M. R. Goyel v. The Commissioner Of Income Tax, Bombay City 1, Bombay

THo[HIto] TUS WIHT AYA, AFIS Ter 1, Aras M. R. Goyal Commissioner of Income-tax, Bombay City 1, Bombay (12 Srart, 1969) (Tato Ho Ato ag, Ato TWaeaTet AIT To To WaT) ast— ATs aT TAH fou afaat ww areat cafea—arazaraSerer & fore afar & grad ar weren—aar sea sfawet q'sitea srrfeaat ar usta ? aatarat + eter araey & gates arar H gare gafcat wa axa ataifaar at) HUT AL TE HT HTT TT 93 are waa a afew at site fraifedta tar al Te at fe ag afaa ga & wT H 10 are way st uf fafa wewife sae Te water vat aa at gafaq set gg ar cafeara oFaura fear fre gare salt 10 ara eae at cnn fafercr aed ot axwelt UH VT AO oy aT ys aH aT” set HAT aT| ATT aaa aoitafava aguaF amaT aag ae garg gafeat wa act H fac Aas afeer Fwae UH HH BT 30 qatax, 1946 FY 3 are way aT Ufa H fau weafea axfeu mc1 Be feat are cH Wey UTerd A aa st afaer AT ara Wa at|are arfeae at frac ay 1947-48 & faq fratfedt ar fratear se arar<qt fax & feat fe 3area et at ora fate Fae we 21 oa ottaif Faie aes oa He ane aia geaat Aaa afaaca a ag car feaitaat + sega: Fag 1,87,000 wor at af sree at at att saat ga zeaet arayt FT fear fe ae cee garg gafeal B area awa F wd aha Aarea & Ferg sitfrry & we F aft at gafee gear caer goiter oifta tan ar af UseT FAT) TAA ag A afafraifea fear fH faaifedd A sara ai gafa F vara& age GF are orca feat 31 fade fac ara ox sea eararag F afeaca greWATT WAT Ht BAA TAT| aa aay A atlas HUA GR Aaa BY ae a ae afin Fas Ay feSat HT HUT eter Heat F ara feat ar aa gsihra afer ar aeaa ara ar alaat At aT eae PRAT TAT AT ag Sa Ara wr HeaTT at ar feat afar Faaa ost Pear arar at afes ag cag ara wt ala at, wala aiiardt # xa,afam<, em Wit fat ar aeaca fear war ar, wt gah ofafeaa geTa tHTUTaTa FT Sa APMere A, HT gas aE Al, wie fees ag war sft war at, werwth AI APTA BT CIT HLA H fare greg at AT| wa: aS crses seit wTTART TENT al HX Aaa| afafaatita—aiia afer az at ae| afaara a ag sta & afataaifea fear g fe aararat Br area “sarafa ere say ewarar aie vaad var fear” aa atiaret + va afaerwaat at eat Ha HF fav sfawacaeq 1,87,000way at cfs weg Hea& faa wut fer aa sae art Fae wer ar aaa @ fe saa cH Var aterfeat % at va waewa HS fea ears safeal wr got HTH Ga oreat HAal wearer at| seq MAT A ae StH et oat & fH atleast + sara cara & azUE wa HOTA oe H gar A sa Aeragre AGS aA BT aT sacra fHaraT, ag Var seta ar at wa eafea, fee Ta st oragrHat at, WK Feqaqareasiefaat Var # we ara: fear ovat et var Tel ar. Goat ate ag fe fe are atta wettera a weed~ afeaca F. aot FH at wer. are ar ah atfeat ar|| fafas adict afsarftar: 1968 at do 681 are fafas adter| 1959 ® Ho 46 art aan fade H qraf geq amataa ¥ ata29 faarax, 1961 are fara wiz oiae & fares fase sara sax at TE aT adtarat at we a ff ATZ0 Uo A seat at wie aaqetWaoFofHAT,WaoWo eoqa WA MT alo Sto WAT} ararag at faata eararfacta wo wat Haz § fear| ~aratiaafa wtaz— meat yeas sea areafacta & face fasta saraa Bax FtTS 21 va faaas seq eqrarag a gaat ata gfeecm ar fateefarafafad set aT Tat were wT OH atx fraifed) B fee feat ar— aay aay ate ahefeafast F agarz fraifedt F grat H 1,87,000 wazat orfear tse sift 8 ate Far Sa aT THT aT HAT 2?” A M. R. GOYEL, PROP. MIS MILKllIRAM BROS. BOMBAY THE COMMISSIONER OF INCOME TAX, BOMBAY CITY 1, BOMBAY February 12, 1969 [J. C. SHAH, V. RAMASWAMI AND A. N. GROVER, JJ.) Jncome·tax-Person entering into contract for purchase of goods-Thereafter transferring benefit of contract for consideration-Whether con• sideration received wa.r capital receipt or revenue. Uie appellant entered into a contract for the purchase of a large c quantity of parachutes from the T. Company. The agreed purchase price was over Rs. 93 lacs and the assessee was required to deposit a sum of Rs. JO lacs by way of earnest money. As he did not have enough funds, he entered into an arrangement with certain other persons whereby the amount of Rs. 10 lacs was to be deposited by them and they were to receive a "net profit share of 9 annas in a rupee". The financiers later withdrew from the arrangement and the benefit of the contract for the purchase of para-chutes was transferred to a firm for a sum of Rs. 3 lacs on November 30, D 1946. A few days later another partnership took over the contract of pur-chase. The Income-tax Officer reopened the appellant's assessment for the assessment year 1947-48 on the ground that the income of Rs. 3 lacs had escaped assessment. After the appellant had failea in an appeal to the Appellate Assistant Commissioner, the Tribunal found that the appel-lant had in fact only received a sum of Rs. 1,87,000/- and rejected-his contention that this amount was in the nature of a premium for giving up his right to do business in parachutes and was, therefore, in the nature of a E capital receipt and not revenue. It held that the assessee had received profit in respect of a venture in the nature of trade. The High Court, upon a reference, upheld the view taken by the Tribunal. In appeal to this Court it was contended on behalf of the appellant that the agreement which he bad entered into with the T. Company was a capital asset or a source of possible income and the transfer which was made, was not of the good! which were to be acquired under the contract F but the source itself, namely the appellant's share, right, title and interest was transferred and furthermdre the amount in question was received by the appellant for relinquishing his right to participate in the partnership which had been formed and from which he withdrew. It could not, there-fore, partake of the character of a revenue receipt. HELD : Dismissing the appe,al, G The Tribunal had rightly held that the appellant i~nded "to do and did a venture in the nature of trade". When the appellant agreed to accept a sum of Rs. 1,87,000/- in consideration for transferring the benefits of the contract, be could well be said to have concluded a deal which repre-sented the profit which he anticipated by acquiring the parachutes. The High Court had rightly found that the arran~ement made by the appellant with certain parties to finance tho transaction in return for a H share of 9 annas in a rupee, was one which had been made between a person in need of money and certain financiers and that no partnership bad come into force. Accordingly there could be no question of the appellant having relinquished a share in the partnership. (673 CJ . LlOSup./69-8 CIVIL APPELLATE JuRISDICTlON: Civil Appeal No. 681 of 1968. Appeal by special leave from the judgment and order dated September 29, 1961 of the Bombay High Court in Income-tax Reference No. 46 of 1969. I. N. Shroff, for the appellant. S. K. Mitra, S. A. L. Narayan Rao and B. D. Sharma, for the respondent. The Judgment of the Court was delivered by Grover, J. This is an appeal by special leave from a judgment of the Bombay High Comt answering the following question referred to it by the Income Tax Appellate Tribunal in the affirma-tive and against the assessee ; '"Whether on the facts and circumstances of the case the receipt of Rs. 1,87,000 in the hands of the assessee is a revenue receipt and liable to income-tax ?" aay aay ate ahefeafast F agarz fraifedt F grat H 1,87,000 wazat orfear tse sift 8 ate Far Sa aT THT aT HAT 2?” faatftdt moar arzar< fader aed ® ar ale afar a sar tTaT| sear fratear aq 1945-46sit & fear ar wer ari 31 waeaT, 1946al gaa erat wataree fafaes & rT 128,499 garg gate aad Ht Uavfaar afusrear at& gare gafeat area acer at at ate acart ® afaaaieq Herer wremqe fafaes ort wt xer ari garg gafeat at wo atTe BT HT ATA 932 are xt) afar cai B afee st we at) aif 2arta 29 waeat, 1946 Bt zeruarcage fafets so uH oa fara frailTear BT TS AT|eter waeame fafats F ada 1 aarax, 1946 A UHsat Hot fast sa a A feu gu fracaat wie gat} Wat sa far Fygfe at ae atfratfedt at afin ee ect10 are mae A ue atfaa azar ary fastfedt & ora qa rartwa wat at| saa Fest qrarafagreaaee, treet gree ae Arava ogeilarara B ara areagztFB Tsttamd & fac un sea feat| ga sgua & att ade 31 WIA, 1946 aryTH fac ae a)qeaqadt+10 ara wa at weq fafera wait at atsaa TH MTT AO at aT ys are ae” sea axat ar)fraifedt a are30 waraz, 1946 Ht aaa qsitafaat & ara ade 31 maa, 1946 ae qa% sfufatar gaat sea a aa at gay ax far| gars Safa ® sq atafaar a wae Traut aeraee afwara aret ee ay 13 TaTIT, 1946*Y 3,00,000 waa at afr & faa safer ax faa me14 aatat, 1946 aqerate eet waearge fafaes a fat aie yak dad deca gUIaT BY zaggatcat & Paral F wT H ga Tat ate fearaat oc esters Hz frat faa WAT:frat ak sa weettq Fee fear nay at) 22 varax, 1946 wt BEcaffaat watt arama, draws, wea, gets, MI ws ara fafate .at waar & ate ntlard are eae fear war| sa anitardt X shearerSes BT HT TE HT HA A afaer age aa HH a) fratea ad1948-49 & fay gaat ara orfrarfeat + <frediaear frat| Wee Test gos FX age fate F ae aay feat fe aot aferaagua & mata fratfedt Fst 3,00,000 ead ar dary feat a saat Relatere aaat qfeanfeal Aga ze at ga gare ax AAA HX fami fe azTaira dara at | qalaat wa a afseem a ada A ate gad ag ofataaticafear fe az afaa ear & fafraifcal a Saat 1,87,000 BIN HT sara fRarTat aTi faaiRU aT 1947-48 ¥ fae grass afer 3 sepq cavapt, faasansa oad ae” Har war 2, are 34 F ata Ba Beare oz fasrifedy arfate fer a fear fa 3,00,000 wa st aa fartcer 2 Bz ne 21Pratfadt & ug aceite at fe sat saa 1,87,000 wat a afer great at ot a Fe3,00,000 wa Stade aga oa Ramer game ad Tear watewer ot afeaeT a sa wes ar fafaeag saw cer F fear| afrawa F arerfratfrat tag setter et fr, 1,87,000 aad at orfta wr exeq gatre sift sarot a fe usta Far) saat aga & fe SY ce gad area ate az at vayene oafal F arzare azz gqk afyarcBret & far tfaan F eq FBated Bt at) afrace a ge acta at etare vet fot sik ae afafaaifcafearfe fratfedt+ era at wate® seq ® acacqBoary oer frat & }eat fratfedt & ofeaw a oar fer ate oe fafa arogee fafzcefear WaT| SVT FATATAT HT SA TeAT Tx HE ads adh or fees ae gar war ar fx1,87,000 eae at orfta wa eqrorfea orfte oftvat zafau & fe faatfcdttat aeqat ar, fare seats garg gat few grat 2, area ee araeat AT Sea aaa FT ur H ay afeer sex eter uwacHige fafates & atat ag Se areart F fa, TM ag sar ter a, smrareeerH HB TR fau afaera| Sea ararayana ag at fear qar ar fe mama wR Gay vawrttard &, fae fraifedt § ag araat war ax far at, aval Hurt awt BT ara fresco BAR career grea at ft sea sgaT ® WTAEQa ale gH ate ofracu® anette aat far mar att arya ceraala St Tteraet gat aT sa ae at fare fear var ay ae yea eqraTagot freay frarar ag az at fe fauifedt¥ dad zier caeame fafats F argat afaar at at saat waar gaa dad deus Aruraea aH ger F 3,00,000ea & sfana & fae grata ex fear ar) gay & Fara 1,87,000 way ayute % art # ag qrat ware fe ag fratfedt ara aeqa: oreat at aE ahoaae ute fratfedt aren arearz aryett aq Boat oe afar } qraat arwat ay & fae orfta a| [1970] 1 seo fit ogo The assessee used to carry on his business under the name and style of Milkhiram Bros. He was being assessed from the year 1945-46 onwards. On October 31, 1946 he secured a contract for the purchase of approximately 1,28,499 parachutes from Tata Aircraft Ltd. The parachutes belonged to the Government of India and the Tata Aircrafts Ltd. was acting as the agent of the Government. The agreed purchase price of the parachutes was approximately Rs. 93t lakhs. The cootract was entered into by means of letters. The assessee addressed a letter, dated October 29, 1946 to Tata Aircraft Ltd. containing an offer. Tata Aircraft Ltd. sent a reply, dated November 1, 1946, confirming the sale on the te_m1s and conditions given in that letter. The assessee had to make a deposit by way of earnest money of a sum of Rs. 10 !akhs. The assessee did not have enough funds with him. ·He entered into an arrangement with M/s. Nathmal Nihalchand, Pokhraj Hira-chand and Harilal Hargovandas for financing the business. The details of this arrangement were contained in a letter, dated October 31, 1946. The amount of Rs. 10 lakhs was to be depo· sited by the latter who were to receive a "net profit share of 9 As. in a rupee". The assessee later on arranged on November 30, 1946 with the financiers to withdraw from the old arrangement recorded in the letter, dated October 31, 1946. The benefits .)f the contract of purchase of parachute were transferred to the firm styled as Pokhraj Hirachand for a sum of Rs. 3,00,000 on November 13, 1946. On November 14, 1946 the parties ap· proached Tata Aircraft Ltd. who agreed to accept M/s. Pokhraj Hirachand as purchasers of parachutes on the terms ·and condi-tions originally agreed to between the assessee-and that comP,any. A On November 22, 1946 an agreement of partnership was entered into between six persons, namely, Nathmal, Pokhraj, Chan<lumal, Prithviraj, Shapoorji & Co. Ltd. and Jamalbhai. This partner-ship took over the contract of purchase entered into hy Pokhruj Hirachand. It was registered by the Income tax authorities for the assessment year 1948-49. B Ml s. Pokhraj Hirachand in their assessment claimed a deduc-tion of Rs. 3,00,000 being the payment made to the assessee under the arrangement menlioned above. The Income tax autho-rities disallowed the claim on the ground that it was a capital pay-ment. The aforesaid firm appealed to the Tribunal which _held that only a payment of Rs. 1,87 ,000 _had been proved to have c been made to the assessee. For the assessment year 194 7-48 the Income Tax Oilicer reopened the assessment of the assessee under s. 34 of the Income Tax Act, hereinafter called the "Act" on the ground that the income of Rs. 3,00,000 had escaped assessment. The assessee contended that only a sum of Rs. 1,87,000 had been received by him and not Rs. 3,00,000. The Tribunal decided that point in his favour in appeal after he had failed before the D Appellate Assistant Commissioner. The assessee's conten-tion before the Tribunal was that the nature of the receipt of Rs. 1,87 ,000 was capital and not revenue. According to him the amount received was in the nature of a premium for giving up his right to do business in parachutes. The Tribunal did not accede to his contention and held that the assessee E had received profit in respect of a venture in the nature of trade. Thereupon the assessee moved the Tribunal and the question of law was referred. faatfedt at, St gart ane aterdife, aeag ser ware fe1,87,000 ead at sit aft saa srea at eft SA are aah ara aT awAT | atwt ATA +t Hag zrerwarcate fafats & fear arag asia oifer aiOT AeNs MT ST Sta aT Ae TY Here fear at ag 3a ale Br yeaway agtat firaat dfaer & ata asta fear oar ar afes ag ead ara at ata aT,aatg attend & sin, afrarc, ae ait fea ar mercer far wat aT| geetaaa AY Sa yaaaHe aHet st TE TM ag aa t fH weana cHq attardf 3Sa AMA F, A Tavs TE AT ae faa ays wat st Tara, ar aahaaa afeare BY carat & fore sem at oftara: ae Uretee safer aT ereT TETwet at THAT | ter vdta dare fe afew & anersaa asta at we oft 1 aforeaq aea BT A ag oar fae adtarel + at foe ui & fae ears Bafa & aa-& fae aaa cer crear fafats F ara afaer st st | sea arr ‘earsCAST HT VIA HEAT AT AIT saa ar fear1 afawwya sat eaAeT aTeae Heat Bl afafer sarara cafes ox faare fearafsaxa arpea@ fe aeafrs saat carat cag aTLaTe BT pat aa afaardafro Ht at F WIT Ta HIATT BT area fae freqrad faa safer H faagat safarat at weaker BT At Fi set adverseas wt fear ake a cHA yaaora at ag staat& faq att fh aa Prone& araregt ag ataaT agaafar & fe ata fafeaara eo A ag FF asia 2 awa & fF 1, 87,000ara at THA TH Tsitra siftag ae ae fe ata 31 wacat, 1946. at 94 8 Aaa TaN freer wa, Traus Howe ate wt va deamR aR O arya ter fearvar ar ae TH itesHae feet TAT aTfreqzaca Xupta areavar Aoat amtwrseafeatoqararfraatwitaretF wut fearat|sae Waagwentetatonthe ae ae eat atfaatt Gea HVATaTlL AVeatana frat are, Treas geraea HTM wea oaferal A Aas eer WaTfafats et oa wea ar dare Heatar wut featag aa are tat Ft 8 fe— aitearet + at garg Gafeal F wa F aeaeg F Aas cer vaca fafats 3afaer at Misa atari tsa dfaer e waa ar aa eas facfara caet galiza aafadt 3 1,87,000 wat at ula ora wet & farwut fear aa ater FatHag wet aT awa e fe sad TH ar aterfare wt va wae & eq F 8 faa care Gafcat a ae HH VA ITT THAay TeaTa Ft. A gay ae,; OSae so!wo areyoo, acta et ate & ag wer var 2 fe ag dfaarat & saat at wrafeaHA AT FAA HT BTTaTT sal WaT Ter ar Ale salfae Aasever cacarqfafats & ara at afaar st me ay Sa rare tery BT ATT AST ATT ST AHA |var qa waar tf afaaca A sa grec at aura fe wae aitereat aTama care afer atar g, eT mee Te atesaa fear fe garg gafeataaraftaa dfzar sareost safe ar sae ati wa: sa fava Fea cea atGat HAT MATA Sl aa tar sata gare fe attr a atgard acta dygf ya we.saraaa a aa Ararat AfeT ari se eet afar H amet aa aT ae|[aaRRTT][ Sos][ ear][ A][ RAAT][ Ge][ TE][ S][ Terr][ Bt][ ste][ ag][ frowe][ fraser,][ fs] arta 31 waeaz, 1946 ate or H meaface seea ua der seus aT ot te eufaa, fra Fa at oraeaaat at, wt He Ystiofaat & sta feat war atait ag fe are anflard afer a ad are ai ga aae H ga afecarya tar arg set al al soar fe (aaah a ated F act ae Fr TTfrat aT| qaqa an ae afafraifea wea g fe sea carat a aT “ga fem at ag ate aratta wana dal 2 tt aa afer afer A aa ze ait aha Bt at Te | go /fao otPiet‘|red.{vieUAE The High Court entertained no doubt on the facts which had bei:n found that the receipt of Rs. 1,87,000 was a trading receipt. This was so because the assessee was a businessman dealincr itl F articles including parachute silk. In the opinion of the lligh Court the contract which he entered into with Tata Aircraft Ltd. was a contract for the purchase of stock-in-trade for the business which he was carrying on. It was argued before the High Court that the amount .in questi~n had been received for relinquishing his. nght to parlicipation m the profi.ts of the partnership from G which the assessee withdrew. Accordmg to the High Court such an argument had not been presented before the Appellate Tribu-nal. The letters which were exchanged between the concerned parties we~e also considered and the conclusion at which the High Court arnved was that the benefit of the contract which the assessee had entered into with M/ s. Tata Aircraft Ltd. had been transf~rred ?Y him in favour of Messrs. Pokhraj Hirachand for H a consideralion of Rs. 3,00,000 out of which a sum of Rs. 1,87,000 only had been found to have been actually received by the assessee. That sum, therefore represented a receipt for transferring the benefits of the contract entered into by the assessee in the ordi-nary course of the business. On behalf of the assessee who is the appellant before us it is submitted that the sum of Rs. l,87,000 received by him could v.ot be regarded as income. The agreement which had been entered into by the appellant with M/ s. Tata Aircraft Ltd. was a capital asset or a source of possible income and the transfer which was made was not of the goods which were to be acquired under the contract but the source of income itself, namely, the appellant's share, right, title and interest was transferred. The second contention which was also raised before the High Court is that the amount in .question were received by the appellant for relinquishing his right to participate in the partnership which had been formed and from which he withdrew. It could not therefore partake of the character of a revenue receipt. It appears that before the Tribunal only the first contention was raised. The Tribunal found as a fact th.at it was the appellant who had entered into a contract with M/s. Tata Aircraft Ltd. for the purchase of parachutes for a fixed sum." He intended "to do and did a venture in the nature of trade". The Tribunal took into consideration the well-known normal method of doing supply business in our country. According to it, highly influential parties instead of doing the business themselves manage to seeure con-tracts and pass on the actual executioq of the business to others in return for a fixed sum of money. This is what the appellant did and the income which he received was liable to income tax. It is difficult to see how on these findings the appellant could legiti-mately argue that the amount of Rs. 1,87,000 was a capital receipt. It is true that by meaos of the letter, dated October 31, 1946 M/s. Nathumal Nihalchand, Pokhraj Hirachand etc. were given 9 As. share in a rupee in the transaction and a partnership agreement was purported to have been entered into. But this letter merely embodied an arrangement for financing a busine'ss venture into which the appellant had entered. He did not have the funds and a deposit of Rs. 10 lakhs had to be made immediately. M/s. Nathumal Nihalchand, Pokhraj Hirachand and others agreed to pay that amount to M/s. Tata Aircraft Ltd. It must be remem-bered that it was the appellant who had entered into the contract with Mis Tata Aircraft Ltd. in respect of the purchase of para-chutes. When he agreed to accept a sum of Rs. 1,87 ,000 from the aforesaid persons as consideration for transferring the bene-fits of the contract the appellant can well be said to have concluded a deal which represented the profit which he anticipated by ac-quiring the parachutes. It has been submitted on behalf of the appellant that he was not carrying on the business of transferring or selling the benefits A of contracts and therefore the contract entered into with M/ s. Tata Aircraft Ltd. could not be regarded as a part of his stock-in-trade It would seem that the Tribunal proceeded more on the footing that the contract relating to the parachutes was a venture in the nature of trade than on the basis that it constituted stock-in-trade of the appellant. It is, therefore, unnecessary to examine this B aspect of the matter. · It seems to us that the second contention of the appellant ought not to have been entertained by the High Court. It was not raised before the Tribunal. At any rate, the High Court examined it fully and came to the conclusion that the arrangement contained in the letter, dated October 3-1, 1946 was one which C had been made between a person in need of money and certain financiers and that no partnership had come into existence. In that view of the matter there could be no question of the appellant having relinquished a share in the partnership. . We would accordingly hold that the answer returned by the High Court was correct. The appeal fails and is dismissed with D costs. R.K.P.S. Vasu GuptaAdvocate