Law:

Section:

Section 10(3) of the Income-tax Act, 1961 [Corresponding to section 4(3)(vii) of the Indian Income-tax Act, 1922] - Casual and non-recurring receipts - Assessment year 1944-45 - By an agreement assessee-firm was appointed as managing agent of a company - During relevant accounting year managed company received offer from another company, company 'J', which offered itself to work as managing agents - Said offer was accepted by managed company and it asked assessee to retire - Assessee received certain amount by way of compensation towards termination of managing agency - Majority of shareholders of company 'J' were members of assessee-firm - Tribunal held that amount received by assessee was not casual receipt and it did arise out of business of assessee and, therefore, was not exempted under section 4(3)(vii) of 1922 Act - Whether order of Tribunal was justified - Held, yes FACTS The assessee-firm was appointed an managing agent of a company. The managed company received a letter from another company 'J', which offered itself to work as its managing agents and requested that it may be so appointed. On 28-9-1943, the managed company decided to ask the assessee to retire from the managing agency business with effect from 30-9-1943, on receipt of compensation for the premature termination of the contract. This amount was paid to the assessee on 30-9-1943, and the assessee retired from the managing agency business with effect from that date. The majority of shareholders in company 'J' were the members of the assessee-firm. The assessee submitted a return without showing in the return the receipt of the said compensation. For the assessment year 1944-45, the ITO completed the assessment of the assessee without including the aforesaid amount of compensation. Subsequently, the successor ITO issued a notice to the assessee under section 34 of the 1922 Act calling upon the assessee to submit a return in respect of that amount. In response to the notice the assessee submitted the return but contended that the aforesaid receipt was capital in nature not liable to tax. However, the contention was rejected and receipt was subjected to tax. The Tribunal held that as there…

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