Ram Kumar Agarwalla and Brothers v. Commissioner of Income-tax, Central, Calcutta
Shah J, M/s. Ram Kumar Agarwalla & Brothers-herein-
after called 'the assessees' -were carrying on business at Calcutta
as "share-brokers, share dealers and ·paper merchants", Swadeshi
Cotton Mills Ltd-a public limited company-operates at Kanpur
a large unit producing cotton textiles. It was originally managed
by a firm of Managing Agents styled M/s. Horseman Brothers.
Some time early in 1946 M/s. Horseman Brothers desired to dispose
of their share-holding in the Company, and to part with the Manag
ing Agency. David Mitchell a partner of M/s. Lovelock & Lewis
accountants of the Company-Rowan Hodge of M/s. Orr Dignam
& Co.-solicitors of the Company-and the assessees started
joint negotiations with M/s. Horseman Brothers to purchase the
controlling interest in the Company. About the month of April,
1946 M/s. Mangturam Jaipuria acting through their partner Anand-
ram Gajadhar were also negotiating to secure the controlling in
terest in the Company. M/s. Mangturam Ja.ipuria addressed a
letter on April 29, 1946 to David Mitchell to the following effect:
"With reference to your negotiations to acquire the
controlling interest in the Swadeshi Cotton Mills Co.
Ltd., we confirm that we and our associates are desirous
of purchasing the same and in the event of your securing
the same for us and upon your giving up all claims to pur
chase the same and assigning to us and our associates any
interest that you may have acquired therein, we hereby
agree to pay you and your colleagues a capital sum of
Rs. 6,00,000/-. Such payment to be made upon com
pletion of the purchase by us."
M/s. Mangturam Ja.ipuria also obtained a letter of guarantee
for Rs. 6,00,000/- from the Imperial Bank of India in favour of
David Mitchell. M/s. Mangturam Jaipuria purchased the share
holding of M/s. Horseman Brothers for Rs. 4,03,00,000/-. There
after the amount of Rs. 6,00,000/-was duly paid to David Mitchell,
Rowan Hodge and the assessees, and it was divided equally bet- H
ween them-ach receiving Rs. 2 lakhs. The assessees paid Rs.
25,000/• out of their share to one Ratan Lal Goel for "services
rendered in the deal", and credited the balance of Rs. 1,75,000/-as
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R. K. AGARWALLA BROS. V. C.I.T. (Shah, J,) 937
"brokerage" in their profit & loss account, and submitted a return
of income for the assessment year 1947-48 showing that receipt as
income from "brokerage in the course of business". Lator, the
assessees submitted a revised return excluding the amount of Rs.
1,75,000/-. The Income-tax Officer rejected the claim of the asses
sees that the amount of Rs. 1,75,000/- was a non-recurring casual
receipt exempt from tax under s. 4(3) (vii) of the Act or that it was
a capital and not revenue receipt. The order was confirmed by
the Appellate Assistant Commissioner. On the plea of the assessees
that the amount of Rs. 2,00,000 was received by them as considera
tion for agreeing to refrain from carrying on their business and was
on that account not taxable as their income, and that in any event
it was a non-recurring casual receipt, there was difference of opinion
between the two Members who constituted the Appellate Tribunal,
and the appeal was referred to a third Member who remanded the
case for a finding on certain matters on which the order of the
Appellate Assistant Commissioner was silent. The Appellate
Assistant Commissioner then reported that the payment of Rs.
6,00,000/- was not made only as an inducement to the assessees to
refrain from competition in purchasing the controlling interest in
the Company, but it was made to remunerate the services rendered
by the assessees and their associates in helping M/s. Mangutram
Jaipuria to acquire the controlling interest. The Tribunal agreed
with the report of the Appellate Assistant Commissioner and dis·
missed the appeal. The Tribunal observed :
"He never had the intention or the money to buy the
Mills worth a few crores. The very fact that he had two
other associates will again show that there was no In
tention of either of these three persons to purchase the
Mills. Partners of solicitors and auditors had no intention
of buying the Mills. I think that the sum of Rs. 2 lacs has
accrued to the assessee as a result ofa venture in the nature
of trade. Services of auditors, brokers and solicitors have
been employed in completing the sale."
The Tribunal submitted a statement of the case on the following
two questions, on application by the assessees, under s. 66(1) of the
Income-tax Act :
"(!) Whether there was any material on record before the
President to give a finding to the effect that the con
tention of the assessee that it intended to buy the Mills
was without any basis whatsoever ?
(2) Was the receipt in question a revenue receipt from a
venture in the nature of trade and has it been rightly
brought to tax ?"
958 SUPREME COURT REPORTS (1967] 1 s.c.R.
The High Court of Calcutta held that there was ample material
to support the finding of the Tribunal that the receipt in question
was a revenue receipt from a venture in the nature of trade. With
special leave, the assessees Jiwe appealed to this Court.
Counsel for the assessees says that the two Members of the
Tribunal who originally heard the appeal had concurrently held
that Rs. 6 lakhs were paid to the assessecs and their associates for
dissuading them for not competing with M/s. Mangturam Jaipuria
and it was not open to the third Member to ignore that finding and
to arrive at a different conclusion. We are unable to agree with
that contention. On a difference of opinion, the appeal in its
entirety and not any specific question, was referred to the third
Member. Again only the Accountant Member was of the view
that the receipt of Rs. 2 lakhs to the assessees arose not in the course
of their business, but because they agreed to refrain from competing
with Mis. Mangturam Jaipuria in that firm's attempt to acquire
the controlling interest in the Company: the Judicial Member did
not accept that view.
The terms of the letter addressed by M/s. Mangturam Jaipuria to
David Mitchell make it abundantly clear that Rs. 6 lakhs were agreed
to be paid primarily as remuneration for services to be rendered.
The expression "in the event of your securing the same (controlling
interest in the Swadeshi Cotton Mills) for us, and upon your giving up
all claims to purchase the same, and assigning to us and our asso
ciates any interest that you may have acquired, we hereby agree to
pay you . . . sum of Rs. 6,00,000/-" evidences that object. The
Tribunal had also called for a report from the Appellate Assistant
Commissioner and that Officer, as we have already observed, ex
pressly recorded that the payment made to the assessees and their
associaties was for services rendered in acquiring the controlling inte
rest for M/s. Mangturam Jaipuria and not for dissuading them in
competing for the purchase of the shares. The Tribunal accepted
the report of the Appellate Assistant Commissioner, and observed
that the assessces had no intention to buy the controlling interest
in the Company. The principal business of the assessees was in
paper, and they were doing some business in shares and brokerage'
in shares. The evidence does not disclose how it was intended
by the assessees to finance such a large traRsaction. The Tribunal
was apparently of the view that a solicitor, an auditor and a firm
of share-brokers and paper merchants could not have been associa
ted in a genuine project of acquiring the controlling interest in one
of the largest textile units in the country which was expected to
and did cost Rs. 4 crorcs. The Tribunal had directed that certain
persons including Ram Kumar A)larwalla the principal partner of
the asscssees be examined as witnesses. The principal partner of
the assessees did not give evidence. Ramgopal Agarwalla another
partner of the firm who appeared before the Appellate Assistant
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R. K. AGARWALLA BROS. V. C.I.T. (Shah,/.) 959
Commissioner pleaded that he had no personal knowledge about
the details of the negotiations or "as to the financial part of the
aspect of the matter, since it was being dealt with by the senior
partner Ram Kumar Agarwalla". David Mitchell and Rowen
Hodge had it appears left India, and they also could not be exa
mined. The conclusion recorded by the Tribunal that the assessees
David Mitchell and Rowan Hodge had no intention to acquire the
controlling interest, but were seeking to associate themselves in a
venture in the nature of trade, cannot in the circumstances be said
to be without evidence. The conclusion that the assessees and
their two associates received Rs. 6,00,000/- not in consideration
of refraining from competing in the purchase of the controlling
interest, but as remuneration for services rendered is based on
evidence before the Tribunal. The receipt must therefore be re
garded as a revenue receipt earned in the course of the business of
the assess~.
It is unnecessary to make a detailed reference to the decisions
which were cited at the Bar e.g. Higgs v. OliverO and in Commis
sioner of Income-tax Bombay v. The Mills Store Co. Karachi(l). In
Higgs's case() a professional actor who had agreed to give his ex
cl11Sive services to a film company in consideration of a fixed sum,
and a proportion of the net profits from exploitation of a film
was, after the agreement was fulfilled, given a sum of 15,000 a
consideration for an undertaking not to act, produce or direct any
nlm for any person for a period of eighteen months. It was held
that the amount paid was not for carrying on business, but for
refraining from carrying on the business, and was not taxble. In
the Mills Store Company's case(2) under an agreement for a stated
consideration the as~essee Company parted with the oil tanks and
installations and otb'er structures and goodwill and leasehold rights
held by it in respect .of the land on which its business of storing petro
leum and petroleum products was carried, and agreed not to
import petroleum for ten years, and not to act on behalf of any
one else as importers of petroleum for five years. By another agree
ment in consideration of extending the latter restriction to ten years,
the assessee was paid Rs. 10,000/- annually during the. subsistence
of the restriction. It was held by the Chief Court of Sind that the
sum of Rs. 10,000/- was not the direct result of the profit or gains
accruing to the assessees as a result of the business actually carried
on by them, and did not fall under the head 'Profits and gains of
business, profession or vocation'. These cases have, on the
findings recorded by the Trii)unal, no relevance,
Under s. 4(3) (vii) rereints which are of a casual and non
recurring nature are not liable to be included in the computation
of the total income of the assessee; but the rule in express terms does.
(I) 33 T. C. 136. (2) 9 I.T.R. 642.
I
1160 SUPUMB COU.T RJIPOaTS (1961) I S.Cll.
not apply to capital gains, receipts arising from business or the
-exercise of a profession or vocation and receipts by way of addition
to the remuneration of an employee. On the finding recorded by
the Tribunal, the receipt arose from the business of the assessees,
and is not exempt under s. 4(3)(vii.).
The appeal therefore fails and Is dismissed with costs.
R.K.P.S. Appeal dismissed.
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