Matheson Bosanquet Co. Ltd. vs Commissioner of Income Tax

Srinivasan, J.—In this tax case, the Tribunal has made a reference to this court for the opinion of this court. The assessee is public limited

company carrying on the business as exporters of tea and shipping insurance agents. The assessee entered into an agreement on November 1,

1968, with the Estates and Agency Company Limited., London, England, which owns four estates in Coonoor. The agreement is appended as

annexure A to the statement of the case. Clause (1) of the agreement reads that the assessee is appointed as sole agent of the English company in

India in regard to the management of the estates named therein. Clause (3) of the agreement states that in consideration of the services rendered by

the agents under the agreement, the agents shall be paid by the company in respect of each financial year the remuneration specified therein.

Clause(4) of the agreement provides that the board of directors of the English Company shall decide all questions of pleurisy and the agents shall

manage the business in India subject to such decisions taken by the board. Clause(7) of the agreement provides that all moneys received by the

agents from sales of produce or otherwise for the account with the National and Grindlays Bank Ltd., Madras. Clause (8) states that the principal

place of business of the agents shall be situated at Coonoor. Clause (10) relates to the expenditure incurred by the agents in the management of the

estates. A procedure is prescribed by clause(10) for preparation of proposals and sanction o the same by the board. It is not necessary to refer to

other clauses in the agreement.

The agency was terminated by the English Company in 1970-71 and after some negotiation between the assessee and the English company, it

was agreed that sum of Rs. 3,40,000 should be paid by way of compensation to the assessee. The payments were made in three installments, Rs

1,50,000 in July, 1970, Rs. 1,15,000 in August, 1979 and Rs. 1,15,000 in September, 1970. The total of Rs. 3,80,000 included a sum of Rs.

40,000 paid as consultation fee. In the assessment year 1971-72, the Income Tax Officer included the sum of Rs. 3,40,000 in the assessment of

the assessee u/s 28(ii)(b) of the Income Tax Act 1961. The assessee claimed that it was a capital receipt and therefore, it was not liable to be

included in the assessment under that section. This contention was negatived by the Income Tax Officer. On appeal, The Appellate Assistant

Commissioner, took the view that the amount could fall u/s 28(ii)(c) of the Act, and, therefore, liable to be included in the assessment. The

Appellate Assistant Commissioner held that section 28(ii)(b) would not come into play.

On appeal, the Tribunal took the view that the amount would fall under both the sub-clauses (b) and (c) of section 28(ii) of the Act and

confirmed the orders of the authorities below.

Thereafter, the assessee prayed for a reference and the Tribunal referred the following question of law for consideration of this court.

Whether, on the facts and in circumstances of the case, the Tribunal was right in holding that the payment of Rs. 3,40,000 to the assessee made

by the English company could not be regarded as a capital receipt but was income taxable for the assessment year 1971-72 ?

From the terms of the agreement referred to already, it is clear that this contract of agency and the amount received by the assessee was

compensation for termination of the agency section 28(ii)(c) of the Income Tax Act reads thus :

(c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person at or

in connection with the termination of the agency or the modification of the term sand conditions relating thereto;

There can be no doubt that the amount in question will fall under sub-clause (c) of section 28(ii). Learned counsel for the assessee contents that

sub-clause (c) would come into play only when the agency relates to the business of a person and that such person should be living person.

According to him, in the present case, the agency relates to the business of a company in England and it could not be a person within the meaning

of the section. This contention has to be stated only to be rejected. This definition of ""person"" in the Income Tax Act is found in section 2(31). It i

seen that a person includes a company. Hence, the contention of learned counsel for the assessee has to be rejected.

In view of the fact that the amount will fall under sub clause (c) of section 28(ii) of the Act, it is not necessary for us to consider whether it would

fall u/s 28(ii)(b) of the Act. The question whether the assessee was managing wholly outstanding the affairs of any other company as required by

sub-clause (b) of section 28(ii)(b) of the Act.

In the result, the question referred to this court is answered in the affirmative and against the assessee. The assessee will pay the costs of the

Revenue. Counsel''s fee Rs. 500.