Juggi Lal Kamlapat v. Commlisioner Of Income-Tax, U.p

TN Gata Barra Tala MAR BAH, TAT AT (Shri Juggi Lal Kamlapat Versus The Commissioner of Income-tax, U.P.)oe(4 faaraz, 1968) (Fle Ho Mle ee, Ao TAA sz we aAS Taz) saat % fae fraltat-nar caer afrral S ar H ard aeMega afta ar waar al war site gah eqn qeas2a fava (Corporation)ea fagfts ¢$—faathtal-aat‘an£ } wer fame & agdera sigan ait fate J—gahaa seala sac ofiery s gaaqa© waa & faelo at< et sar dea°fear— aay 8S Magia A gaat Use Taal F 2| fama at arat (Corporation veil)—gsaqaie} wea atTaT waa & fa sa ga aa at eer area elfraihdtow we aqdtgar afteal & wae art we cet otfrarttat-ca & ata wraitare urd & aie 2 Ga R51 ghee sty Ia BW8) TaN sae Gera Sacer gahaa aeaat she fara Hat AeUCAF aTSIa HCE| za feat afters oe fh cag aftmal ay axgat 3 fern,frat Bl Sqaeq Brat asatFaiz af& frartat oat ter adi az andt ga-aa erat tag deg fe hh ae aet camer 2 feder gaacara far se st Pa gata HA ae ust a, aa at Cat Ht A qgyAyathmarat et aaaat et eit a o21 aeaearg wafaa arash a frarhtatnag aay a qaaata we feat aie fae at gaer arfieal fran fearae fraittet et saat aftan = qaaqs waar % fc 2 wa eae aiat dad feat | frathtat @ ae erat fear fh 2 are eae at ar asewadt adhe ate ae gaa faa daz, 1922 site cada aifhea tag daz,1940 % mete ach areata adi 21 aaa onfhax, ate aeras MAGa attr afraeq t fratitd & fre afatraita Pear| freer fat are &e r set amet? ae afhfaatfta fear Petet at alse at fee- -guleia sararsd to saraat age [Faro TiaTAY)«—-4699ara ot afrecu ae afatratta ae aear at fe ae qadt ae & ctfreratia,user wat &|)| atta#za aaa Rana ae cata et ae fs, (1) fe frarheetGa att fara at fira-fira faftra garzat (legal entities) 4} gafwq Factae avy & ft fraiftdtned & vacttare fiaagers ain daa ae <Aqe Waata zal wear st awar fe fraiftdt-oa & afar ga GeaaEe FSR ae at sebyavala ae Har at ael wT a; (2) frarfidt & tae zamara fe ae masa wadaa ae seaae wee Paredeqaere afar adi ey sat aie (3) ae aahratita aes Bfarm alracqFanate gf aad adi ath 2 aa eat at chr ach aiaratawseq Waal (revenue receipi) at| afafiatfca—(1) Safie cfs & acat cm fafa crs Aat T stsah aceit@ ada gam ate we ara TS ofan a Se FAi andfara sala sak aeea adi we asa Ale ae TS HaeA F fazary at at andt 2 He aafan sas eee aes adi faq TT atdfra varareaa a ae eee Peas arate} sfaaa armel a frafha care®t Ft cert) oa waa F ageafss ara ag ar fe fearfra & ctatwé fafates seat & gered A caer afhewy aT BT ART TE AIT Sataact afistat Bfaaa (Dominant capacity) aE Ta A qT F aTA-se ata wate saa ofteey at a at eet ara gat ar aie a saat wealfa ga at| |aya aaa det Masha Alea FFG}(Anthrome VersusPeter Schoenhefen Browing Co,) 4 Zto dto 41; BT mawala zatUIs TAS HAAN GANA aafaa (Firestone Tyre and Rubber Co. VersusLlewallin) 1957, 1 seo Cao Bo 464; ayHE ME | (2) gaat aftacq at dfaar % qsaera st deqaert ca fearactaeqaere at AT Blast Hi Fret wadaa ata FH fea tear nes fear wTat| ag sataa eaet ax fraiftct-ca drat A fhe eeeifer ate at atfeast qatsa VA aes BT WA aa etal AT WAR st WIAA TAT AT| (3) fratftat & caer afheeq } saga ate fara at fate 4caeeq sa cafnat a, faedla fratftdt-na ar daca far at, fra %frtsret atc signarftat st Rear A sar ofa s sa HT aaaaaa gata fia| asa seat F saMTMSF MI Tord TM TE 700seqaa raaa fea afaet [1969] 1 eroftroqe fraiftdhed Sara & fees wa Hadi ate amig Berk meatyzatatatte afiern ey aay za fasay % qaay q aaa aagt soar%fe fratket-ca are dt area wat at oft sek gacq afhaey % area ana F oft at ane zafac ae user oh at fafaa sie afianifca : 1967 a qo 968 she Ho 969 ara}fafaa aga| 1955 % #e 255 A go 256 HA maga dad aden 1955 Fa. Qave gate arms FH emer seq aay ¥ ada 10Gears, 1962 ara faa we mea &% free Aaa cosa Far at ae ay staal aac-aaat gear first, te cao afta ate ato(at aitat F)tte aegatt seaadf at ante aaaa ate Fo aged, zt.coATR,(atat arcteit 3) arcteit 3) 3)Ae Cato wae Bx ato eto Tat (atat arcteit 3) arcteit 3) 3) TTT ar Pras earenfyafs ate craegrat 3 fear 1 earaifagta carat — JUGGI l,AL KAMLAPAT COMML'iSIONER OF INCOME-TAX, U.P. September 4, 1968 [J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.J lncon1e-tax-Assessee firm a managing a1:ent-A1annginR agency ter-miw.ted and a Corpornlion appointed in its place-Partners of assessee firm n1ajor shaN·holders and directors of Corporation-Payment to firm b.v managed cornpany co111pr.nsation for premc.ture 1e1mina:1on of 1nana1Jing agency--!/_ revenue receipt. Corporate \:eil-When can be pierced for finding the transaction. nalure of The asscsscc-firm \\'<IS the managing agent of a company. ·rhrce of the partners in the asscsscc-finn were brothers \•1~,1 held :1 51 per cCDl share in the finn. They and the members of their families held a large majority of the shares in the managed companv and also in a Corp0ration. On the false allegation that the managing agent had to provide finance to the company and as the assessec "-'as not able to do .'\O, the 1nan3gcd com· pany resolved that the only alte"rnative was to seek a party who might be willing to finance even if such a course oecesst~ate<l a change of n1anaging agents. TIY.!re~tfter, lhc managed company te;·1n:n~teJ the managing agency of the asscssee, appointed the Corporari0n :ts the managing agent and paid the a'\~cssce a sum of Rs. 2 lacs as ..:on1pensa:ion for premature termination or the managing agency. The assc.\:-.ce claimed that this ~um of Rs. 2 lacs \\'as no! a revenue receipt and \'t:J.S not liable to tax .under the Income-tax Act. 1922. and Excess Profits Tax Act, 1940. The Income-tax Officer. the Appellate Assistant Comniis.sionc'r, and tho:! Appellate Tribun;1l held against the assessee. The High Court. on reference, held that lhcrc was material on \vhich the ·rribunal could hold that the receipt was a revenue rccci!'t liable to tax. In ar1nal to this Court. it was contended th•t : (I) As the a.sessee-firm and the Corporation were two di<;tinct legal entities the mere fact that the partners in the a.~sessee.firm held a .;::c:~siderah!e proportion of the shares in the Corporation should not have led to 1he inference that the rights of the assessce·firm were not dcslioyc.t, steirilized or lost on account of the transaction; (2) the mere intention on the part of the asscssee to cv;1de income-ta:t will not nullify an otherwise lawful transac-tion; and (3) there y.·as no material heforc tl:c ·rrihunal for holding that the amount of Rs. 2 lacs v.·as a revenue rcceilJ~· liable to tax. HELi) : ( 1) From a juristic point of view the Corporation may be a legal personality distinct from its members. Hut the Court is entitled to lilt the mask of corporate entity if the con;;cp1ion is used for tax evasion, or 10 circumvent tax obligation or 10 perpetrate a fraud. The real intention in the present case \\"as that the three hrothers Y.·ho were partners in the assessce-firm should continue to carry on lhe managing agency in a d"."lminant capacitv in the guise of a limited company and there was in fact no loss or de~truction of the profit yiclclin~ apparatu~, namely, the managing agency, (995 E-F; 996 E-F; 997 G-H] Apthorope v. Peter Schoenhofrn HrewinR Co., 4 T.C. 41 and Fireston~ Tyre and R11bbcr Co v. Ucwel/in, ( 1957) I W.L.R. 464 applied. (2) The transaction of termination was not a lawful termination but a sham and colourable one._ A collusive device was practised by the managed company and the assessee-firm for the purpose of evading income-tax, bo'h in the hands of the payer and th·e oayee, by handing over a sum of Rs. 2 lacs to the assessce-firm. [995 D-E; 997 F-G] 4mite 1955 % Fo 255 Hirdo 256 ate mraat gaty aaa FEMA Seq TTA F atta10 gets, 1962 aa frya & freg faaTAIT THT BH ae =|; adinst dad guitare saeraa, fa gaz cad art Paid? serva 2%, 0% tage anftand ofi cam dacafieafafea wo Bat AI— WANA F aA 49 oftera 2. at canada fearfrar 17 sfeaa 3. ft wentua frerrar 17 offara17 afaara 4. ot taraqa fasrfrar AT ;100 mfeara fearfaar & ataareat 4 feaar sir daa featar ag 51 oferaatAT TA aE AA uitad ga Fades sa gga sew Asta gaS arflardt + wy seat area at free ata Aad So Fo arava ele watfafite at) ca aeyatH faraatt areal ste sast aftaat & 166aa F Nx oft Wao TH FAT Be Saat Wal F Fact 42 ater F | Hate tig| gd Q aract ar dnada fearsie zee afm fait tata15 fkavax, 1938 aa sara afiey FUT S atta 25 ast & faq Aaa HoFo Mara vrs tet weet ergat PRAT fa fea aT1 Te BATT¥ ae sageq Peat war ar f& fratftat aa am gaan aftenal aa Tea Sa Isfea arma attaraa asfe ae safer aeadt & sight & 3agua are gag afinal & teSB cet a fea HT HAT & faaeqat aaaa F qaeqafieatat $1500 aaa arfts oftafas ate aHeE 377at edtdt ea F gear aa waTT (depreciation) TARA Bt S ITATaradt Gag aa at 10 ghia setae fear isafaa aeadt S ATHBaANe} (articles of association) H Fa aa am far ae suaeq adi ar fegaGaa ecadt & aarqa & fara ate feat ave waar aE a WaaeTafear area ate vated eect ar aarga eat at ar A gar afhmarfrafen at aarfir& fare, sftae ore a caer wflare are Bae ATQt sta aa at ca F aang As wits wrae atsoafeza ar|gag afiaey aut & gia Pracaa farafafaa wr FA der 2 (dt)at & fare ae fafrge drm fH ae asta seead yates ated wfreatat & eae anea wfrard sixarfiat t aHafRe (assign) at T we aageaa Ht cat H aaaafaretat anaahataat at aeadt er figza aftsat aaa sreaT aie Fatat afteat ate onfiere, oftefiieate srefsrat (emoluments)OTe att aa ta aaa ste adl & weasta dh, Set cas aaaealaw z,XK.44x? cia 2 (at)—ca arrange aoe fasergae suit FTsit eruat BiB fa sata aw saat Ta fHaat ae ATE, TAKsic afta = andt Fate ae sara ois ofeara aftat at aa axax aa ) ace ae afte FA at ata et oafeta FH ex ota afoaraa ate saad fe a a cm sfaaa whe oat mata seamat @ 17? 12 waed, 1948 BM oafera aeatt % faders as at wa Afragat| ga afiaaa a frrafaftaa fates safer 4: (1) st waaRrarfrar (2)sft aedtga fiarfiar ate(3)oft waetHe aacataqaga frarfaat a afiear at aeaaar atge aise % sara werafiaatat financiar) dad gaitera HATTA, Seat, F arta 3 wee,1943 an@ ae aa a Prax fear var fat seat aT faaerat are faq me 702 seqae saree faa afer © [1969] 1 emofizoqe (3) As a result of the apparent termination of the assessee's managing agency and the appointment of the Corporation, the individuals who con-B stituted the assessee-firm undertook the conduct of the managing agency business in the capacity o'f directors and shareholders of the Corporation. They continued to benefit from the profits of that business, fto\ving to them in the shape df dividends instead of as a share of profits. from the assessee-firm. There was thus material beiore the Tr:bunal in suppdrt of ils finding that the amount of R·s. 2 lacs \V3S received by the assessee~ furn by virtue of its office of managing agency and in the course of its managing agency business and that therefore lt was a revenue receipt. [997 B-F] CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 968 and 969 of 1967. Appeals by special leave from the judgment and order dated July 10, 1962 of the Allahabad High Court in Misc. Case No. 2 of 1955 connected with income-tax Misc. Cases Nos. 255 and 256 D of 1955. Sukumar Mitra, A. N. Pareekh and B. P. Maheshwari, for the appellant (in both the appeals). C. K. Daphtary, Attorney-Genera/, T. A. Ramachandran, R. N. Sachthey and B. D. Sharma, for the respondent (in both E the appeals) . The Judgment of the Court was delivered by Ramaswami, J. These appeals are brought by special leave from the judgment of the Allahabad High Court dated July 10, 1962 in Income Tax Miscellaneous Cases Nos. 255 and 256 of 1955. The appellant, M/s. Juggi Lal Kamlapat, hereinafter called !he 'asses.see'. was a registered partnership firm having the fo!low-mg conslitutlon : • The share--holding of the three Singhania brothers was 51 per cent constituting a majority of the share holding in the partnership [1969] 1 s.c.R . • firm. The partners of the said firm floated a company, namely, A M/s. J. K. Iron and Steel Company Ltd. the constitution of which • was that the three Singhania brothers and their wives had 166 shares while Sri S. M. Bashir and his wife had 42 shares. In consideration of the fact that the assessce firm promoted the com-pany the assessee was appointed the managing agent of M/s. 1. K. Iron and Steel Company Ltd. for a period of 25 years under B a Managing Agency agreement dated December 15, 1938. It was provided in this agreement that the assessee will continue to be the managing agent until it resigned or it was removed from its ol!ice of managing agency by a majority of 3/4th of the share-holders of the managed company. According to the terms of the agreement the Managing Agent>, remuneration was Rs. 1500 per month and a commission of 10 per cent on net profit of the C company after deducting ail expenses and after charging depre-ciation. There was no provision in the Articles of Association of the managed company for terminating the managing agency ellcept in the case of the managed company being wound up in which case, the managing agents were to receive compensation for loss of appointment. There was also the exception provided D under the general law in case of fraud or gross negligence on the part of the managing agents. The relevant terms of the manag-ing agency agreement were as follows : "Para 2(m). It shall be lawful for the firm to assign their office as Agents and all the rights and obli-gations as such agents and in the event of assignment, the assignee or assignees shall be deemed to have been appointed Agents of the company with like powers and authorities remuneration and emoluments and subject to like terms and conditions as are herein contain-ed ...... " 702 5 ara aaa & athe afia va at aed at air at af ot | ot Wie Howat 3e aa sere fH yay aftsal axoat & fear ae aradt &fa fra at scay at fac art ada) Ge & feed We ae frax@ fi ag feasoar aedt 2 ar adi acct ate qT ag dt santaw aadt 2f& fan afi dara fet oe,agaeea of EAIfaarfiar & ae agar fe aafh ae afteatst3% fads ut ae Prix@ f& fra ar saad fear are ar adi fee ut ‘qaeq athmarsil & qaeq Fwatt aafrat at ae thie galt cet 2 fe 8 caer afmataht a acral eatabeAPIA BY agent afraaa Hae fifaeaa fer mar fe Paifeet & sac%aacifr % fern fat fe Praarar ded guitar eras, Seae, TA B BRAT aafem ae aeqdt A gases; gait ot & fare atMAS &, TA Gera Ht ait at sy aaqare afta F Za BT HTCF hog Ma Fear wat) ata 19. aes, 1943 ay aaah a feraiftatal Oe 14 fran frat ca daeq at chiar dias aie tet we & fac,dad gutta SHAT, ARE BT et aa aad 5 Wa Ty Ht cha aBHT a A sat a gaTaTS Cst BR Rae wt aca TAHA HUT Htui et ag 1 fraitet + ce daaat at sex ata 31 aM,1943 azOe Tr arr fear frat faaiftet@ ae aan fe gacq SUEY BIT Ffaradt & arta ae zak fre area adi 3 Pe mafia erat a afar darqmC | frathtat aeqat @ ae ara Pear Pe saar aqzq fig eae cafefear war at ff ag sata aeadt & qaeq orhtralal # BTA ey at aeSaat BS waat est adi Fi oye se eae saz ore az aftaat adi@ fare ae 30 are Vay at ar sat ad| ae 30 ae aay at of deaSutera wraga, THe at ce st sa dha ag aa ass far sara@ feast ata yaftca aac A at S site qe URI aq et masengyKat ts far at macs 2) sala aad F fdas AST ade ofara, 1943 at aga aflaera F Raita F Ta waa faa feat. zaatraaa 4 safer eodt S feaat Fs we oft wertoa fafa + 7RS ct fs So Fo Rafe aA F ara siz ia F Bears TE wHae wat ae afia dara et F fre ast S Wd aE aust = wale zeerat a cae7 afiqat frgeh ae feat are 1 oft aatte A ae gata fe gaRaawad det flafi Huda ad 2 sq ag ae aT Oe et aKat S AIKfrathat at att omar aftafiee saa at ¥ and aa aact @ BKfratttet & Gs arare gx a Pratitet steaahaa each F she after & faaera& BT F adi a, 9% sea st aia gear wT aT 1 at venga fearfaar> faat afta at Ae BH At, 3 aa ata athe PraifRet qx seat guitare saarra go saat arts [Fate Teta] = 703 ain eed ar afar sara vee eed ar afar sara vee ar afar sara vee afar sara vee sara vee vee ain eed ar afar sara vee eed ar afar sara vee ar afar sara vee afar sara vee sara vee veeZafer seat se arate fear fH aeoat aTvat oftney $ aage aera & ofanaeres sa sfaa ofa feat Starafcafter st cra 2 ara aay fafrsa at ae ate at aac} saraofuscy & waar $ fre sa wea a faaifidt at ate & ofaadta Beawent sae at| ae faficas fear aay Re aeaet ar caer afi aT eraNARS fw Ho Fo gafaa MUltaa $ arr wit et ae et se at etoata saa tae a dea ae et TIE| aa1] vat,1943 4Satta ar gar afer watea ax ar aaa saatta & Fad ar gar afer watea ax ar aaa saatta & Fad gar afer watea ax ar aaa saatta & Fad afer watea ax ar aaa saatta & Fad watea ax ar aaa saatta & Fad ax ar aaa saatta & Fad ar aaa saatta & Fad aaa saatta & Fad saatta & Fad & Fad Fad SoFo eufae ecihtara st caer afenat gen ae fea Satta ar gar afer watea ax ar aaa saatta & Fad ar gar afer watea ax ar aaa saatta & Fad gar afer watea ax ar aaa saatta & Fad afer watea ax ar aaa saatta & Fad watea ax ar aaa saatta & Fad ax ar aaa saatta & Fad ar aaa saatta & Fad aaa saatta & Fad saatta & Fad & Fad Fad So Rad So Fo Safae setters a daze Preafafea wt F gat 704..esaan carenaa fda afr [1969] 1 saoftoae ‘if| "Para 2(c). The firm may at their option from F time to time lend and advance to and for the use of the Company, money on interest to any extent as they may like, the same to run at a minimum rate of five per cent per annum provided that if the bank rate pre-vailing at the date of advance is higher than five per cent the firm may charge interest at one per cent above the bank rate." On August 12, 1943 a meeting of the Board of Directors of the managed company was held. The Directors present were : ( 1) Sri Padampat Singhania, (2) Sri Lakshmipat Singhania a~d (3) Shri S. M. Bashir with Sri Padampat Singhania in the chair. At this meeting a letter dated August 3, 1943 from M/s. Juggilal Kamlapat, Bankers, the financiers of the managed company ask-ing for repayment of advances made by the financier to the c~m- • pany exceeding Rs. 5 lacs was discussed. Sri S. M. Bashir pmnt- ga daa@ ae wpefh So ho Safe Ha fufite Ffaarrar & dtat ag, saat oferit atic dat FB sig 8,580‘a’ zaraaa amet satHF 6,600 ane AP Fea aa 15,000 arqatt -aiait 4& 11,000 star, &| tty star oft agaaa fear s Aahas cers, gretaeuaad at FH SUH adin, waa seat & cH tars, alt wae eto TaAt saa AAeTA (concern) F UH fdas et arsfea Pee ae F| dad So Fo alg anita fafhts a 20 ant at arash&fag saeq afta faqaa feat wat at feet adtaaq (renewal) UH aXHF 20 ass wahte maras faa fear ot agar ar) caer TRAE1,000 autaftar aaier um & or toa ate aut S ge ahs amR lO nfiaa seta aa aqat F set st amar Peet a ae gfiaraautaa fea arat at| wit afeeqy ees Go 8 F Aafaftaa saa PearTat wI—| “sag arfteat aeqet St at aegdt & caters fanaa aaa y a det swa se we afsa fh Sar fe aad aaa aqaq we Atamt WT TE CH UR BAT Ww 20,00,000 eat are adi at|fra a aoa frag qe cad afte va et se cat A sa aie afeaRaed € oa fh east Set wig at) adh samen sam Ae boy. PAA BAM To BMipET sas [are tray] aia at we oft aga ofteatasa aca a fh aadtd aay Tay Ge HUT Peat TT, sas dat HUTT |”faaiftdt-na st 2 ata eae at ay ofier wea daa at ae st caraafimatat art | qavax, 1938 & 31 sagax, 1943 ae ® adadt 5s ataSofia ama % ara ae fears ach fasta wat ar}frarftet ey2 araEqa Ft Uf 31 mazar, 1943 st dad at ae| frartdt F ce can a ciaae at ats} oftBIH fear ae ae at erat fear fH az wea siname % ag Hepa Sea teeRola era H arPrardta adi 21 aatyfrarttat 4 saat afeat 4 2 are eae st za ofh a aire Fea He afheat faa fax dt za sa fate & aaa, at 6 waa, 1945 MT gege Ffeat WaT at, ame adi feat1 Tah Saurea Ga ae gar war fs frarhtdt Fae uit gaftaa aeaat & ore at 2 aa Sema Sea tae at oe 43 ¥ atafratem ax fee S frat feat war ae Tate oifeea Sea tae st aT 15& waity qaew ga sat senate & fau safes wt at ae aie aewaaa za fratfidt frateat & # ana ge ara at sa oe dauar gardt ct ad fH Fo seenanfha Sea ex daz at ag af gn | frarttdt 43ada sie ua ofa ceatae Fadiasafest awfra(invalid)offatiz za fac YUTTT(merits) hBrae a2 aeeat at Ura at H apeardta sat at mas aaa asa atBe AMT aét at|saw sifhac F ae atte # ataaeIs Ma A Taq al catat wr ardge we fear. aazara faaitat 4maa ata aay ® aaa fata ata sega Hl za adel HPrat-feat F arpa Sea dae St get 34 ae CHIE oifeeT cea Tae HH aT 15& adi at aaafeat st agar at aaa cate ar aera ae fear aieaaa ah at faa za aa an difia car Pe za afr. ee gud adi atsite ara t aa aged? feafafaa fessfaara—fearfaat & chatmg wqaua, wattua Big Heraga fraifedt gat B51 ofsea seit wreae FL TEA ae Sah Fara H aaeq Dat auld F aalq Fo Hoaura Betta fafies ae safes aedt Haga afte deat a seitat ay Hee) Tet He afaer adi at faak are faaiat wat Faia & fan fra ta 4% arrearsta at. erat tae wa facar afheersfrat = f& Pra ora wet & fae aeadt st acofe ar gece axa a arcat stwaa at ufager mag asat ae Sah fan dae aet freed cea afqe CS agar st carat at TT araat Bt fea FHS feast aye aaa ez,SH fo qo 13-2 706eeaqan eararaa faa fret [1969] leaefroge |“yea A ed out that the managing agents were under no obligation to • provide finance for the company at the latter's direction. It was the option of the firm to provide or not to provide finance and • also to determine the extent of the advance. Sri Padampat Singhania, thereupon pointed out that even though the matter. of providing finance might be at the discretion of the managmg B agents but "it was the usual practice with companies under the management of the managing agents to obtain their finance from the managing agents". Accordingly the meeting decided to ask the assessee to arrange for advance of such sums of moneys as would be necessary to pay off the loan of the financiers M/ s. Juggilal Kamlapat Banker and also to equip the company with working capital. A resolution was accordingly passed at the c meeting to that effect. On August 19, 1943, the company ad-dressed a letter to the assessee informing it of the resolution and asking it to make immediate arrangement for an amount which would not only reduce the account of . M/ s. Juggilal Kamlapat Bankers to a figure of Rs. 5 lacs but must also provide the com-pany with .,.rorking capital. The assessee replied to this commu· D nication by a letter dated August 31, 1943 in which the assessee pointed out that under the terms of the managing agency agree-ment it was not obligatory upon it to make advances to the managed company. The assessee stated that it had been specially constituted to act as the managing agent of the managed company and had no capital of its own. It had no assets also on the E security of which it could raise a sum of Rs. 30 lacs which would be necessary to reduce the amount of Mis. Juggilal Kamlapat Bankers to the limit required by the managed company and to equip the company with working capital. The letter of the assessee was considered by the managed company at the meeting of its Board of Directors on September 2, 1943. Sri Lakshmipat Singhania, one of the Directors of the managed company reported F in the meeting that a new floated company under the name and style of J. K. Commercial Corporation was willing to make ad-vance provided it was appointed the managing agent of the com-pany. Sri Bashir pointed out that the managed company had reached a stage when it would make substantial profits and en-able the assessee to earn better remuneration and that it would be G unjust to ask the assessee to relinquish office on a ground which did not constitute a term of the contract between the assessee and the managed company. Sri Padampat Singhania who' presided over the meeting recognised that the assessee would be adversely affected and he therefore suggested that the company should pay a fair compensation in consideration of the premature termina-H tion of the managing agency. A compensation of Rs. 2 lacs was worked out and Sri Bashir agreed to accept the amount for the • termination of the managing agency on behalf of the assessee . It was decided that the sum of Rs. 2 lacs should be paid as soon •as ~n agreement was arrived at "".ith the J. K. Commercial Corpo-A • ral!on for taking over the managing agency of the company. Tbc managing agency of the assessee was thereafter tenninated with effect from November I, 1943 and M/s. J. K. Conunercial Cor-poration were appointed the managing agents with effect from that date: The constitution of M/s. J. K. 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