http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

PETITIONER: M.   R. GOYEL, PROP.  M/S MILKHIRAM BROS.  BOMBAY

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME TAX, BOMBAY CITY 1, BOMBAY

DATE OF JUDGMENT: 12/02/1969

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHAH, J.C. RAMASWAMI, V.

CITATION:  1969 AIR  859            1969 SCR  (3) 669  1969 SCC  (1) 659

ACT: Income-tax-Person  entering  into contract for  purchase  of goods--Thereafter  transferring  benefit  of  contract   for consideration-Whether  consideration  received  was  capital receipt or revenue.

HEADNOTE: The 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. 10 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 therm 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 failed 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 had 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 goods which were to be acquired under the contract but the  source itself,  namely  the  appellant’s share,  right,  title  and interest  was  transferred  and furthermore  the  amount  in question was received by the appellant for relinquishing his

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

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 appeal, The  Tribunal had rightly held that the  appellant  intended "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, he 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 arrangement  made by  the  appellant  with  certain  parties  to  finance  the 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  had come into force.  Accordingly there could be no question  of the   appellant   having  relinquished  a   share   in   the partnership. [673 C] L10Sup./69-8 670

JUDGMENT: CIVIL APPELLATE JURISDICTION : 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 Court 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.  931  lakhs. The  contract  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 terms and conditions given in that letter.  The assessee had  to make a deposit by way of earnest money of a  sum  of Rs.  10 lakhs.  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 deposited 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  if  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

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 company. 671 On November 22, 1946 an agreement of partnership was entered into   between  six  persons,  namely,   Nathmal,   Pokhraj, Chandumal,  Prithviraj, Shapoorji & Co. Ltd. and  Jamalbhai. This partnership took over the contract of purchase  entered into by Pokhraj Hirachand.  It was registered by the  Income tax authorities for the assessment year 1948-49. M/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  mentioned 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 1947-48 the Income Tax Officer 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 been  found that the receipt of Rs. 1,87,000 was  a  trading receipt.  This was so because the assessee was a businessman dealing  in  articles  including  parachute  silk.   In  the opinion of the High 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 question  had been received for relinquishing his  right  to participation  in the profits of the partnership from  which the assessee withdrew.  According 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 were also considered and the conclusion at which the High  Court  arrived was that the benefit  of  the  contract which the assessee had entered into with M/s.  Tata Aircraft Ltd.  had  been  transferred by him  in  favour  of  Messrs. Pokhraj Hirachand for a consideration 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 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. 1,87,000 received  by  him could  not be regarded as income.  The agreement  which  had been entered into by the appellant with M/s.  Tata  Aircraft

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

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 that 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  secure contracts  and pass on the actual execution 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  means 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 mere embodied an arrangement for financing a business 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.  Nathumar Nihalchand,  Pokhraj  Huachand 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 M/s 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  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 673 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 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 31,  1946 was  one  which 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5  

High  Court was correct.  The appeal fails and is  dismissed with costs. R.K.P.S.                Appeal dismissed. 674