The Commissioner of Income Tax and Excess Profits Tax, Madras vs The South Indian Pictures Ltd., Karaikudi

Satyanarayana Rao, J.—u/s 66(1) of tile Indian Income Tax Act, the Appellate Tribunal referred to us the following question for decision :

Whether on the facts and in the circumstances of the case, the sum of Rs. 26000 received by the assessee from Jupiter Pictures Ltd'', is a revenue

receipt assessable under the Indian Income Tax Act?

The assessee, the South India Pictures Ltd., is a private limited company. Its business consisted of distribution of films. The right of distribution in

some instances was acquired by them by advancing money to producers; in other cases they purchased the pictures for exhibition and distribution.

The dispute in the assessment year relates to a sum of Rs. 26000 which the assessee received as compensation for the termination of three

contracts relating to the distribution of three pictures and which was paid by the producers to the assessee. The agreements were dated 17th

September 1941, 16th July 1942 and 10th May 1945. In all the three cases, the agreements were for a period of five years to commence from the

date of the first release of the picture. There are various clauses in the agreements providing for the advances to be made to the producers by the

distributors, the method of recouping such advances and also the remuneration to which the distributors were entitled, the details of which are not

relevant for the purpose of the disposal of this reference. On 31st October 1945 the Jupiter Pictures Ltd'', who were the producers of three

pictures relating to the three contracts, and the assessee entered into an agreement whereunder the rights of the assessee under the agreements

were terminated in consideration of a sum of Rs. 26000 which was paid as commission under the three contracts. The Appellate Tribunal differing

from the conclusion of the Appellate Assistant Commissioner held that this amount was a capital receipt and was not assessable to Income Tax.

The short question is whether the view taken by the Appellate Tribunal is correct.

The revenue authorities claim that this amount represents the income, profits and gains of the business of the assessee which the assessee carried

on in the accounting period, and that, therefore, the amount was assessable to Income Tax. In our opinion, it is not necessary to consider the

various decisions of the English Courts which have been cited on behalf of the Income Tax Commissioner by Mr. Rama Rao Sahib, the learned

Advocate as the question now raised is really covered by the decision of the Judicial Committee in ''Commr. of Income Tax, Bengal v. Shaw

Wallace and Co'', 59 Cal 1343 . In that case, Shaw Wallace and Co. carried on business in Calcutta as merchants and agents of various

companies and they had branches at different parts of India. They acted as distributing agents in India of the Burmah Oil Company and also the

Anglo Persian/Oil Company. In 1927, the two oil companies made arrangement for the distribution of their products and the agency of the

assessee company was terminated, for which a large amount of compensation was paid by the oil companies. The question that arose for decision

was whether the amounts so paid represented the profits of the business of the assessee taxable u/s 10 of the Income Tax Act. The Judicial

Committee held that it was not taxable as it was not an amount received by the assessee while carrying on business but was really a sort of

solatium paid to them for compulsory cessation of the agency contracts. This decision was sought to be distinguished on behalf of the Income Tax

Commissioner on the ground that it would apply only if the assessee acted on behalf of a single principal or if there was no other business carried

on by the assessee. The reason for this argument is that the assessee in the present case admittedly was carrying on other business on behalf of

other producers even after the termination of the contracts between the assessee and Jupiter Pictures Ltd. This distinction, in our opinion, has no

foundation, for it was pointed out in the course of the judgment of the Judicial Committee by Sir George Lowndes that the assessee company

therein did in fact carry on other business as merchants and agents for various companies, and It was further held that the mere fact that other

business was carried on would not alter or change the character of the receipt, if, in fact, it was not a revenue receipt. The receipt in that case, as in

the present case, had no connection whatever with the other business which was continued by the assessee. For this reason it is observed at page

1352 of the judgment as follows:

It is contended for the appellant that the ''business'' of the respondents did in fact go on throughout the year, and this is no doubt true in a sense.

They had other independent commercial interests which they continued to pursue, and the profits of which have been taxed in the ordinary course

without objection on their part. But it is clear that the sum in question in this appeal had no connection with the continuance of the respondents''

other business. The profits earned by them in 1928 were the fruit of a different tree, the crop of a different field.

The next line of argument adopted on behalf of the Income Tax Commissioner is that the receipt in the present case is in the nature of a casual

receipt and is not really income and that was the basis of the judgment also of the judicial Committee. Even here, it is difficult to accept the

contention. All that the Judicial Committee pointed out in that case was that the receipt in question had no connection with the business which was

terminated by the oil companies. It was, therefore, in the nature of some sort of solatium paid for the compulsory termination of the agreements. It

is unnecessary to describe such a receipt under any particular label, whether it was a capital receipt or whether it was casual receipt so long as it is

not a profit, or gain from the business which the assessee carried on, but was outside it. If the department claims to exercise the right of taxing the

particular receipt, it must be established that the receipt in question is income, profit or gains falling under any of the heads of the income mentioned

in Section 6 of the Act. If it does not fall under any of these heads, the receipt is not taxable and would not be a revenue receipt, for the purpose of

Income Tax. It may be casual receipt, or capital receipt. It is unnecessary to express any opinion on the question whether it falls under the one

bead or the other so long as it is not income, profit or gains which is taxable u/s 10(1) of the Income Tax Act.

For these reasons, we agree with the view taken by the Appellate Tribunal and answer the question referred to us in the negative and against the

Income Tax Commissioner. The assessee is en titled to his costs which we fix at Rs. 350.