Law: Income Tax Act, 1961

Section: 256(1)

Law: Income Tax Act, 1922

Section: 10(5A),10(SA)(a)

Income-tax Act (XI of 1922)- -----S. 10 (5-A) (a) --Income-Termination of managing agency-­Compensation awarded to assesses-Compensation, held, liable to tax in hands of assessee, even if transaction not found to be bona fide. JUDGEMENT D. M. REGE, J. -In this reference under section 256 (1) of the I. T. Act, 1961, the following question by the Income-tax Appellate Tribunal, Bench C, Bombay, has been referred to us for our opinion: "Whether, on the facts and in the circumstances of the case, it has been rightly held that the sums of Rs. 81,000 and Rs. 2,00,000 were not income within the meaning of section 10 (5-A) (a) of the Indian Income-tax Act, 1922 ?" We are concerned with two sums of Rs. 81,000 and Rs. 2,00,000 received by the assessee on 15th February, 1956, and 31st July, 1957, respectively, by way of two instalments of compensation in connection with the termina­tion of their managing agency under an award, which were treated by the 1, T. O. as income in the hands of the assessee liable for tax under section 10 (SA) (a) of the Indian 1. T. Act, 1922, in their assessment order for the assessment years 1957-58 and 1958-59. There was an agreement of managing agency between the assessees Seksaria Sons (Private) Ltd. and Seksaria Cotton Mills Ltd. (hereinafter, referred to as "the managed company"), under which the assessee were appointed as managing agents of the managed company for a period of twenty years from 17th April, 1948. Clause 12 of the said agreement provided. "12. In the event of the termination of this agreement or of the appointment of the managing agents as such managing agents, from any cause whatsoever other than a wilful breach of the terms of this agreement by the managing agents, the managing agents without prejudice to any other remedy or right which they may have under the agreement shall be entitled to receive out of the assets of the company a sum equal to the total remuneration earned by the managing agents during the period of seven years immediately preceding such termination or a sum equal to the average annual remuneration as aforesaid the managing agents, if the period preceding such for which the managing agents shall be…

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