Law: Income Tax Act, 1922

Section: 10

[Income Tax Act, 1922 (XI of 1922)].......Section 10--Income or capital receipt-Compensation Assessee sole-selling agent of principal-Termination of agency Compensation paid to assessee for loss of sole-selling agency right on condition that it become a dealer of the principal, impliedly not to compete with the business of its principal Compensation whether capital receipt in the hands of assesses-Held yes. The sole-selling agency right of the respondent was undoubtedly an income-yielding asset and a capital asset, compensation received for loss of a capital asset is a capital receipt. It would not be correct to Say that there was no loss of sole-selling agency rights, but only a "modification" or "variation" of it and that the amount of Rs. 60,000 was paid as an extra commission to the respondent for agreeing to accept/the agency in a modified shape. It could not be denied that by accepting to become one of the main dealers, there was distinct deterioration of an enduring nature. It is not disputed that if the compensation was paid for agreeing not to compete with the principals business, it would prima facie be a capital receipt. It is true that the letter of 17th November, 1962, setting out the terms of the new arrangement did not categorically provide for compensation for refraining from competing with the principal. But, the sum of Rs 69,000 was offered to the respondent on condition that it accepted the offer to become a main dealer. The letter also provide that each main dealer was to be exclusive dealer of "Exide" batteries within his own territory. Reading the two provisions together, there is no difficulty in holding that by agreeing to become one of the main and exclusive dealers, the respondent had agreed not to compete with the business of the principal. Cases distinguished:- Kettlewell Bullen & Co. Ltd. v. Commissioner of income Tax (1964) 53 I. T. R. 271=(1964) 10 Taxation 180 (S.C.) and Gillanders Arbuthnot & Co. Ltd. v. Commissioner of Income Tax (1964) 53 I.T.R 283=(1954) 10 Taxation 241 (S.C.). Cases referred to:- Goderj & Co. v. Commissioner of Income Tax (1959) 37 I.T.R. 381 =(1960) 2 Taxation (111-1) (S.C.) ; Commissioner of…

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