# [1969] 3 S.C.R. 669

- **Citation:** [1969] 3 S.C.R. 669
- **Court:** Supreme Court of India
- **Decided:** 1969-02-12
- **Bench:** J. C. Shah, V. Ramaswami, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1969-3-s-c-r-669-4625
- **Pages:** 5

## Headnote

Jncome·tax-Person entering into
contract for purchase of goodsThereafter 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
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 parachutes was transferred to a firm for a sum of Rs. 3 lacs on November 30,
1946. A few days later another partnership took over the contract of purchase. 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 appellant 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
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
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, therefore, partake of the character of a revenue receipt.
HELD : Dismissing the appe,al,
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 represented 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
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
670
SUPREME COURT REPORTS.
[1969] 3 S.C.R.
CIVIL APPELLATE JuRISDICTlON: Civil Appeal No. 681 of
A
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.

## Text

669
A M. R. GOYEL, PROP. MIS MILKllIRAM BROS. BOMBAY
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v.
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 goodsThereafter 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
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 parachutes was transferred to a firm for a sum of Rs. 3 lacs on November 30,
1946. A few days later another partnership took over the contract of purchase. 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 appellant 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
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
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, therefore, partake of the character of a revenue receipt.
HELD : Dismissing the appe,al,
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 represented 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
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
670
SUPREME COURT REPORTS.
[1969] 3 S.C.R.
CIVIL APPELLATE JuRISDICTlON: Civil Appeal No. 681 of
A
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 affirmative 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 ?"
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 Hirachand 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 conditions originally agreed to between the assessee-and that comP,any.
B
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M!LKHIRAM BROS. v. C.l.T. (Grover, J.)
671
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 partnership 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.
Ml s. Pokhraj Hirachand in their assessment claimed a deduction of Rs. 3,00,000 being the payment made to the assessee
under the arrangement menlioned above. The Income tax authorities disallowed the claim on the ground that it was a capital payment.
The aforesaid firm appealed to the Tribunal which _held
that only a payment of Rs. 1,87 ,000 _had been proved to have
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
Appellate Assistant Commissioner.
The assessee's
contention
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
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.
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
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
which the assessee withdrew. Accordmg to the High Court such
an argument had not been presented before the Appellate Tribunal.
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
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
672
SUPREME COURT REPORTS
[1969] 3 s.c.Jt
benefits of the contract entered into by the assessee in the ordinary 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 contracts 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 legitimately 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 remembered that it was the appellant who had entered into the contract
with Mis Tata Aircraft Ltd. in respect of the purchase of parachutes. When he agreed to accept a sum of Rs. 1,87 ,000 from
the aforesaid persons as consideration for transferring the benefits of the contract the appellant can well be said to have concluded
a deal which represented the profit which he anticipated by acquiring 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
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MILIOIIRAM nos. v. c.1.T. (Grover, !.)
673
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
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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
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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.
D
. We would accordingly hold that the answer returned by the
High Court was correct. The appeal fails and is dismissed with
costs.
R.K.P.S.
Appeal dismissed.