
\nwas   lost  to\tthe  respondent,  or  its   trading
\norganisation  was adversely affected.  The  Income-
\ntax Officer observed that the “Company’s   business
\nof Managing Agency as such had not come to an end”,
\nthe Company still continues as “managing agents\t of
\nother  companies”.  Even after surrender of one\t of
\nthe  agencies, the Company carries on  business\t as
\nbefore,\t its  structure\t not  being  affected”\tand
\ntherefore  “the\t receipt  is to\t be  considered\t as
\nrevenue, in accordance with the decision in  Kelsal
\nParsons and Company v.C.I.R. 21 T.C. No. 608.”, and
\nwith that view the Appellate Assistant Commissioner
\nand  the  Tribunal agreed.  But in the\tabsence\t of
\nevidence as to what effect the determination of the
\nmanaging  agency  of the Nellore  Power\t and  Light
\nCompany\t  Ltd.,\t had  upon  the\t business  of\tthe
\nrespondent,   the   mere  circumstance\t that\tthe
\nrespondent  had\t managing  agencies  of\t two  other
\ncompanies  without  more will not  bring  the  ease
\nwithin Kelsal Parsons and Company v.  Commissioners
\nof Inland Reve-\n<\/p>\n
699<\/span><\/p>\n
nue(1).\t In Kettlewell Bullen and Company’s case(2)
\nthis Court pointed out that ordinarily compensation
\nfor  loss  of  office or agency is  regarded  as  a
\ncapital receipt, but the rule is subject to\t an
\nexception   that   payment   received\teven\tfor
\ntermination  of\t an  agency  agreement,\t where\tthe
\nagency is one of many which the assessee holds, and
\nthe  termination of the agency does not impair\tthe
\nprofit-making  structure  of the assessee,  but\t is
\nwithin\tthe framework of the business, it  being  a
\nnecessary  incident of the business. that  existing
\nagencies may be terminated, and fresh agencies\tmay
\nbe  taken,  is\trevenue and  not  capital.   Kelsal
\nParsons\t and  Company’s case(1)\t falls\twithin\tthe
\nexception  to the ordinary rule, and  circumstances
\nwhich brought the case of the respondent within the
\nexception  must\t be clearly established.  The  High
\nCourt was of the opinion that compensation received
\nfor taking over the Nellore Power and Light Company
\nLtd., was a capital receipt not liable to be taxed,
\nand  on\t the  materials placed before  us,  we\tare
\nunable\tto  disagree with the High  Court  on  this
\nquestion.\n<\/p>\n
The  appeal therefore fails and is  dismissed  with
\ncosts.\n<\/p>\n
Appeal dismissed,
\n(1) 21T.C. 608.\n<\/p>\n
(2) [1964] 8 S.C.R. 93.\n<\/p>\n
?(D)5SCI—6
\n700<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India The Commissioner Of Income-Tax, … vs Chari And Chari Ltd on 9 April, 1965 Equivalent citations: 1966 AIR 54, 1965 SCR (3) 692 Author: S C. Bench: Shah, J.C. PETITIONER: THE COMMISSIONER OF INCOME-TAX, MADRAS Vs. RESPONDENT: CHARI AND CHARI LTD. DATE OF JUDGMENT: 09\/04\/1965 BENCH: SHAH, J.C. BENCH: SHAH, J.C. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-179818","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nThe Commissioner Of Income-Tax, ... vs Chari And Chari Ltd on 9 April, 1965 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/the-commissioner-of-income-tax-vs-chari-and-chari-ltd-on-9-april-1965\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The Commissioner Of Income-Tax, ... vs Chari And Chari Ltd on 9 April, 1965 - 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