Law: Income Tax Act, 1922

Section: 10,10(5A)

[Indian Income Tax Act, 1922 (XI of 122)........Section 10(5A)-Compensation-Managing agency-¢Accounts maintained on mercantile system-Termination of agency in 1951-Compensation for termination, whether accrued in 1951-Held yes-Compensation received in 1955-Whether assessable in assessment year 1956-57-Held no. Case Followed :- Thiagaja Chettiar & Co, v. Commissioner of Income Tax (1964) 51 ITR 393. Case approved;- F.E Hardcastle & Co. P. Ltd. v. Commissioner of Income-Tax (1963)476 ITR 394. Case referred to:- Commissioner of Income Tax v. Gajapathi Naidu (1964) 53 (ITR 114) Case affirmed :- Commissioner of Income Tax v. Chunilal v. Mehta & Sons P Ltd. (1967) 65 ITR 50. JUDGMENT [The judgment of the Court was delivered by K. S. Hegde, J]-In this appeal by special leave, the questions that arise for decision relate to the taxability under Section 10(5-A) of the Indian Income Tax Act, 1922 (in brief "the Act") of a certain amount received by the assessee-firm as compensation on the termination of its managing, agency. The assessee is a private limited company and, at the relevant time, it was under voluntary liquidation. It was incorporated in June 1945, by converting an erstwhile partnership firm into a private limited company. The partnership firm had entered into a managing agency agreement on June 15, 1933, with a public limited company called "The Century Spinning and Manufacturing Co. Ltd," Under the said agreement, the assessee was to continue as managing agents for a minimum period of 21 years, and, thereafter, until that firm chose to resign its office or is removed from office by the managed company. During the period of 21 years stipulated in the agreement, the managed company had no right to remove the managing firm from its office except for reasons mentioned in the agreement. During the period the assessee continued to act as the managing agents, the agreement provided that the managing agents will get a minimum remuneration of Rs. 6,000 a mouth and if its remuneration is found at the close of the year to be less than 10 per cent of the gross profit of the company. the managing agents were to be paid a further additional sum to make the…

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