Law: Income Tax Act, 1961

Section: 66(1)

Section 28(1) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business income - Chargeable as - Assessment year 1952-53 - Barring banyans business of ICI, assessee-firm had no other business, with result that with termination of agreement by ICI without three months' notice, as stipulated in that agreement assessee-firm received a death-blow, leading to its dissolution - ICI paid a sum of Rs. 1.8 lakh as compensation for termination of assessee's services, and not in lieu of three months notice - Whether neither position in law nor facts of case warranted splitting up of said sum into two payments of a different kind so that part of money could be treated as compensation for revenue which assessee-firm would have earned during three months for which they were entitled to notice and balance by way of compensation for loss of office - Held, yes - Whether, therefore, entire payment was payment of a capital nature, and no part of said sum was to be treated as taxable income of assessee - Held, yes FACTS The assessee-firm, had been acting for more than 30 years as banyans or guaranteed brokers of ICI Ltd. The banyanship agreement was precarious for two reasons; firstly, that it was terminable by either party giving to the other party three months' written notice at any time, and secondly that the agreement would not be effective with regard to certain products set out in the schedule, with liberty to add to or exclude from the said schedule, any product or products at any time. The agreement did continue for a substantial period of time and there was nothing to show that the company was not satisfied with the work of the banyans. However, the company abruptly terminated the assessee's appointment as banyans without giving the three months' notice as stipulated in the agreement. The termination was accepted by the assessee with a prayer for adequate compensation so that the severity of the blow could be mitigated. The company awarded a sum of Rs. 1,80,000 as compensation for the termination of the banyanship agreement as well as for loss of office as a result of the summary termination by the company of the banyanship…

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