Law:

Section:

Section 4 of the Income-tax Act, 1961 [Corresponding to section 3 of the Indian Income-tax Act, 1922] - Income-chargeable as - Assessee-firm was appointed as a managing agent in a company which was floated by it and its partners held majority shares in that company - Subsequently managed company in a resolution passed by its director removed assessee-firm from managing agency and appointed a newly floated company 'JKCE' in which partners of firm also had majority share as its new managing agent - For said termination, managerial company paid certain amount as compensation to assessee which revenue treated as revenue receipt of assessee - Tribunal found that said payment to assessee was collusive and partners of firm continued to run and enjoy benefit of managing agency as shareholders and directors of newly formed company by reason of their holding a majority of shares in that company - Tribunal also held that whole transaction was a hoax for purpose of evading income-tax - Whether, on facts, it could be held that managing agency business carried on by assessee was not destroyed or lost to individual partners who constituted it - Held, yes - Whether, there was therefore proper material before Appellate Tribunal in support of its finding that receipt by assessee-firm was a receipt in the course of its managing agency business and was a revenue receipt - Held, yes FACTS The assessee-firm was constituted of four partners. The shareholding of the three brothers PS, LS and KS was 51 per cent constituting a majority of the shareholding in the partnership firm and remaining was held by one 'B'. The partners of the firm floated a company, namely, 'J.K' in which said three brothers along with their wives held majority share. In consideration of the fact that the assessee-firm promoted the company "JK", the assessee was appointed the managing agent of the company. In a meeting of the board of directors of the managed company letter of the financiers asking for re-payment of advances made by the financier to the company was discussed. Accordingly, it was decided to ask the assessee to arrange for advance of such sums of moneys as would be necessary to pay off the loan of…

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