# I959 March 20. I959 The Commissioner of Income-tax, Hyderabad-Deccan v. Af essrs. Vazir Sultan & Sons - **Citation:** [1959] Supp. 2 S.C.R. 375 - **Court:** Supreme Court of India - **Decided:** 1959 - **Case number:** Civil Appeal No. 340 of 1957 - **Bench:** N. H. Bhagwati, B. P. Sinha, J. L. Kapur - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/i959-march-20-i959-the-commissioner-of-income-tax-hyderabad-deccan-v-af-essrs-1671 - **Pages:** 32 ## Headnote Income Tax-Capital or income-Compensation for termination of agency-Agency terminable at will-Partial termination of agency -Sterilisation of asset or loss of profit-Indian Income-tax Act, r922 (XI of r922). In 1931 the respondent, a registered firm, was appointed the sole selling agents and distributors for the Hyderabad State of I959 March 20. I959 The Commissioner of Income-tax, Hyderabad-Deccan v. Af essrs. Vazir Sultan & Sons 376 SUPREME COURT REPORTS [1959] Supp. cigarettes manufactured by V (a limited company) under the terms of a resolution of the Board of Directors, the agency commission being a discount of 2% on the gross selling price. In 1939 another arrangement was made whereby the respondent's agency was extended to the rest of India. By a resolution dated June 16, 1950, the agency of 1939 was terminated on payment of Rs. 2,26,263 to the respondent by way of compensation, but the respondent continued to be distributors for the 1-:Iyderabad State. For the assessment year 195r-52 the Income-tax Officer included the aforesaid sum in the respondent's total income and taXed it as a revenue receipt under the head of "business". The respondent claimed that it did not carry on business of acquiring and working agencies. that the agency acquired in 1931 was a capital asset of its business of distributing cigarettes in the Hyderabad State, that the expansion of territory outside the Hyderabad State in 1939 was an accretion to the capital asset already acquired by it, that the resolution of 1950 was in substance a termination of the agency qua territory outside the Hyderabad State which resulted in the sterilisation of the capital asset qua that territory, that the sum of Rs. 2,19,3~3 received by it in the year of account was by way of compensation for the termination of the agency outside Hyderabad State and'being therefore compensation for the sterilisation pro tanto of a capital asset of its business was a capital receipt and therefore was not liable to tax. It was contended on behalf of the Incometax Authorities that the sole selling agency which was granted by the company to the assessee in the year r931 was merely expanded as regards territory in r939 and what was done in r950 was to revert to the old arrangement, that the structnre or the profit-making apparatus of assessee's business was not affected thereby, that the expansion as well as the restriction of the assessee's territory were in the ordinary course of the assessee's business and were mere accidents of the business which the assessee carried on and that the sum of Rs. 2,19,343 received by the assessee as and by way of compensation for the restriction of the territory was a trading"' or an income receipt and was therefore liable to tax. It was also urged that the agency agreement between the respondent and the company was terminable at the will of the latter and so it could not be considered as an enduring asset. Held (per Bhagwati and Sinha, JJ., Kapur, J, dissenting) that the agency agreements in question did not constitute the business of the respondent, but· formed a capital asset, being the profitmaking apparatus of its business of distribution of the cigarettes manufactured by the company within the respective territories, and, consequently, any payment made by the company as compensation for terminating the agency wonld only be a capital receipt in the hands of the respondent. Commissioner of Income-tax v. Shaw Wallace & Co., (1932) L. R. 59 I. A. 206, relied on. (2) S.C.R. SUPREME COURT REPORTS 377 Commissioner of Income Tax and Excess Profits Tax, Madras v. The South India Pictures Ltd., Karaikudi, [1956] S.C.R. 223 and Commissioner of Income-tax, Nagpur v. Rai Bahadur,]airam Valji, [1959] Supp. l S.C.R. rro, distinguished. Case law reviewed. Held, further, that the fact that the agency agreements were terminable at will, or that only one of them was terminated, would not make any difference because in either case, when the agency was terminated a ## Text _Characters 0–39,908 of 72,749. This is a partial read: ask again with offset=39908 for what follows._ ' (2) S.C.R. SUPREME COURT REPORTS 375 executed, the amount realised by the execution by the I959 Collector has to be taken into account. When the Ada·r 1 Subordinate Judge, Purnea, has to decide the question Collector'. '°;:nares whether the application for execution made to him is v. in continuance of an existing execution proceeding, he Maharaj has to recognise the proceeding before the Additional Kishore Khanna Collector, Banares, as a proceeding in execution under the Code for it is so under the Act. In doing this, for Sarkar ]. the reasons earlier mentioned, he would not be giving any extra-territorial operation _to the Act. It seems to us therefore that the execution of the decree by the Collector must be deemed to be execution of a decree for all purposes and therefore an application l)'.lade to the Subordinate Judge, Purnea, for execution of the same decree while an execution proceeding was pending before the Collector, must be a continuation of the r oo:ecution last mentioned. No question of limitation can arise in regard to such an application. We think therefore that this appeal must succeed. We set aside the order of the High Court and restore the order of the Subordinate Judge, Purnea. The respondent will pay the costs of the appellant in this Court and in the High Court. Appeal allowed. THE COMMISSIONER OF INCOME-TAX, HYDERABAD-DECCAN v. MESSRS. VAZIR SULTAN & SONS (N. H. BHAGWATI, B. P. SINHA and J. L. KAPUR, JJ.) Income Tax-Capital or income-Compensation for termination of agency-Agency terminable at will-Partial termination of agency -Sterilisation of asset or loss of profit-Indian Income-tax Act, r922 (XI of r922). In 1931 the respondent, a registered firm, was appointed the sole selling agents and distributors for the Hyderabad State of I959 March 20. I959 The Commissioner of Income-tax, Hyderabad-Deccan v. Af essrs. Vazir Sultan & Sons 376 SUPREME COURT REPORTS [1959] Supp. cigarettes manufactured by V (a limited company) under the terms of a resolution of the Board of Directors, the agency commission being a discount of 2% on the gross selling price. In 1939 another arrangement was made whereby the respondent's agency was extended to the rest of India. By a resolution dated June 16, 1950, the agency of 1939 was terminated on payment of Rs. 2,26,263 to the respondent by way of compensation, but the respondent continued to be distributors for the 1-:Iyderabad State. For the assessment year 195r-52 the Income-tax Officer included the aforesaid sum in the respondent's total income and taXed it as a revenue receipt under the head of "business". The respondent claimed that it did not carry on business of acquiring and working agencies. that the agency acquired in 1931 was a capital asset of its business of distributing cigarettes in the Hyderabad State, that the expansion of territory outside the Hyderabad State in 1939 was an accretion to the capital asset already acquired by it, that the resolution of 1950 was in substance a termination of the agency qua territory outside the Hyderabad State which resulted in the sterilisation of the capital asset qua that territory, that the sum of Rs. 2,19,3~3 received by it in the year of account was by way of compensation for the termination of the agency outside Hyderabad State and'being therefore compensation for the sterilisation pro tanto of a capital asset of its business was a capital receipt and therefore was not liable to tax. It was contended on behalf of the Incometax Authorities that the sole selling agency which was granted by the company to the assessee in the year r931 was merely expanded as regards territory in r939 and what was done in r950 was to revert to the old arrangement, that the structnre or the profit-making apparatus of assessee's business was not affected thereby, that the expansion as well as the restriction of the assessee's territory were in the ordinary course of the assessee's business and were mere accidents of the business which the assessee carried on and that the sum of Rs. 2,19,343 received by the assessee as and by way of compensation for the restriction of the territory was a trading"' or an income receipt and was therefore liable to tax. It was also urged that the agency agreement between the respondent and the company was terminable at the will of the latter and so it could not be considered as an enduring asset. Held (per Bhagwati and Sinha, JJ., Kapur, J, dissenting) that the agency agreements in question did not constitute the business of the respondent, but· formed a capital asset, being the profitmaking apparatus of its business of distribution of the cigarettes manufactured by the company within the respective territories, and, consequently, any payment made by the company as compensation for terminating the agency wonld only be a capital receipt in the hands of the respondent. Commissioner of Income-tax v. Shaw Wallace & Co., (1932) L. R. 59 I. A. 206, relied on. (2) S.C.R. SUPREME COURT REPORTS 377 Commissioner of Income Tax and Excess Profits Tax, Madras v. The South India Pictures Ltd., Karaikudi, [1956] S.C.R. 223 and Commissioner of Income-tax, Nagpur v. Rai Bahadur,]airam Valji, [1959] Supp. l S.C.R. rro, distinguished. Case law reviewed. Held, further, that the fact that the agency agreements were terminable at will, or that only one of them was terminated, would not make any difference because in either case, when the agency was terminated and the amount. was paid as compensation for such termination it resulted in the sterilisation of the capital asset pro tanto and it was received as a capital receipt in the hands of the respondent. Glenboig Union Fire-Clay Co., Ltd. v. The Commissioners of Inland Revenne, (1922) 12 Tax Cas. 427, relied on. Per Kapur, J.-The true effect of the facts of the present case was that in 1939 the respondent's area of distribution was increased from the State of Hyderabad to the whole of India and in 1950 it was again reduced to the original area of 1931, so that the respondent did not lose its agency. Consequently, the termination of the agency in 1950 did not affect the trading activities of the respondent and, therefore, viewed against the background of the ·respondent's business organisation and profitmaking structure the compensation for the termination of the agency was no more than that for the loss of future profit and commission. The compensation therefore was in the nature of surrogatum and in this view of the matter it was revenue and not capital. The answer to the question, as applied to agencies, whether the compensation is capital or revenue, is that it will be a capital receipt if it is received as the value of the agency, i. e., it is a price of the business as if it is brought to sale. On the other hand it is revenue receipt if it is paid in lieu of profits or commission. In view of the decision The Commissioner of Income-tax v. The South India Pictures Ltd., Karaikudi, [1956) S.C.R. 223, and the observations of Bose, J., in the case of Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, [1953] S.C.R. 17], the authority of Commissioner of Income-tax v. Shaw Wallace & Co., (1932) L.R. 59 I.A. 206, must be taken to be considerably shaken. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 340 of 1957. Appeal from the judgment and order dated November 29, 1954, of the Hyderabad High Court in Reference No. 234/5 of 1953-54. f!.. N. Rajagopala Sastri, R. H. Dhebar and //.Gupta, for the appellant. 48 I959 The Commissioner of Income-tax, Hyderabad-Deccan v. Messrs, V azir Sult an & Sons 378 SUPREME COURT REPORTS [1959] Supp. •959 A. V. Viswanatha Sastri, P. Rama Reddy and R. The Commissioner Jlfahalinga Iyer, for the respondents. of Income-tax, 1959. March 20. The Judgment of Bhagwati and Hyderabad-Deccan Sinha, JJ., was delivered by Bhagwati, J. Kapur, J., v. delivered a separate Judgment. Messrs. Vazir Sultan<>- Sons BHAGWATI, J.-This appeal with a certificate from the High Court of Judicature at Hyderabad raises the Bhagwati J. question whether the sum of Rs. 2,19,343 received by the assessee in the year of account relevant for the assessment year 1951-52 was a revenue receipt or a capital receipt. The facts leading up to this appeal may be shortly stated: The assessee is a registered firm consisting of five brothers and the wife of a deceased brother having equal shares in the profit and loss of the partnership. The firm was appointed the sole selling agents and sole distributors for the Hyderabad State for the cigarettes manufactured by M/s. Vazir Sultan Tobacco Co., Ltd., under the terms of a resolution of the Board of Directors dated January 6, 1931. " Mr. Baker reported that an arrangement had been come to for the time being whereby the firm of Vazir Sultan & Sons, were given the distributorship of " Charminar " Cigarettes within the H. E. H. the Nizam's Dominions and that they were allowed a discount of 2% on the gross selling price." No written agreement was entered into between the Company and the assessee in respect of the above mentioned arrangement nor was there any correspondence exchanged between them in this behalf. In 1939 another arrangement was arrived at between the assessee and the company whereby the assessee was given a discount of 2% not only on the goods sold in the Hyderabad State but on all the goods sold in the Hyderabad State and outside Hyderabad State. It does not appear that the Board of Directors passed any resolution in support of this new arrangement nor was any agreement drawn up between.the parties incorporating the said new arrangement. (2) S.C.R. SUPREME COURT REPORTS 379 On June 16, 1950, the Board of Directors passed the following resolution reverting to the old arrangement embodied in the resolu~ion dated January 6, 1931:- • "The Chairman, having referred to resolution No. 24 passed at the board meeting held on 6-1-31 and having reported that Vazir Sultan & Sons had agreed to revert to the arrangement outlined in that resolution with effect from 1-6-50, it was on tb,.e proposition of Mr. S. N. Bilgrami, seconded by Mr. N. B. Chenoy resolved that payment of the sum of O.S. Rs. 2,26,263 be made to Vazir Sultan & Sons by way of compensation, Vazir Sultan & Sons, to pay D. B. Akki & Co., out of that amount the sum of 0. S. Rs. 6,920 also by way of compensation. Mr. Mohd. Sultan & Mr. Hameed Sultan stated that, as partners in the firm of Vazir Sultan & Sons, they did not take part in this resolution, although they had accepted on behalf of Vazir Sultan & Sons, the terms thereof." The sum of Rs. 2,19,343 was accordingly received by the assessee in the year of account 1359 F. The Income-tax Officer included this sum in the assessee's total income and taxed it as a revenue receipt. On appeal the Appellate Assistant Commissioner held that the sum of Rs. 2,19,343 was not a revenue receipt but a capital receipt being compensation for the loss of the agency and as such not liable to tax. The Income-tax Officer (C Ward) Hyderabad thereupon preferred an appeal to the Income-tax Appellate Tribunal, Bombay, which held that the said sum received by the assessee was a revenue receipt and liable to tax. The assessee then applied to the Appellate Tribunal for a reference to the High Court under sec. 66(1) of the Income-tax Act and the Tribunal accordingly referred the following question of law to the High Court:- " Whether the sum of 0. S. Rs. 2,19,343 received by the assessee Firm from Vazir Sultan Tobacco Co., • Ltd., is a revenue receipt or a capital receipt ?" The High Court answered the question in favour of the assessee stating the question in a different form, viz., I959 The Commissioner of Income-tax, Hyderabad-Deccan v. Messrs. Vazir Sultan & Sons Bhagwati ]. . 380 SUPREME COURT REPORTS [1959] Supp. z959 "Whether the sum of 0. S. Rs. 2,19,343 received h C -. . by the assessee firm from Vazir Sultan Tobacco Co., T e ommissioner d . . of Income-tax Lt ., IS liable to be taxed under the Indian IncomeHyderabad-Decc~n tax: Act?" , v. The appellant thereafter applied to the High Court Messrs. Vazir for a certificate of fitness which was granted by Sultan'"' Sons the High Court on February 21, 1955, and hence Bhogwati J. this appeal. The question. that falls to be determined is whether the sum which was in express terms of the resolution mentioned by way of "compensation " for the loss of the agency was a revenue receipt (trading receipt or an income receipt) as contended by the Revenue or a capital receipt as contended by the assessee. It was urged on behalf of the appellant that the sole selling agency which was granted by the Company to the assessce in the year 1931 was merely expanded as regards territory in 1939 and what was done in 1951 was to revert to the old arrangement, and the structure or the profit-making apparatus of the assessee's business was not affected thereby. The expansion as well as the restriction of the assessee's territory were in the ordinary course of the assessee's business and were mere accidents of the business which the assessee carried on and the sum of Rs. 2,19,343 received by the assessee as and by way of compensation for the restriction of the territory was a trading or an income receipt and was therefore liable to tax. It was, on the other hand, contended on behalf of the assessee that it did not carry on business of acquiring and working agencies, that the agency acquired in 1931 was a capital asset of the assessee's business of distributing Charminar cigarettes in the Hyderabad State, that the expansion of territory outside the Hyderabad State in 1939 was an accretion to the capital asset already acquired by the assessee, that the resolution of 1950 was in substance a termination or• cancellation of the agency qua territory outside the Hyderabad State and resulted in the sterilisation of the capital asset qua that territory, that the sum of (2) S.C.R. SUPREME COURT REPORTS 381 Rs. 2,19,343 received by the assessee in the year of I959 account was by way of compensation for the terminaTh c--. . . . f h 'd H d b d e ommissioner t10n or cancellat10n o t e agency outs1 e y era a of Income tax State and being therefore compensation for the steriliHyderabad-Dec;an sation pro tanto of a capital asset of the assessee's v. business was a capital receipt and was therefore not Messrs. Vazir liable to tax. Sultan & Sons The question whether a particular receipt is a reveBhagwati 1. nue receipt or a capital receipt or a particular expenditure is a capital expenditure or a revenue expenditure is beset with considerable difficulty and one finds the Revenue and the assessee ranged on different sides taking up alternate contentions as it suits their purposes. As was observed by Lord Macmillan in Van Den Berghs, Limited v. Clark (1) :- " The reported cases fall into two categories, those in which the subject is found claiming that an item of receipt ought not to be included in computing his profits and those in which the subject is found claiming that an item of disbursement ought to be included among the admissible deductions in computing his profits. In the former case the Crown is found maintaining that the item is an item of income; in the latter, that it is a capital item. Consequently the argumentative position alternates according as it is an item of receipt or an item of disbursement that is in question, and the taxpayer and the Crown are found alternately arguing for the restriction or the expansion of the conception of income. " The question has therefore to be dealt with irrespective of the one stand or the other which is taken by the Revenue or the assessee and the Court has got to determine what is the true character of the receipt or the expenditure. In the case of the Commissioner of Income-tax and Excess Profits Tax, Madras v. 1.1he South India Pictures Ltd., Karaikudi (2) this Court endorsed the following statement of Lord Macmillan in Ven Den Berghs, Ltd. v. Clark (1): "That though in general the distinction between an income and a capital receipt was well recognised {1) (1935) 19 Tax Gas. 390, 429. {2) [1956] S.C.R. 223, 228. 382 SUPREME COURT REPORTS [1959] Supp. r959 and easily applied, cases did arise where the item lay on the border line and the problem had to be solved The Co1nmissioner of Income-tax, o~ t~e particular facts of each case. No infallible Hyderabad-Deccan cnter10n or test can be or has been laid down and the v. decided cases are only helpful in that they indicate Mesm. Vazir the kind of consideration which may relevantly be Sultan & Sons borne in mind in approaching the problem. The character of the payment received may vary accordBhagwati ]. ing to the circumstances. Thus the amount received as consideration for the sale of a plot of land may ordinarily be a capital receipt but if the business of the recipient is to buy and sell lands, it may well be his income. " While considering the case law it is necessary to bear in mind that the Indian Income-tax Act is not in pari materia with the British Income Tax statutes, it is less elaborate in many ways, subject to fewer refinements and in arrangement and language it differs greatly ·from the provisions with which the courts in England have had to deal. Little help can therefore ·be gained by attempting to construe the Indian Income-tax Act in the light of decisions bearing upon the meaning of the Income-tax legislation in England. But on analogous provisions, fundamental concepts and general principles unaffected by the specialities of the English Income-tax statutes, English authorities may be useful guides. ' (Vide the observations of the Privy Council in the Commissioner of Income-tax v. Shaw Wallace & Co. (1); Gopal Saran Narain Singh v. Commissioner of Income-tax (2); Commissioner of Income-tax, Bombay Presideney and Aden v. Ohunnilal B. Mehta(') and Raja Bahadur Kamakshya Narain Singh of Ramgarh v. 0.1. T., Bihar & Orissa ('). Before embarking upon a discussion of the principles emerging from the various decisions bearing upon this question, it is necessary to advert to an argument which was addressed to us by the learned counsel for the appellant in connection with the Privy Council decision in the Commissioner of Income-tax v. Shaw Wallace & Go. (1). That case was relied upon by the (1) (1932) L.R. 59 I.A. 206, 212. (3) (1938) L.R. 65 I.A. 332. 349· (2) (1935) L.R. 62 I.A. 207, 214. (4) (1943) L.R. 70 I.A. 180, t88. (2) S.C.R. SUPREME COURT REPORTS 383 Appellate Assistant Commissioner and the High Court 1959 as determinative of the question in favour of the Tl c-· .· • 1e ommissioneY assessee and it was strenuously urged before us on of Income-tax behalf of the Revenue that the authority of that deciHyderabad-Dec:an · sion was considerably shaken not only by the later v. Privy Council decision in Raja Bahadur Kamakshya Mems. Vazir Narain Singh v. C. I. T., Bihar and Orissa (1) but also Sultan & Sons by a decision of this Court in Raghuvansi Mills Ltd. v. Bhagwati J. Commissioner of Income-tax, Bombay City(2). It may be remembered that the term "income" was understood by their Lordships of the Privy Council in Shaw Wallace's Case (3) to connote a periodical monetary return coming in with some sort of regularity or expected regularity from definite sources. The source may not necessarily be one which is expected to be continuously productive, but it must be one whose object is the production of a definite return excluding anything in the nature of a mere windfall. Income was thus likened pictorially to the fruit of a tree or the crop of a field (Ibid p. 212). This concept of " income " was adopted and in substance repeated by the Privy Council in Gopal Saran Narain Singh's Case (4) at p. 213, though Lord Russell of Killowen pronouncing the opinion of the Privy Council pithily remarked that anything which can properly be described as income is taxable under the Act unless properly exempted. The case of Raja Bahadur Kamakshya Narain Singh (1) struck a discordant note and Lord Wright delivering the opinion of the Board observed at p. 192 that it was not in their Lordships' opinion correct to regard as an essential element in any of these or like definitions a reference to the analogy of fruit or increase or sowing or reaping or periodical harvests and that such picturesque similes cannot be used to limit the true character of income in general. Lord Wright further observed at p. 194 :- "Its applicability may in particular cases differ because the circumstances, though similar in some respects, may be different in others. Thus the profit realised on a sale of shares may be capital if the seller (1) (1943) L.R: 70 I.A. 180, 188. (3) (1932) L.R. 59 I.A. 206, 212. (2) [1953} S.C.R. lJ7. (4) (1935) L.R. 62 I.A. 207, 214, r959 The Commissioner of Income-tax, Hyderqbad-Deccan v. Messrs. Vazir Sultan &. Sons Bhagwati ]. 384 SUPREME COURT REPORTS [1959] Supp. is an ordinary investor changing his securities, but in some instances, at any rate, it may be income if the seller of the shares is an investment or an insurance company. Income is not necessarily the recurrent return from a definite source, though it is generally of that character. Income, again, may consist of a series of separate receipts, as it gencmlly does in the case of professional ~arnings. The multiplicity of forms which "income " may assume is beyond enumeration. Generally, however, the mere fact that the income flows from some capital assets, of which the simplest illustration is the purchase of an annuity for a lump sum, does not prevent it from being income, though in some analogous cases the true view may be that the payments, though spread over a period, are not income, but instalments payable at specified future dates of a purchase price." (Vide Secretary of State for India v. Scoble) {1). This Court in Raghuvansi Mill's Case {2) also observed that· the definition of" income" in Shaw Wallace's Case (') as a periodical monetary return coming in with some sort of regularity or expected regularity from definite-sources must be read with reference to tbe particular facts of that case. It was therefore urged on behalf of the Revenue that periodicity or recurring nature of the receipt was not a necessary ingredient of" income " nor was the existence of a material external source capable of producing a recurrent return necessary before a receipt could be treated as income chargeable to tax. We are not unmindful of this criticism of the definition of " income " adopted by the Privy Council in Shaw Wallace & Co.'s Case(') and the concept of "income" may have to be thus revised. But even granting the proposition that is contended for by the Revenue the result is no different in the present case because the head of income under which the assessee before us has been assessed to Income-tax is "business " a definite source from which the income in question sought to be assessed is alleged to have been (1) [1903] A.c. 299. (2) [1953] s.c.R. 177· (3) (1932)'L.R. 59 I.A. 206, 212. (2) S.C.R. SUPREME COURT REPORTS 385 derived and whether it is of a recurring or non-recurring nature therefore does not enter into the picture. The exemption from liability in regard to that income is claimed by the assessee, not on the ground of the applicability of s. 4(3)(vii) of the Income-tax Act but on the ground that it is not a revenue receipt but a capital receipt, being compensation paid by the Company to the assessee for the termination or cancellation of the agency qua territory outside Hyderabad State, a capital asset of the assessee's business. What then are the considerations which have to be borne in mind in determining these vexed questions? The distinction between a capital expenditure and a revenue expenditure came up for consideration before this Court in Assam Bengal Cement Co., Ltd. v. The Commissioner of Income-tax, West Bengal (1) and this Court laid down certain criteria for the determination as to whether a particular expenditure incurred by the assessee was a capital expenditure or a revenue expenditure. We need not therefore discuss that problem any 'further. As to whether a particular receipt in the hands of an assessee is a capital receipt, or a revenue receipt, we had occasion to consider the same in the Commissioner of Income-tax and Excess Profits Tax, Madras v. The South India Pictures Ltd., Karaikudi (2). The assessee there carried on the business of distribution of films. In some instances the assessee used to produce or purchase films and then distribute the same for exhibition in different cinema halls and in other cases used to advance monies to producers of films produced with the help of monies so advanced. In the course of such business it advanced monies to the Jupiter Pictures for the production of these films and acquired the rights of distribution of the three films under three agreements in writing dated September, 1941, July 1942 and May 1943. In the accounting year ending March 31, 1946, and in the previous years the assessee had exploited its rights of distribution of the three pictures. On October 31, 1945, the (r) [1955] I S.C.R. 972. (2) [1956] S.C.R. 223, 228. 49 r959 The Commissioner of Income-tax, Hyderabad-Deccan v. 1\!l essrs. V azir Sultan 0- Sans Bhagwati ]. I959 The Commissioner of Income-ta~. JJyderabad.,.-Deccan v. Messrs. Vazir Sultan & Sons Bhagwati ]. 386 SUPREME COURT REPORTS [1959] Supp. assessee and the Jupiter Pictures entered into an agreement cancelling the three agreements relating to the distribution rights in respect of the three films and in consideration of such cancellation the assessee was paid Rs. 26,000 in all by the Jupiter Pictures as compensation. It was held by the Majority of this Court that the sum received by the assessee was a revenue receipt (and not a capital receipt) assessable under the Indian Income-tax Act inasmuch as:- (1) the sum paid to the assessee was not truly compensation for not carrying on its business but was a sum paid in the ordinary course of business to adjust the relation between the assessee and the producers of the films; (2) the agreements which were cancelled were by no means agreements on which the whole trade of the assllssee had for all practical purposes been built and the payment received by the assessee was not for the loss of such a fundamental asset as was the ship managership of the assessee. in Barr Crombie & Co., Ltd. v. Commissioners of Inland Revenue (1) and (3) one could not say that the cancelled agreements constituted the framework or whole structure of the assessee's profit.making IJ