Law: Income Tax Act, 1922

Section: 10(1)

Section 28(i) of the Income-tax Act, 1961 [Corresponding to section 10(1) of the Indian Income-tax Act, 1922] - Business income - Chargeable as - Assessment year 1953-54 - Assessee was managing agent of company F - It entered into agreement with 'M' who agreed to purchase entire holding of shares of assessee in company - 'M' also agreed to compensate assessee for loss of office - Subsequently, assessee tendered its resignation and 'M' was appointed as managing agent of company - Accordingly, assessee received sum on account of compensation for loss of office - Whether, on facts, amount of compensation for loss of office - Whether, on facts, amount of compensation received by assessee to relinquish managing agency could not be regarded as revenue receipt and, thus, it was not liable to tax - Held, yes FACTS The assessee was a managing agent of a company F. The assessee entered into an agreement with 'M' who agreed to purchase entire holding of shares of assessee in company and to procure that principal company 'M' also agreed to compensate the assessee for loss of office after it submitted its resignation. Subsequently, the assessee tendered its resignation and 'M' was appointed as managing agent of the company. Accordingly, the assessee received sum on account of compensation for loss of office. In the proceedings for the relevant assessment year the ITO, included this amount in the assessee's taxable income. On appeal the AAC modified the assessment holding that the sum received by the assessee as compensation for surrendering the managing agency, which was to enure for five years more, and which in normal course might have continued for another term of twenty years, was a capital receipt. On further appeals Tribunal confirmed the order of the AAC. On reference, the High Court held that it was a voluntary resignation for which under the agency agreement the assessee was not entitled to any compensation, therefore, the compensation received for surrendering the agency was remuneration received on account of conducting the business, and was income. On appeal to the Supreme Court : HELD The managing agency was not, except in the circumstances set out in clause 2…

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