Shah, J.

1. The appellant is a public limited company, and has its registered office at Calcutta. By an agreement dated May 1, 1925, the Fort William Jute Company Ltd., appointed the appellant its managing agent upon certain terms and conditions set out therein. Under the agreement the appellant was to receive as managing agent remuneration at the rate of Rs. 3,000/- per month, commission at the rate of ten per cent on the profits of the companys working, additional commission at three per cent on the cost price of all new machinery and stores purchased by the managing agent outside India on account of the company, and interest on all advances made by the managing agent to the company on the security of the companys stocks, raw materials and manufactured goods. The appellant and its successors in business, whether under the same or any other style or firm, unless they resigned their office were entitled to continue as managing agent until they ceased to hold shares in the capital of the company of the aggregate nominal value of Rs. 1,00,000/- and were on that account removed by a special resolution of the company passed at an Extra-ordinary meeting of the company, or until the managing agents tenure was determined by the winding up of the company. In the event of termination of agency in the contingencies specified, the managing agent was to receive such reasonable compensation for deprivation of office, as may be agreed upon between the managing agent and the company and in case of dispute, as may be determined by two arbitrators. By cl. 8, the managing agent was at liberty at any time to resign the office of managing agent by leaving at the registered office of the company previous notice in writing of its intention in that behalf. The agreement did not specify any period for which the managing agency was to enure. Since the successors of the appellant were also to continue as agents, unless they resigned or became disqualified, the duration was in a sense unlimited. But by virtue of S. 87-A (2) of the Indian Companies Act, 1913, the appointment of the appellant as managing agent would expire on January l4, 1957, i. e. on the expiry of twenty years from the date on which the Indian Companies (Amendment) Act, 1956, was brought into operation. Section 87-A(2), however, did not prevent the managing agent from being re-appointed after the expiry of that period.

2. Beside the managing agency of the Fort William Jute Co. Ltd. the appellant held at all material time managing agencies of five other limited companies, viz., Fort Gloster Jute Manufacturiug Co., Ltd., Bowreach Cotton Mills Co. Ltd., Dunbar Mills Ltd., Mothola Co., Ltd., and Joonktollee Tea Co. Ltd. The appellant had advanced Rs.12,50,000/- to the Fort William Jute Co. Ltd. on the security of the stocks, raw materials and manufactured goods of that company. The appellant held in 1952, 600 out of 14,000 ordinary shares of the face value of Rs. 100/- each, and 6,920 out of 10,000 preference shares also of the face value of Rs. 100/- each. On May 21, 1952 the appellant entered into an agreement with M/s. Mugneeram Bangur and Co., the principal conditions of which were:

(i) M/s. Mugneeram Bangur and Co., to purchase the entire holding of shares of the appellant in the Fort William Jute Co. Ltd. - ordinary shares at Rs. 400/- each and preference shares at Rs. 185/- each and to make an offer to all holders of the companys shares - preference and ordinary - to purchase their holdings at the same rates:

(ii) M/s. Mugneeram Bangur and Co., to procure repayment on or before June 30, 1952 of all loans made by the appellant to the principal company:

(iii) M/s. Mugneeram Bangur and Co., to procure that the principal company will compensate the appellant for loss of office in the sum of Rs. 3,50,000/-, such sum being payable to the appellant after it submitted its resignation as managing agent; and

(iv) M/s. Mugneeram Bangur and Co., to reimburse the company the amount payable to the appellant.

The reasons for which the appellant agreed to relinquish the managing agency were set out in a letter dated May 28, 1952, addressed by the appellant to the members of the company intimating that M/s. Mugneeram Bangur and Co., were willing to purchase the shares at the same rates at which they had agreed to purchase the share-holding of the appellant. It was recited in the letter that the installation of modern machinery in the companys factory entailed heavy capital expenditure and it was necessary to obtain a loan secured by debentures charged on the companys property; that large sums were required for renewals and replacements of machinery and it was not possible to obtain additional bank accommodation; that the appellant had made large advances to the company exceeding Rs. 12,50,000/- and, having regard to its other commitments, it was doubtful if it would be able to make available to the company additional finance; that the arrangement with M/s. Mugneeram Bangur and Co., by acceptance of the terms offered by them, was the most satisfactory method of solving the companys difficulties; that it was in the best interest of the shareholders to terminate the appointment of the appellant which in the normal course would not fall due for renewal until January 14, 1957; that M/s. Mugneeram Bangur and Co., had agreed to procure that the Fort William Jute Co., Ltd. will pay to the appellant Rs. 3,50,000/- and that M/s. Mugneeram Bangur and Co., will reimburse the company for the payment, it being anticipated that they will in due course be appointed managing agents of the company.

3. The arrangement with M/s. Mugneeram Bangur and Co, was carried out. The appellant tendered its resignation with effect from July 1, 1952, in pursuance of the terms of the agreement and M/s. Mugneeram Bangur and Co. were appointed as managing agent of the company. The sum of Rs. 3,50,000/- received by the appellant from the company - which it is common ground was provided by M/s. Mugneeram Bangur and Co. - was credited in the profit and loss account of the appellant as received from the Fort William Jute Co. Ltd. on account of compensation for loss of office. But in arriving at the net profit in the return for income-tax for the year 1953-54 this amount was deleted. In the proceedings for assessment for the year 1953-54 the Income-tax Officer, Companies District IV, Calcutta, included this amount in the appellants taxable income. In appeal the Appellate Assistant Commissioner modified the assessment holding that the sum of Rs. 3,50,000/- received by the appellant as compensation for surrendering the managing agency, which was to enure for five years more, and which in normal course might have continued for another term of twenty years, was a capital receipt. The Appellate Tribunal confirmed the order of the Appellate Assistant Commissioner, observing that compensation received under an agreement for "an outright sale of such an agency to a third party", not being one which a businessman enters in the normal course of business, nor being one which amounts to modification, alteration or discharge of normal incidents of such a business, was not assessable to income-tax as a revenue receipt.

4. At the instance of the Commissioner of Income-tax, the Tribunal referred under S. 66 (1) of the Income-tax Act, 1922, the following question to the High Court of Judicature at Calcutta:

"Whether on the facts and in the circumstances of the case the sum of Rs. 3,50,000/- received by the assessee to relinquish the managing agency was a revenue receipt assessable under the Indian Income-tax Act"

The High Court, for reasons which we will presently set out, answered the question in the affirmative. With certificate granted by the High Court, this appeal is preferred by the appellant.

5. This case raises once again the question whether compensation received by an agent for premature determination of the contract of agency is a capital or a revenue receipt. The question is not capable of solution by the application of any single test: its solution must depend on a correct appraisal in their true perspective of all the relevant facts. As observed in Commissioner of Income-tax Nagpur v. Jairam Valji, 1959-35 ITR 148 [LQ/SC/1958/124] : at p. 152: (AIR 1959 SC 291 [LQ/SC/1958/124] at p. 293) by Venkatarama Aiyar, J.,

"The question whether a receipt is capital or income has frequently come up for determination before the courts. Various rules have been enunciated as furnishing a key to the solution of the question, but as often observed by the highest authorities, it is not possible to lay down any single test as infallible or any single criterion as decisive in the determination of the question, which must ultimately depend on the facts of the particular case, and the authorities bearing on the question are valuable only as indicating the matters that have to be taken into account in reaching a decision. Vide, Van Den Berghs Ltd. v. Clark, (1935) 3 ITR (Eng.) 17. That, however, is not to say that the question is one of fact, for, as observed in Davies v. Shell Co. of China Ltd., ((1952) 22 ITR (Suppl.) 1) these questions between capital and income, trading profit or no trading profit, are questions which though they may depend no doubt to a very great extent on the particular facts of each case, do involve a conclusion of law to be drawn from those facts."

The interrelation of facts which have a bearing on the question propounded must therefore first be determined. The managing agency was not, except in the circumstances set out in cl. 2 of the agreement, liable to be determined at the instance of the company before January 14, 1957, unless the appellant by giving notice of three weeks voluntarily resigned the agency. At the date of termination the agency had five more years to run, and the Companies Act did not prohibit renewal of the agency in favour of the appellant, after the expiry of the initial period of twenty years. The appellant company was formed for the object, amongst others, wide cl. 3 (2) of the Memorandum of Association of the appellant) of carrying on the business of managing agencies. The appellant was entitled under the terms of the agreement to receive so long as the agency enured ten per cent of the profits of the companys working, three per cent on all purchases of stores and machinery abroad, and a monthly remuneration of Rs. 3,000/-. The appellant submitted its resignation in exercise of the power reserved under cl. 8 of the managing agency agreement, but that resignation was it is common ground part of the arrangement with M/s. Mugneeram Bangur and Co. dated May 21, 1952. Under the terms of the managing agency agreement, the principal company was not obliged to pay any compensation to the appellant for voluntary resignation of the agency, but in consideration of the appellant parting with its shareholding and submitting resignation of the managing agency so as to facilitate the appointment of M/s. Mugneeram Bangur and Co. as managing agent, the latter purchased the shareholding of the appellant, undertook to make available Rs. 3,50,000/- for payment to the appellant and to discharge the debt due by the company to the appellant. Payment of Rs. 3,50,000/- was therefore an integral part of an arrangement for transfer of managing agency. A managing agency of company is in the nature of a capital asset; that is not denied. It is true that it is not like an ordinary asset capable of being transferred from one person to another. Theoretically, the power to appoint or dismiss the managing agent may lie with the directors of the company, but in practice the power lies with the person or persons having a controlling interest in the shareholding of the company, M/s. Mugneeram Bangur and Co. were anxious to be appointed managing agents of the principal company: and for that purpose the appellant had to be persuaded to agree to a premature termination of its agency. This was secured for a triple consideration: sale of shares held by the appellant at an agreed price stipulation to discharge the liability of the company to repay the loans due by the company, and payment of Rs. 3,50,000/- as compensation for termination of the appellants agency.

6. The High Court summarised the effect of the agreement between the appellant and M/s. Mugneeram Bangur and Co., as follows: The sum of Rs. 3,50,000/- described as compensation for loss of office of the managing agent was part of the whole scheme incorporated in the agreement. Each clause of the agreement was a consideration of the other clauses and payment of compensation for the alleged loss of office did not, being part of the total scheme, stand by itself. Determination of he managing agency of the appellant was not compulsory cessation of business: it was a voluntary resignation for which under the agency agreement the appellant was not entitled to any compensation, but by the device of procuring a purchaser the appellant was doing "business of selling the managing agency and getting a profit and value for it which it otherwise could not have got". The High Court stamped this transaction with the nature and character of a "trading or a business deal", because in their view the managing agency of a company - an institution peculiar. to Indian business conditions - which creates a managing agent as an alter ego of the managed company with authority to utilise the existing structure of the companys organisation to carry on business, earn profits, and in fact, virtually to trade in every possible sphere open to the company, may be regarded as circulating capital, where several managing agencies are conducted by an assessee. Therefore in the view of the High Court the compensation received for surrendering the agency was remuneration received on account of conducting the business, and was income. The judgment of the High Court proceeded substantially upon the following two grounds:

(1) that on the facts of the case, the managing agency held by the appellant of the Fort william Jute Co., Ltd. was stock-in-trade; and

(2) that the appellant was formed with the object of acquiring managing agencies, and in fact held managing agencies of as many as six companies. Earning profits by conducting the management of companies, being the business of the appellant, compensation received as consideration for surrendering the managing agency was a revenue receipt.

7. We are unable to agree with the High Court that the managing agency of the Fort William Jute Co. Ltd. was an asset of the character of Stock-in-trade of the company. The appellant was formed with the object, among others, of acquiring managing agencies of companies and to carry on the business and to take part in the management, supervision or control of the business or operations of any other company, association, firm or person and to make profit out of it. That only authorised the appellant to acquire as a fixed asset, if a managing agency may be so described, and to exploit it for the purpose of profit. But there is no evidence that the company was formed for the purpose of acquiring and selling managing agencies and making profit by those transactions of sale and purchase. A managing agency is not an asset for which there is a market, for it depends upon the personal qualifications of the agent. Counsel appearing on behalf of the Commissioner conceded that the case that the managing agency was of the nature of stock-in-trade was not set up before the Tribunal, and he does not rely upon this part of the reasoning of the High Court in support of the plea that the compensation received by the appellant is a revenue receipt. He relies upon the alternative ground, and contends that the managing agency of the Fort William Jute Co. Ltd. was a part of the framework of the business of earning profit by working as managing agent of different companies, and in the normal course, termination of employment by the principal companies of the appellant as managing agent being a normal incident of such business, compensation received by the appellant is not for loss of capital but must be regarded as a trading receipt, especially when the termination of the agency does not impair the structure of the business of the appellant.

8. In the present case there is a special circumstance which must first be noticed. In truth the amount of Rs. 3,50,000/- was received by the appellant from M/s. Mugneeram Bangur and Co., in consideration of the former agreeing to forego the agency which it held and which M/s. Mugneeram Bangur and Co. were anxious to obtain. It was in a business sense a sale of such rights as the appellant possessed in the agency to M/s. Mugneeram Bangur and Co. This is supported by the recitals made in cl. 2 of the agreement that if at any time within six months after the completion of such sale M/s. Mugneeram Bangur and Co. were unable to exercise the voting rights attached to the shares purchased by them, the appellant will appoint any person nominated by M/s. Mugneeram Bangur and Co. to attend and vote for them at any meeting of the company or the holders of any class of shares to be held within such period in such manner as M/s. Mugneeram Bangur and Co., may decide. The object underlying the agreement was therefore to transfer the managing agency to M/s. Mugneeram Bangur and Co. or at least to effectuate their appointment in place of the appellant as managing agent of the Fort William Jute Co., Ltd. All the stipulations and the covenants of the agreement, viewed in the light of the surrounding circumstances, do stamp the transaction as one of surrender of the rights of the appellant in the managing agency so that corresponding rights may arise in favour of M/s. Mugneeram Bangur and Co. It would be irrelevant in considering the true nature of the transaction, to project the somewhat legalistic consideration that a managing agency is not transferable. It is because it is not directly transferable, that the arrangement incorporated in the agreement was effected. It would be difficult to regard such a transaction relating to a managin agency as a trading transaction.

9. Counsel for the assessee contended that even assuming that the form of the transaction under which for loss of the managing agency the appellant received compensation from the principal company is decisive, or has even a dominant impact and the ultimate source from which the compensation was provided is to be ignored, the compensation received for loss of agency by the agent must always be regarded under the Indian Income-tax Act as capital receipt. In support of that contention counsel placed strong reliance upon the judgment of the judicial Committee in Commissioner of Income-tax, Bengal v. Shaw Wallace and Co., 59 Ind App 206: (AIR 1932 PC 138 [LQ/PC/1932/24] ). In the alternative counsel pleaded that even if the extreme proposition was not found acceptable, the right of the assessee in the managing agency of the principal company was to enure for another five years and which in the normal course would have continued for another twenty years was an enduring asset and consideration received by the appellant for extension of that asset was a capital receipt.

10. On behalf of the Income-tax Department it was contended that Shaw Wallace and Co.s case, 59 Ind App 206: (AIR 1932 PC 138 [LQ/PC/1932/24] ) does not lay down any proposition of general application to compensation paid for determination of all agency contracts. It was further submitted that, having regard to the nature of the agreement and the voluntary resignation submitted by the assessee, no enduring asset remained vested in the assessee, and none was attempted to be transferred: the compensation directly paid by the principal company (which compensation was under the terms of the contract not payable) was only a measure of profit" which the appellant would, but for the resignation, have earned; and was therefore in the nature of revenue. It was also urged that compensation was not payable to the assessee when resignation of the managing agency was tendered under cl. 8 of the agreement and therefore the amount sought to be brought to tax was received by the assessee in the course of a normal trading transaction of the assessee. Finally, it was urged that in any event, by the loss of the agency the framework of the business of the assessee was not at all impaired, and therefore also the compensation received must be regarded as revenue and not capital.

11. Whether a particular receipt is capital or income from business, has frequently engaged the attention of the courts. It may be broadly stated that what is received for loss of capital is a capital receipt: what is received as profit in trading transaction is taxable income. But the difficulty arises in ascertaining whether what is received in a given case is compensation for loss of a source of income, or profit in a trading transaction. Cases on the borderline give rise to vexing problems. The Act contains no real definition of income; indeed it is a term not capable of a definition in terms of a general formula. Section 2(6 C) catalogues broadly certain categories of receipts which are included in income. It need hardly be said that the form in which the transaction which gives rise to income is clothed and the name which is given to it are irrelevant in assessing the eligibility of receipt arising from a transaction to tax. It is again not predicated that the income must necessarily have a recurrent quality. We are not called upon to enter upon an extensive area of enquiry as to what receipts may be regarded as income generally, but merely to consider in this case whether receipt of compensation for surrendering the managing agency may be regarded as capital or as revenue. In the absence of a statutory rule, payment made by an employer in consideration of the employee releasing him from his obligations under a service or agency agreement or a payment made voluntarily as compensation for determination of right to office arises not out of employment, but from cessation of employment and may not generally constitute income chargeable under Ss. 10 and 12. It may be mentioned that this rule has been altered by the Legislature by the enactment of S. 10 (5A) by the Finance Act of 1955, which provides that compensation or other payment due to or received by a managing agent of an Indian company at or in connection with the termination or modification of his managing agency agreement with the company, or by a manager of an Indian company at or in connection with the termination of his office or modification of the terms and conditions relating thereto, or by any person managing the whole or substantially the whole affairs of any other company in the taxable territories at or in connection with the termination of his office or the modification of the terms and conditions relating thereto, or by any person holding an agency in the taxable territories for any part of the activities relating to the business of any other person, at or in connection with the termination of his agency or the modification of terms and conditions relating thereto, shall be deemed to be profits and gains of a business carried on by the managing agent, manager or other person, as the case may be, and shall be liable to tax accordingly. But this amendment was made under the Finance Act, 1955, with effect from April 1, 1955, and has no application to the present case.

12. The Indian Income-tax Act is not in pari materia with the English Income-tax Statutes. But the authorities under the English law which deal not with the interpretation of any specific provision, but on the concept of income, may not be regarded as proceeding upon any special principles peculiar to the English Acts so as to render them inapplicable in considering problems arising under the Indian Income-tax Act. It is well settled in England that money paid to compensate for loss caused to an assessees trade is normally regarded as income. In Short Bras. Ltd. v. Commissioners of Inland Revenue, (1928) 12 Tax Cas 955 a sum received as compensation for loss resulting from cancellation of a contract was held to be revenue in the ordinary course of the assessees trade, and liable to excess profits duty. Similarly in Commissioners of Inland Revenue v. Northfleet Coal and Ballast Co. Ltd., (1928) 12 Tax Cas 1102 compensation paid by a person who had agreed to purchase a certain quantity of chalk yearly for ten years, from a company which was the owner of a quarry, in consideration of being relieved of his liability under the contract was held chargeable to excess profits duty as trading profit in the hands of the company.

13. In Commissioners of Inland Revenue v. Newcastle Breweries Ltd., (1928) 12 Tax Cas 927 compensation received under an order of the War Compensation Court, under the Indemnity Act, 1920, in addition to what was paid by the Admiralty for rum taken over in exercise of the power under the Defence of the Realm Regulations was held to be revenue.

14. In Ensign Shipping Co. Ltd. v. Commissioners of Inland Revenue, (1928) 12 Tax Cas 1169 an amount paid by the Government to a ship-owner to compensate him for loss resulting from detention of his ships during a coal-strike, and for wages etc. was held liable to excess profits duty, Again as held in Burmah Steamship Co., Ltd. v. Commissioners of Inland Revenue, (1931) 16 Tax Cas 67 money received by a ship-owner from a firm of ship-builders to compensate for loss resulting from the failure by the latter to complete repairs to ship within the stipulated. period was regarded as revenue.

15. These cases illustrate the principle that compensation for injury to trading operations, arising from breach of contract or in consequence of exercise of sovereign rights, is. revenue. These cases must, however, be distinguished from another class of cases where compensation is paid as a solatium for loss of office. Such compensation may be regarded as capital or revenue: it would be regarded as capital, if it is for loss of an asset of enduring value to the assessee, but not where payment is received in settlement of loss in a trading transaction.

16. In Chibbet v. Joseph Robinson and Sons, (1924) 9 Tax Cas 48 the assessees who were shipmanagers employed by a steamship company under a contract which provided that they should be paid a percentage of the companys income, were paid compensation for loss of office in anticipation of liquidation of the steamship company. It was held that payment to make up for loss resulting from cessation of profits from employment was not itself an annual profit but was payment in respect of termination of employment and was not assessable to tax.

17. In Du Cros v. Ryall, (1935) 19 Tax Cas 444 the assessee settled a claim made by his employee for damages for wrongful dismissal and paid 57,250 as compensation for wrongful dismissal, it was held that no part could be apportioned to salary and commission and the whole escaped assessment.

18. In Duff v. Barlow, (1941) 23 Tax Cas 633 the managing director of the appellant company who was employed for a period of ten years was asked by it to manage the business of one of its subsidiaries, and to receive a percentage of profits made by the subsidiary. The employment was terminated by mutual agreement two years after its commencement and 4;000 were paid as compensation to the managing director for loss of his rights of future remuneration. This was held not taxable, because it was a sum paid as compensation for loss of a source of income and hence a capital asset. This case was followed in Henley v. Murray, (1951) 31 Tax Cas :351 where the appellant employed as a managing director of a property company under a service agreement which was not determinable till March 31, 1944, was also appointed a director of a subsidiary company. At the request of the Board of Directors of the property company the appellant resigned his office in the property company as well as its subsidiary and received from the property company an amount equal to the remuneration which he would under the agreement, have been entitled to if his appointment had not been determined. It was held by the Court of Appeal that the use of the expression "compensation for loss of office" was not the determining factor when the bargain itself stood cancelled, and the sum paid was in consideration of total abandonment of all contractual rights which the other party had. The receipt was in the circumstances not taxable. The payment was not voluntarily made; the bargain was that the appellant should resign and in consideration thereof, the company should make the payment.

19. In Barr, Crombie and Co. Ltd. v. Commissioners of Inland Revenue, (1945) 26 Tax Gas 406) the appellant company managed the ships of another company under an agreement for a period of fifteen years. The shipping Company went into liquidation and a sum exceeding 16,000 was paid to the appellant company for the eight years which were still to run to the date of expiry of the agreement. Over a period upwards of sixteen years only two per cent of the appellant companys income was derived from other managements, and on the liquidation of the shipping company the appellant company lost its entire business except for some abnormal and temporary business. It was held by the Court of Session in Scotland that the sum in question was not a trading receipt of the appellant company. Lord President Normand observed:

"In the present case virtually the whole assets of the Appellant Company consisted in this agreement. When the agreement was surrendered or abandoned practically nothing remained of the Companys business. It was forced to reduce its. staff and to transfer into other premises, and it really started a new trading life. Its trading existence as practised up to that time had ceased with the liquidation of the shipping Company."

20. These cases establish the distinction between compensation for loss of a trading contract and solatium for loss of the source of income of the assessee.

21. But payment of compensation for loss of office is not always regarded as capital receipt. Where compensation is payable under the terms of the contract which is determined, payment is in the nature of revenue and therefore taxable. For instance in Henry v. Foster, (1931) 145 LT 225 it was held that when compensation stipulated under a contract is paid for loss of office, it is taxable under Sch. E, and it was also held in Dale v. D. De. Soissons, 1950-2 All ER 460 that compensation paid under an agreement to an Assistant to the managing director for premature termination of employment was held to be income. The principle on which these cases proceeded was also applied by the Court of Session in Scotland in Kelsall Parsons and Co., v. Commissioners of Inland Revenue, (1937) 21 Tax Cas 608 to a case in which there was no express term for payment of compensation on termination of employment. The appellants in that case carried on business as agents on a commission basis for, sale in Scotland of the products of various manufacturers, and entered into agency agreement for that purpose. At the instance of the manufacturer concerned one of the agreements which was for a period of three years was terminated at the end of the second year in consideration of a payment of 1,500. It was held by the Court of Session that no capital asset of the assessee was depreciated in value, or became of less use for the purpose of the assessees business. The sum paid was accordingly included in the calculation of the taxable profits for the year in which it was received. Lord President Normand observed at p. 620.

"We are not embarrassed here by the kind of difficulties which arise when, by agreement, a benefit extending over a tract of future years is renounced for a payment made once and for all. The sum paid in this case is really and substantially a surrogatum for one years profits."

The foundation of the distinction made in (1937) 21 Tax Cas 608 and 1950-2 All ER 460 is to be found in the observations made by Lord Macmillan in (1935) 19 Tax Cas 390. In that case two companies which were manufacturers of margarine and similar products entered into an agreement with a view to end competition between them and to work in friendly alliance and to share the profits and losses in accordance with an elaborate scheme. This arrangement was terminated by mutual agreement in consideration of the payment by the Dutch Company of 4,50,000 to the appellant company as damages. It was held by the House of the Lords that amount was received by the appellant as payment for cancellation of the appellant companys future rights under the agreements, which constituted a capital asset of the company, and that it was a capital receipt. Lord Macmillan observed at p. 431.

"Now what were the appellants giving up They gave up their whole rights under the agreements for thirteen years ahead. These agreements are called in the States Case pooling agreements" but that is a very indequate description of them, for they did much more than merely embody a system of pooling and sharing profits. If the Appellants were merely receiving in one sum down the aggregate of profits which they would otherwise have received over a series of years, the lump sum might be regarded as of the same nature as the ingredients of which it was composed. But even if a payment is measured by annual receipts, it is not necessarily in itself an item of income."

22. Cases which have lately arisen before the Courts in the United Kingdom have elaborated this distinction. In Commissioner of Inland Revenue v. Fleming and Co. (1951) 33 Tax Cas 57 the Court of Session held, following (1937) 21 Tax Cas 608 that compensation paid to the assessee who carried on business as manufacturers agent and general merchants and had acted as the sole agents since 1903 for certain products of the manufacturers for termination in 1948 of the agency at the instance of the manufacturer was regarded as revenue. In the view of Lord President Cooper the cases relating to determination of agencies, broadly speaking, fell on two sides of the line drawn in the light of the varying circumstances:

(a)"the cancellation of a contract which affects the profit-making structure of the recipient of compensation and involves the loss of an enduring trading asset," and

(b) "the cancellation of a contract which does not affect the recipients trading structure nor deprive him of any enduring trading asset, but leaves him free to devote his energies and organisation released by the cancellation of the contract to replacing the contract which has been lost by other like contracts", and held that the case fell within the second class, and not the first."

23. In Wiseburgh v. Domvile, (1956) 36 Tax Cas 527 the appellant had entered into an agreement in 1942 under which he acted as sole agent for the manufacturer. In 19-18 when this agreement could have been determined by notice expiring in October 1949, the manufacturer dismissed him. The appellant received 4,000 as damages for breach of agreement. The appellant had several agencies from time to time as agents and it was one of the incidents of agency business that one agency may be stopped and another may come and if being normal incident of the kind of business that the appellant was doing, that an agency should come to an end, compensation paid was regarded as income on the principle laid down in Kelsali Parsons and Co.s case, (1937) 21 Tax Cas 608.

24. In another case which soon followed Anglo-French Exploration Co., Ltd. v. Claysons, (1956) 36 Tax Cas 545 the appellant company, carried off business, among others. as secretary and agent for a number of other companies. A South African Company appointed the appellant company as its secretary and agent at a remuneration of 1,500 per annum under a contract terminable at six months notice. Under an arrangement with the purchaser of the controlling interest of the share- holders under which the appellant company was to resign its office as secretary and agent of the South African Company, an amount of 20,000 received by the appellant company was held by the Court of Appeal in the nature of a trading receipt.

25. In Blackburn v. Close Bros. Ltd., (1960) 39 Tax Cas 164 the respondent company carried on business of merchant bankers and of a finance and issuing house and derived income in the form of allowances for performing managerial and secretarial services. Following a dispute with one S for which the respondent company had agreed to provide Secretarial services for three years at a remuneration of 8,000 per annum, the agreement was terminated with about 2 1/2 months from the date of its commencement, 15,000 received by the respondent company, as compensation nor termination of the agreement was held to be a trading receipt, Pennycuick J., held that the contract was one of a number of ordinary commercial contracts nor rendering services by the assessee in the course at carrying on its trade, and therefore the sum received on the cancellation of the agreement was a receipt of a revenue nature.

26. It is manifest that the principle broadly stated in the earlier cases, that compensation for loss of office, or agency, must be regarded as a capital receipt, has not been approved in later cases. An exception has been engrafted upon that principle that where payment even if received for termination of an agency agreement, but the agency is one of many which the assessee holds and the termination of the agency does not impair the profit-making structure, but is within the frame, work of the assessees business, it being a necessary incident of the business that existing agencies may be terminated and fresh agencies may be taken, the receipt is revenue and not capital.

27. A case on the other side of the line may be noticed: Sabine v. Lookers Ltd., (1958) 38 Tax Cas 120. Under agreements, annually renewed with the manufacturers, the respondent company had acted for many years as their main distributors in the Manchester area of the manufacturers products, which it bought for resale. The respondent had sunk considerable sums in fixtures and equipment specially designed for the trade of wholesale dealers and carried a large stock of spare parts mainly for wholesale sale. The whole of the trade of the respondent was geared to the display, sale, service and repairs of the manufacturers products. Upto 1952 inclusive, the manufacturers had included in its agreements with distributors a standard "continuity clause" giving the distributors, on certain conditions, the option of renewal for a further year. But in 1953, the manufacturers adopted a new standard agreement, containing a new continuity clause which the respondent company regarded as giving it less security than before. As compensation for loss resulting from the alterations, the manufacturers paid to the respondent company, a sum calculated on sales to the trade during the contract period. It was held that this was a capital receipt, because by the modification the framework of the respondents business was impaired.

28. Elaborate arguments were presented before us on the decision of the Judicial Committee in Shaw Wallace and Co.s case, 59 Ind App 206: (AIR 1932 PC 138 [LQ/PC/1932/24] ). The appellant contended that Shaw Wallaces case, 59 Ind App 206: (AIR 1932 PC 138 [LQ/PC/1932/24] ) laid down a principle of general application applicable to all cases of compensation received from the principal as solatium for determination of the contract of agency. Counsel for the Revenue con-tended that the principle should be restricted to its special facts, and cannot be extended in view of the later decisions. It is necessary to closely examine the facts which gave rise to that case. Shaw Wallace and Company carried on business as merchants and agents of various companies and had branch offices in different parts of India. For a number of years they acted as distributing agents in India for the Burma Oil Company and the Anglo Persian Oil Company, but without a formal agreement with either company. The two Oil Companies having combined decided to make other arrangements for distributing their products. Each Company terminated its contract with Shaw, Wallace and Company and paid Compensation to it, which aggregated to Rs. 15,25,000/-. This amount, subject to certain allowances was sought to be assessed to income tax under Ss. 10 and 12. The High Court of Calcutta held that the compensation received by the assessee was a capital receipt. In appeal to his Majesty in Council the decision of the High Court was affirmed.

29. The judicial Committee declined to seek inspiration from the English decisions cited at the Bar. The Board observed that the expression "income" which is not defined in the Act connotes a periodical monetary return coming in with some sort of regularity, or expected regularity,, from definite sources: the source is not necessarily 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. They further observed that the income chargeable under head (iv) of S. 6 "business" read with S. 10 is to be in respect of the profits and gains of any business carried on by the assessee, and therefore the sums which the Income-tax Department sought to charge could only be taxable if they were the produce or the result of carrying on the agencies of the Oil Companies in the year in which they were received by the assessee. But when once it was admitted that they were sums received, not for carrying on this business, but as some sort of solatium for its compulsory cessation, the answer seemed fairly plain. The Board observed that if compensation received for sale of the business or its goodwill was capital, the same reasoning ought to apply when the sum received was in the nature of a solatium for cessation of a part of the business, and it was a matter of no consequence that the assessee continued to pursue its other independent commercial interests, and profits from which were taxed in the ordinary course, for the sums sought to be taxed had no connection with the continuance of the assessees other business: the profits earned by the assessee, it was observed were "the fruit of a different tree the crop of a different field", and if under S. 10 the compensation was not taxable, it was not taxable under S. 12 under the head "other sources" as well.

30. The judgment of the Board proceeds upon the ground that compensation received not for carrying on the business but as solatium for its compulsory cessation, would be regarded as capital receipt, and for the application of this principle, existence of other independent commercial interests out of which profits were earned by the assessee was irrelevant. Two comments may be made at this stage. It cannot be said as a general rule, that what is determinative of the nature of the receipt is extinction or compulsory cessation of an agency or office. Nor can it be said that compensation received for extinction of an agency may always be equated with price received on sale of goodwill of a business. The test, applicable to contracts for termination of agencies is: what has the assessee parted with in lieu of money or moneys worth received by him which is sought to be taxed If compensation is paid for cancellation of a contract of agency, which does not affect the trading structure of the business of the recipient or involve loss of an enduring asset, leaving the tax. payer free to carry on his trade released from the contract which is cancelled, the receipt will be a trading receipt: where the cancellation of a contract of agency impairs the trading structure, or involves loss of an enduring asset, the amount paid for compensating the loss is capital.

31. The view expressed by the Judicial Committee has not met with unqualified approval in later cases. Lord Wright in Kamakashya Narain Singh v. Commissioner of income-tax, B and O, 70 Ind App 180: (AIR 1943 PC 153 [LQ/PC/1943/32] ) observed that it is incorrect to limit the true character of income, by such picturesque similies like fruit of a different tree, or crop of a different field". Again it cannot be said generally that compensation for every transfer or determination of a contract of agency is capital receipt: (1937) 21 Tax Cas 608; (1951) 33 -Tax Cas 57; (1956) 36 Tax Cas 527; and Commissioner of income-tax and Excess Profits Tax, Madras v. South India Pictures Ltd., 1956-29 ITR 910 [LQ/SC/1956/27] : ((S) AIR 1956 SC 492 [LQ/SC/1956/27] ). Nor is it true to say that where an assessee holds several agency contracts each agency contract cannot without more be regarded as independent of the other contracts, and income received from each contract cannot always be regarded as unrelated to the rest of the business continued by the assessee. The decision in Shaw Wallace Co.s case, 59 Ind App 206; (AIR 1932 PC 138 [LQ/PC/1932/24] ) cannot therefore be read to yield the principle that compensation for loss of an agency may in all cases be regarded. as capital receipt. Nor does it lay down that where the assessee has several lines of business each line must in ascertaining the character of compensation for loss of a line of business be deemed an independent source. This view is exemplified by decisions of this Court and decision of the Madras High Court. In the South India Pictures Ltds case, (1956) 29 ITR 910. [LQ/SC/1956/27] ((S) AIR 1956 SC 492 [LQ/SC/1956/27] ) compensation received for determination of the distribution rights of films were held taxable. After the assessee had exploited partially its right of distribution of cinematographic films -to which it was entitled under the terms of agreement under which he had advanced money to the producers the agreements were cancelled and the producers paid an aggregate sum of Rs. 26,000/- to the asessee towards commission. It was held by Das C. J. and Venkatarama Aiyer, J., (Bhagwati J., dissenting) that the sum paid to the assessee was not compensation for not carrying on its business, but was a sum paid in the ordinary course of business to adjust the relations between the assessee and the producers, and was taxable. Similarly in Jairam Valjis case, (1959) 35 ITR 148 [LQ/SC/1958/124] : (AIR 1959 SC 291 [LQ/SC/1958/124] ) a contract for the supply of limestone and dolomite was terminated when the purchaser the Bengal Iron Company Ltd. found the rates uneconomical. A suit was then filed by the respondent for specific performance of the contract and for an injunction restraining the company from purchasing limestome and dolomite from any other person. A fresh agreement made between the respondent and the company fell through because of circumstances over which the parties to the agreement had no control. The company then agreed to pay Rs. 2,50,000/- to the respondent as solatium, besides the monthly instalments of Rs. 4,000/- remaining unpaid under the contract of 1940. The Income. tax Department sought to bring to tax the amount of Rs. 2,50,000/- and the balance due towards the monthly instalments of Rs. 4,000,/-. It was held by this Court that the sum of Rs. 2,50,000/- was not paid to the respondent as compensation for expenses amount for works at the quarry of a capital nature and could not be held to be a capital receipt on that account; the agreements were merely adjustments made in the ordinary course of business. There was in the view of the Court no profit-making apparatus set up by the agreement of 1941, apart from the business which was to be carried on under it and there was at no time any agreement which operated as a bar to the carrying of the business of the respondent and therefore the receipt of Rs. 2,50,000/- was chargeable to tax. Venkatarama Aiyar, J., observed, in an agency contract the actually business consists of dealings between the principal and his customers, and the work of the agent is only to bring about the business: What he does is not the business itself, but something which is intimately and directly linked up with it. The agency may, therefore, be viewed as the apparatus which leads to the business rather than the business itself. Considered in this light the agency right can be held to be of the nature of a capital asset invested in business. But this cannot be said of a contract entered into in the ordinary course of business. Such a contract is part of the business itself, not something outside it, and any receipt on account of such a contract can only, be a trading receipt. Because compensation paid on the cancellation of a trading contract differs in character from compensation paid for cancellation of an agency contract, it should not be understood that the latter is always, and as a matter of law, to be held to be a capital receipt. An "agency contract which has the character of a capital asset in the hands of one person may assume the character at a trading receipt (asset) in the hands of another, as for example, when the agent is found to make a trade of acquiring agencies and dealing with them." Therefore, when the question arises whether the payment of compensation for termination of an agency is a capital or a revenue receipt, it must be considered whether the agency was in the nature of a capital asset in the hands of the agent, or whether it was only part of his stock-in-trade. The Learned Judge also observed that payments made in settlement of rights under a trading contract are trading receipts and are assessable to revenue, but where a trader is prevented from doing so by external authority in exercise of a paramount power and is awarded compensation there for, whether the receipt is a capital receipt or a revenue receipt will depend upon whether it is compensation for injury inflicted on a capital asset or on stock-in-trade.

32. In Pierce Leslie and Co. Ltd. v. Commissioner of Income-tax, Madras, 1960-38 ITR 356 [LQ/MadHC/1958/253] ; (AIR 1960 Mad 137 [LQ/MadHC/1958/253] ) the assessee company took up managing agencies of several plantation companies. The managing agencies were liable to termination, but the assessee was entitled to compensation by the terms of the agreement. The Talliar Estates Ltd. was one of the companies managed by the assessee. The agreement was a composite agreement about the managing agency rights and certain other rights. When the Talliar Estates Ltd. went into liquidation the assessee received Rs. 60,000/- by way of compensation for loss of office and the question arose whether that amount was income in the hands of the assessee. The Madras High Court held that the loss of one of several managing agencies had little effect on the structure of the assessees business even in tea or on its profit earning apparatus as a whole and the termination of the agreement with the Talliar Estates could well be said to have been brought about in the ordinary course of business of the assessee and therefore the amount received was a trading receipt.

33. In the South India Pictures Ltd. case, 1956-29 ITR 910 [LQ/SC/1956/27] : ((S) AIR 1956 SC 492 [LQ/SC/1956/27] ; Jairam Valjis case, 1959-35 ITR 148 [LQ/SC/1958/124] : (AIR 1959 SC 291 [LQ/SC/1958/124] ) and Pierce Leslie Co.s Case, 1960-38 ITR 356 [LQ/MadHC/1958/253] : (AIR 1960 Mad 137 [LQ/MadHC/1958/253] ) it was held that the receipt of compensation for loss of agency was in the nature of revenue. In the South India Pictures Ltds case, 1956-29 ITR 910 [LQ/SC/1956/27] : ((S) AIR 1956 SC 492 [LQ/SC/1956/27] ) the amount received was not compensation for not carrying on its business, but was a sum paid in the ordinary course of business to adjust the relations between the assessee and the producers the termination of the agreements did not radically or at all affect or alter the structure of the assessees business, and the amount received by the assessee was only so received towards commission i.e. as compensation for the loss of commission which it would have earned, had the agreements not been terminated. Therefore, the amount was not received by the assessee as the price of any capital assets sold or surrendered or destroyed, but the amount was simply received by the assessee in the course of its going distributing agency business and therefore it was an income receipt. In that case the majority of the Court held on three distinct grounds, viz., (i) that the assessee did not part with any capital asset; (ii) that the amount was received in the course of the distributing agency business which was continued; and (iii) that the termination of the agreements did not radically or at all affect or alter the structure of the assessees business, that the sum received was revenue. Jairam Valjis case, 1959-35 ITR 148 [LQ/SC/1958/124] : (AIR 1959 SC 291 [LQ/SC/1958/124] ) was one of compensation received for termination of a trading contract. In Pierce Leslie and Cos case, 1960-38 ITR 356 [LQ/MadHC/1958/253] : (AIR 1960 Mad 137 [LQ/MadHC/1958/253] ) there was termination of officer but it was held to be brought about in the ordinary course of the trading operations of the assessee.

34. On the other side of the line are cases of Commissioner of Income-tax, Hyderabad-Deccan v. Vazir Sultan and Sons, 1959-36 ITR 175 [LQ/SC/1959/33] .: (AIR 1959 SC 814 [LQ/SC/1959/33] ) and Godrej and Co. v. Commissioner of Income-tax, Bombay City, 1959-37 ITR 381 [LQ/SC/1959/141] : (AIR 1959 SC 1352 [LQ/SC/1959/141] ). In Vazir Sultan and Sons case, 1959-36 ITR 175 [LQ/SC/1959/33] : (AIR 1959 SC 814 [LQ/SC/1959/33] ) the majority of the Court held that compensation paid for restricting the area in which a previous agency agreement operated was a capital receipt, not assessable to Income-tax. It was held that the agency agreements were not entered into by the assessee in the carrying on of their business but formed the capital asset of the assessees business which was exploited by the assessee by entering into contracts with various customers and dealers in the respective terrtories: it formed part of the fixed capital of the assessees business and was not circulating capital or stock-in-trade of their business and therefore payment made by the company for determination of the contract or cancellation of the agreement was a capital receipt in the hands of the assessee.

35. In Godrej and Co.s case, 1959-37 ITR 381 [LQ/SC/1959/141] : (AIR 1959 SC 1352 [LQ/SC/1959/141] ) the managing agency agreement in favour of the assessee of a limited company which was originally for a period of thirty years and under which the assessee was entitled to a commission at certain rates was modified and remuneration payable to the managing agents was reduced. As compensation for agreeing to this reduction, the assessee received Rs. 7,50,000/- which was sought to be taxed as income in the hands of the assessee. This Court held, having regard to all the attending circumstances, that the amount was paid not to make up the difference between the higher remuneration and the reduced remuneration, but in truth as compensation for releasing the company from the onerous terms as to remuneration as it was in terms expressed to be; so far as the assessee firm was concerned it was received as compensation for the deterioration or injury to the managing agency by reason of the release of its rights to get higher remuneration and, therefore, a capital receipt.

36. On an analysis of these cases which fall on two sides of the dividing line, a satisfactory measure of consistency in principle is disclosed. Where on a consideration of the circumstances, payment is made to compensate a person for cancellation of a contract which does not affect the trading structure of his business, nor deprive him of what in substance is his source of income, termination of the contract being a normal incident of the business, and such cancellation leaves him free to carry on his trade (freed from the contract terminated) the receipt is revenue: Where by the cancellation of an agency the trading structure of the assessee is impaired, or such cancellation results in loss of what may be regarded as the source of the assessees income, the payment made to compensate for cancellation of the agency agreement is normally a capital receipt.

37. In the present case, on a review of all the circumstances, we have no doubt that what the assessee was paid was to compensate him for loss of a capital asset. It matters little whether the assessee did continue after the determination of its agency with the Fort William Jute Co. Ltd. to conduct the remaining agencies. The transaction was not in the nature of a trading transaction, but was one in which the assessee parted with an asset of an enduring value. We are therefore, unable to agree with the High Court that the amount received by the appellant was in the nature of a revenue receipt.

38. We accordingly record the answer on the question submitted by the Tribunal in the negative. The appellant would be entitled to its costs in this Court.

39. Appeal allowed.