KETTLEWELL BULLEN AND CO. vs. COMMISSIONER OF INCOME-TAX, CALCUTTA

CIVIL APPEAL No. 226/1963Supreme Court[1964] 8 S.C.R. 9301 May 1964Bench: 3 JudgesAuthor: K. SUBBA RAO, J.C. SHAH, S.M. SIKRI KETTLEWELL BULLEN AND CO.29 pages
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What did the Supreme Court hold?

The Supreme Court held that the sum of Rs. 3,50,000 received by the appellant was a capital receipt, not a revenue receipt. The Court reasoned that the transaction was not a trading transaction but one where the assessee parted with an asset of enduring value, constituting compensation for the loss of a capital asset. The Court distinguished this case from those where compensation is received for cancellation of a contract that does not affect the trading structure or source of income, or is a normal incident of business. In this instance, the cancellation impaired the trading structure or resulted in the loss of the source of income. The Court noted that it was inconsequential whether the appellant continued to conduct its remaining agencies. The High Court's decision that the amount was a revenue receipt was overturned. The answer to the question referred to the High Court was in the negative. The appellant would be entitled to its costs.

What were the facts?

The appellant, Kettlewell Bullen and Co., was the managing agent for Fort William Jute Company since 1925. The agreement stipulated terms for remuneration, shareholding requirements, and compensation for termination of agency. In 1952, the appellant agreed to relinquish its managing agency of Fort William Jute Co. Ltd. in favour of M/s. Mugneeram Bangur & Co. This was in consideration of Mugneeram Bangur & Co. taking over the appellant's shares, procuring repayment of loans, and ensuring Fort William Jute Co. Ltd. paid compensation to the appellant. The appellant resigned, and Mugneeram Bangur & Co. became the new managing agent. The appellant received Rs. 3,50,000 as compensation, which it treated as a capital receipt and did not include in its income tax return for 1953-54. The Income-tax Officer included this amount in taxable income, but the Assistant Appellate Commissioner and the Appellate Tribunal held it to be a capital receipt.

What were the issues?

1. Whether, on the facts and circumstances of the case, the sum of Rs. 3,50,000 received by the assessee to relinquish the managing agency was a revenue receipt assessable under the Indian Income-tax Act? Assessee's Contention: The judgment does not explicitly record the assessee's arguments before the Tribunal or High Court, but implicitly, they argued that the compensation was a capital receipt. The High Court's decision suggests the assessee argued it was not assessable as income. Revenue's Contention: The Revenue contended that the sum of Rs. 3,50,000 received by the assessee was a revenue receipt and therefore assessable to income tax. The Commissioner of Income-tax referred the question to the High Court.

Which sections of the Income-tax Act were involved?

Section 2(6c),Section 10,Section 12

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8 S.C.R. SUPREME COURT REPORTS 93 to the authority concerned to make a fresh assessment on the members of that as~ociation individually.

The answer given by the High Court to the question propounded is correct.

In the result, the appeal fails and is dismissed with costs.

Appeal dismissed. KETTLEWELL BULLEN AND CO. v. COMMISSIONER OF INCOME-TAX, CALCUTTA (K. SuB!lA RAo, J. C. SHAH ANDS. M. S1KRI, JJ.)

Income-tax-Compensation received for surrendering managing agency- ]/ capital or revenue-Test-lncome .. tax ... tct, 1922 (11 of 1922), ss. 2(6c), 10, 12. By an agreement \vith the Fort Willi:in1 Jute Company in 1925 the appellant company becm1e its Managing Agent.

The terms, inter .ilia, were that the appellant or its successors, unless they chose to resign, were to continue as l\1anaging Agent until they ceased to hold certain shares in the capital of the company and were on that account re1noved by a resolution of the company or their tenure of office was determined by the winding U? _of the company.

On termination of the agency, the Managing Agent was to get such reasonable compensation as was agreed upon bet\'leen the !\1a0aging Agent and th~ comvany.. Bes

The order continues below.

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