JUDGMENT <NAME>, J.

1. This order shall also govern the disposal of Misc. (First) Appeal No. 146 of i960 (<ORG>, a registered firm through partners v. <ORG> a registered firm through partners).

2. The present appeal is by the plaintiff against the order, dated, 9-8-1960, passed by <NAME>, District Judge, Hoshangabad in Civil Suit No. 7-A of 1959, granting, a temporary injunction to the plaintiff under Order 39 Rule 2 of the Civil Procedure Code on certain terms. The plaintiff in the present appeal questions the imposition of the terms. The term imposed was that the plaintiff should undertake and bind itself in writing that in case it fails in the suit, it will pay to the defendant for each of the two labels E and G, one-twelfth of the total net profits learned by it in its bidi business during the continuance of this injunction and for this purpose, the plaintiff was. directed to keep regular, complete and correct accounts of its business.

3. The connected appeal, namely, Misc. (First) Appeal No. 146 of 1960 is filed by the defendant against the same order of the District Judge. The defendant impugns, the order relating to grant of a temporary injunction,

4. The plaintiff-appellant has a registered trade-mark, which is marked as Exh. A and Exh. B in the documents filed by the plaintiff. The wrapping covers are kept in a separate envelope. The plaintiff's trade-mark consists of oblong square with the background of green colour. At the top is. printed the name of the plaintiff-firm, namely, <ORG>, Sihora Road. At the bottom the same thing is printed in Hindi. In the middle there is a circle within which is printed the picture of a cow in saffron colour with a green background showing the earth, and white and blue background showing the sky. On the four corners of the circle are printed the words in English and Hindi Bidl No. 7. On the left of the circle are printed words 'G. Jabalpur', while on the right are printed Urdu words. Wrapper of the Bidis is a plain white Jhilli paper and on it is stuck up an oblong piece of paper with white, blue and red colour showing the name of the founder, namely, <NAME> and the name of the firm, namely, <NAME>, Sihora Road, District Jabalpur.

5. The plaintiff filed the present suit, alleging that the defendant-firm had infringed its registered trade-mark by putting in the market similar labels. Therefore, the plaintiff's suit was mainly based on the allegation of infringement of a registered trade-mark. The plaintiff's case, at appears, was not based on any passing off action, nor is lit the plaintiff-appellant's case that the defendant-firm tried to pass off its goods as the goods of the plaintiff-appellant,

6. It would, therefore, be necessary to examine the particulars of the labels E and G of the defendant-respondent-firm, regarding which the learned District Judge has granted a temporary injunction on certain terms.

7. The label E of the defendant-respondent consists of a red border similar to the label of the appellant. It has a green background. On the top, are printed the words <NAME>.' The same words are printed at the bottom in Hindi. Instead of a circle there is an enclosure of a heart-shape, wherein is shown a cow with green background for the earth and dark blue background for the sky. The cow in the appellant's label (Exh. A and Exh. B) is shown a little side-wards and her head towards the right side of the person seeing the same. In the defendant's labels Exh. E and Exh. G, the cow faces towards the left of the person seeing the label. Upon a perusal of the two labels side by side, the only similarity between the two appears to be that they consist of yellow, red, green and blue background and there is a cow shown in both the labels. Besides these facts, the two labels do not appear to bear any similarity. Upon a visual impression they appear to be quite dissimilar. Similarly, the label G of the defendant-respondent is further distinctive, inasmuch as, it bears a photograph of the founder in a circle above the cow with a blue background. It is true that a visual test by keeping the labels side by side is not the real cost, as has been laid down in the cases, which I shall presently refer to. But, it is only for the purpose of ascertaining the fact or the points of similarity between the two that I have elected to describe them in details. Besides, the wrapper of the defendant's labels consist of a Jhilli paper on which there are squares of green or red. The wrapper of the defendant-firm does not bear any similarity whatsoever to the wrapper of the plaintiff-firm. In fact, they are distinctive and they can easily be identified by a mere perusal, not by comparing the two side by side, but by perusing them one at a time on different occasions. To conclude, it is clear that as regards the labels, the only similarity may be in selection of the colours and the picture of a cow. There is no similarity in the labels. On this material, we have to decide whether the grant of a temporary injunction to the plaintiff-appellant on certain terms was justified.

8. Before discussing the instant question, it would be necessary to state certain other facts. The appellant carries on its business in the States of Madhya Pradesh, Uttar Pradesh, Bihar and West Bengal. Its total business has been near about 4 lacs in the years 1954-55, 1956-57 and 1957-58. In the years 1955-56 and 1958-59, it was near about 3 lacs and a half. These total sales obviously relate to the area covered by the four States of Madhya Pradesh, Uttar Pradesh, Bihar and West Bengal.

9. The defendant-respondent's business is mainly confined to the three districts of Madhya Pradesh, namely Hoshangabad, East Nimar and Dewas. Its business runs to the extent of a little over 2 lacs, as is shown by the schedule filed with the written statement relating to the years 1954-55, 1955-56, 1956-57 and 1957-58. it is also the defendant's allegation that the plaintiff's bidis have no appreciable sales in those districts where the defendant's bidis are in vogue.

10. So far as the law on the point is concerned, the principles for grant of an injunction were indicated by <NAME>, C. J. (as he then was) in <CITATION> , 1957 MP LJ 676 : (AIR 1958 MP 348), in the following words:

"Their Lordships of <ORG> in many cases have laid down the tests which have to be applied in such matters. In <ORG> v. <ORG>, AIR 1934 PC 167 and <CITATION> , AIR 1940 PC 86, we get a discussion of how the matter is to be approached. Their Lordships have laid down that comparison side by side of the two labels is not an appropriate method of discovering whether an unwary purchaser would be deceived or not. The reason given by their Lordships is that the purchaser never compares the two labels together side by side, and therefore, the comparison in <ORG> is not correct. It has also been laid down by their Lordships that mere similarity or dissimilarity is not to be noticed, but an overall view of the impugned label must be taken by the <ORG> so as to find out whether it is so designed in its get up, in its lettering and in its colours as to deceive an unwary purchaser. For the purposes of this case which is before me, namely, the grant of temporary injunction, I have taken the precaution to keep within the four corners of their Lordships' precepts, and I have looked at the labels from that point of view only. In thing so I have come to the conclusion that prima facie the label which has been put on the market is one which is likely to deceive an unwary purchaser into accepting goods of the defendant firm instead of those of the plaintiff Company. I do not say that there is an attempted passing off, because that would be a matter for decision in the case if the plea were raised. What I have to find out is whether there is an infringement of the trade mark of the plaintiff-Company sufficient to warrant me to hold that some temporary action has to be taken to safeguard an irreparable injury to the plaintiff-Company. The learned Judge in the <ORG> below has considered the matter also from the same angle, and I Sind no misdirection in his order. I have reached precisely the same conclusions on viewing the impugned label vis-a-vis the label of the plaintiff-Company; and I think that there is a likelihood of confusion in the mind of a purchaser, particularly an unlettered and ignorant villager, who wants to purchase a particular soap, being indifferent as to what the lettering on the label is. He is likely to think that the <ORG> soap is the same as the <ORG> soap, and he is not likely to find that it is not of the same type. I think that "in this case there is a likelihood of injury to the plaintiff-Company by reason of the sale of this imitation article, and therefore it is necessary to prevent the mischief."

11. The view propounded by <NAME>, C.J., was based on the principle laid down by their Lordships of <ORG> in AIR 1934 PC 167, wherein their Lordships made the following observations:

"Their Lordships are therefore of opinion that the finding of fraud cannot stand and that as that finding was the basis of the finding as to the possibility of confusion, it is proper for their Lordships themselves to examine and consider the later question notwithstanding that there are concurrent findings below. Now it must be borne in mind (1) that the action is in substance a quia timet action, as <NAME>, J. recognised and that in the absence of evidence of actual confusion a strong case must be made to justify a conclusion that confusion will result from what the appellants are doing; and (2) that the market where alone confusion is alleged to be possible is the market whers the consumer buys.

The consumer cannot read English though he may recognise English numerals. He is admittedly quick to recognize differences in any article offered him from the article which he has been accustomed to buy. In the present case the two articles are different in size and colour and the appellants' cigarette has on it no numeral nor any thing which the Asiatic can read. Assume that the Asiatic sometimes asks in his own language for the respondents' cigarettes as two one or twenty-one, why should he use the same term for the appellants' cigarettes?" further on, their Lordships observed as follows:

"Giving the best consideration which they can to the materials before them their Lordships reach the conclusion that the respondents have not made out that the use by the appellants of their device is calculated to deceive in the consumers' market. Their Lordships desire to call attention to the fact that even if the injunction could stand it should not have been granted in its present absolute form but should have been qualified by the addition of some such words as, without clearly distinguishing the goods of the defendants from the goods of the plaintiffs'. Having regard to the conclusions which their Lordships have reached they think that the appeal should be allowed and the orders below should be discharged, and that the action should be dismissed, the appellants having their costs here and below."

12. In AIR 1940 PC 85, their Lordships of <ORG> laid down the following tests:

"It seems desirable to state the views of their Lordships on some of the topics of criticism of the views of the learned Judges which were urged on behalf of the appellants. Their Lordships think that the test of comparison of the marks side by side is not a sound one, since a purchaser will seldom have the two marks actually before him when he makes his purchase; and marks with many differences may yet have an element of similarity which will cause deception, more especially if the goods are in practice asked for by a name which denotes the mark or the device on it. This has been settled in England since the case in <NAME> v. <NAME>, (1866) 1 Ch A 192, where there will be found some remarks by Lord <NAME>, L. C. very relevant to this matter. He also pointed out (at page 197) that the adoption by a rival trader of a mark which would cause his goods to bear the same name in the market, may be as much a violation of the rights of the first owner as the actual copy of his device. This same view was taken in <NAME> v. <NAME>, 1882-7 AC 219 at pp. 225 and 226, a case relating to the use of two elephants on tickets placed upon goods for sale In India. (See as to the effect of the differences between the tickets the remarks of <NAME>, L. C. at p. 224 et seq.) Further, it is not an- answer to the claim of a Trader who has established, as the appellants have cone in the present case, the right to a trade mark (e.g. a device or a fancy word) to say that, apart from the device or the word, the labels or containers of the rival trade are very different from those of the trade mark owner. It may be observed that, if it were so, such a trade mark would be of little value, for its use by several traders would soon result in its becoming common to the trade: see <NAME> v. <NAME>, (1872) 5 HL 508 and 1882-7 AC 219. In the present case there may well have been persons who knew of the reputation of the appellants' 'elephant mark' goods, but were illiterate or did not know or did not remember the particular get-up of their goods, and again the differences of labels and get-up might have been supposed to have been made by the appellants themselves in putting a different or cheaper article upon the market. Their Lordships however are not to be understood as saying that the differences in get-up are immaterial; for they must inevitably form an element in considering the question of probability of deception by the use of the mark."

13. Therefore, according to the principles laid down by their Lordships of <ORG>, it would be necessary to see in each case whether the defendant has different mark or labels, which bear any similarity to the registered trade mark and which are likely to deceive an unwary purchaser. Their Lordships also have laid down that a comparison side by side would not be the real test. But, it is the general similarity that would be material, which may result in decention.

14. Further on, in <CITATION> , AIR 1946 PC 109, their Lordships of <ORG> laid down as follows :

"The learned Judge also raised an issue as to whether registration of the plaintiff's said trade marks entitled them to prevent the user by the defendants of the features and devices surrounding the portraits of the plaintiff ana he answered that issue in the affirmative. In their Lordships view, this issue raised a purely hypothetical question which the learned Judge ought not to have raised or attempted to answer. The question of infringement must be answered in relation to the plaintiff's trade marks as a whole, and not to particular parts of them. There is no evidence that the defendants have made use of a mark containing the features surrounding the plaintiff's portrait either without any portrait, or with a portrait in no way resembling that of the plaintiff, and the question whether such a mark if and when adopted by the defendants will involve infringement of the plaintiff's marks does not arise."

Therefore, it is clear that the plaintiff has certainly a vested right in the registered trade mark, which means the general features of the trade mark. He cannot claim that he has a vested right in any particular aspect of the trade mark. As for instance, he cannot 'say that no other person shall use the picture of a cow in his labels. Similarly, he has no vested interest in the choice of colours, although it is true he would certainly have a vested interest in the general get up of the trade mark and any attempt to copy the same or to put any similar labels, which are likely to create confusion can be resisted by him by way of a suit for injunction. But, the confusion is to be on the general get up and not any particular aspect of the trade mark.

15. <CITATION> ., AIR 1960 SC 142, their Lordships of <ORG> laid down the following principles regarding infringement of trade marks.

"We may also refer to In re, Harrods Application, 1934-52 RPC 65, mentioned in the quotation from <ORG>'s case, (In re, an application by <ORG>, (England)), (1947) 64 RPC 76, set out in the preceding paragraph. It was there said at p. 70:

'Now it is a well recognised principle, that has to be taken into account in considering the possibility of confusion arising between any two trade-marks, that, whether those two marks contain a common element which is also contained in a number of other marks in use in the same market such a common occurrence in the market tends to cause purchasers to pay more attention to the other features of the respective marks and to distinguish between them by those features. This principle clearly requires that the marks comprising the common element shall be in fairly extensive use and, as I have mentioned, in use in the market in which the marks under consideration are being or will be used.' The series of marks containing the common element or elements therefore only assist the applicant when these narks are in extensive use in the market. The onus of proving such user is of course on the applicant, who wants to rely on those marks. Now in the present case the applicant, the respondent before us, led no evidence as to the user of marks with the common element. What had happened was that the Deputy Registrar looked into his register and found there a large number of marks which had either '<ORG>' or 'Vita' as prefix or suffix in it. Now of course the presence of a mark in the register does not prove its user at all. It is possible that the mark may have been registered but not used. It is not permissible to draw any inference as to their user from the presence of the marks on the register. If any authority on this question is considered necessary, reference may be made to Kerly p. 507 and <ORG> v. <ORG>, 1922-39 RPC 285. It also appears that the appellant itself stated in one of the affidavits used tin its behalf that there were biscuits in the market bearing the marks '<ORG>se Biscuits', '<ORG> biscuits' and '<ORG>a Lactine biscuits'. But these marks do not help the respondent in the present case. They are ordinary dictionary words in which no one has any right. They are really not marks with a common element or elements. We, therefore, think that the learned appellate Judges were in error in deciding in favour of the respondent basing themselves on the series marks having '<ORG>' or 'Vita' as a prefix or a suffix."

In that particular case, the two goods were different in the market under the name of 'Glucovita' and 'Gluvita'. Their Lordships of <ORG> laid down that such a similarity in commonly used names was not likely to create a confusion amongst consumers.

16. So far as this Court is concerned, <NAME> had to consider the question of grant of a temporary injunction in relation to a trade mark in <NAME> v. <NAME>, 1959 MPLJ 544, wherein he observed as follows:

"In <ORG> <ORG>, (1881) 45 LT 54, on the defendants undertaking to keep an account, <ORG>, refused an interlocutory injunction, but <ORG> granted it because, while the defendants had only recently commenced to use their mark, and their trade mark was admittedly not dependent on it, the plaintiffs had a large trade in connection with which they used a label alleged to be infringed, and their rights would have been irremediably and incalculably injured unless the injunction were granted, if their case should be established at the trial.

In a similar case and in similar circumstances, <ORG> issued an injunction in appeal setting aside the order passed by the first Court. Recalling the principles on which injunctions are issued and ad interim reliefs are granted, it has been observed in that case that in cases of passing off actions, it is not necessary that there must be an element of fraud exercised or likely to be exercised by one party against another to justify issue of an injunction. It has been further held that its issue is governed by the balance of convenience as between granting or refusing such an ad interim relief, that is, on consideration as to the comparative mischief or inconvenience which might arise from granting or withholding such an interlocutory injunction. <CITATION> , AIR 1951 Mysore 29.

Relying on a number of decisions, it has been stated in <NAME>'s book on Trade Marks Act , page 456, that where the plaintiff's trade is considerable and the defendant's business has just commenced, or is small and negligible, an interlocutory injunction will ordinarily be granted."

17. <CITATION> , AIR 1959 MP 21, a Division Bench consisting of <NAME>, <NAME> (as he then was) and <NAME>, J. had to consider the question as to what evidence would be sufficient to warrant the grant of an injunction. The learned Judges laid down that it would be the actual user the proof of which would be necessary. The mere fact that a declaration might have been made by a party before a Justice of the Peace would not by itself be sufficient to warrant the issuance of an injunction. The question of an injunction will usually be dependent on a likelihood of a confusion being created and the same being necessary in order to prevent irreparable injury. Therefore, it is necessary to examine whether the grant of an injunction in the present case was justiiied.

18. The learned counsel for the plaintiff-appellant urgeo that the appellant's registered trade mark is known as Gai Chhap in the market and if the respondent is also permitted to put in the market bidi under that distinctive mark, confusion was likely to be created. In this connection, I might observe that there is practically no similarity or negligible similarity between the two bidi bundles of the appellant and the respondent. The only similarity that might be there is in the picture of a cow and the use of four colours. That by itself is not likely to cause any confusion because of the distinctive wrappers. Moreover, there is no proof that the respondent has tried to pass off goods, or that he has put in the market labels, which are likely to create confusion. In fact, the appellant has practically no sales in the three districts of Hoshangabad, East Nimar and Dewas, while the respondent's business is centered in those three districts. The respondent has his business in those districts to the extent of a little over two lacs, while the appellant's business to the extent of about 4 lacs is spread over in four different States. This is also one of the reasons why there is no likelihood of any confusion being created or any attempt at passing off succeeding on account of the mere fact that the respondent has put in the market a label which also has the picture of a cow.

19. It is also an record that the respondent has not put in the market new labels recently. In fact, the respondent has been using them since the years 1936-37. That is much before the registration of the appellant's trade mark in the year 1944 after the enactment of the Trade Marks Act , 1940. Before that the respondent was using rubber stamp labels marked as Ex. H. But, there can be no doubt that the labels (Ex. E and Ex. G) have been in the market for the last 24 years and the respondent has built up its business on the reputation of that particular trade mark, although it may not have been registered. But, there is no attempt at causing confusion or at passing off the respondent's goods for the appellant's goods. Applying the tests laid down by their Lordships of <ORG>, as also by their Lordships of <ORG>, and of the learned Judges of this Court in the cases mentioned above, I am of opinion that the grant of a temporary injunction in the present case by the learned trial Judge was not in accordance with law, nor in consonance with judicial principles. By the grant of a temporary injunction, the respondent is likely to be prejudiced and the injury caused to him would be irreparable, which may not be off-set by a pecuniary compensation. On the other hand, the injunction, if granted, is not going to help the appellant in any way, as the appellant's sphere of business is different from the sphere of business of the respondent. As already indicated earlier, the respondent's business is centered in three districts of Madhya Pradesh, where the appellant has practically no sales. It is for this reason as well that I am of opinion that the grant of an injunction would be improper, as it Would not be necessary in order to prevent any irreparable injury to the appellant, but on the other hand, it will definitely cause irreparable injury to the respondent, which cannot be off-set by a pecuniary compensation. To conclude, I am of opinion that the action of the -learned District Judge in granting a temporary injunction on certain terms was not proper, nor for the balance of convenience of the parties, Therefore, I am of opinion that it is liable to be vacated.

20. As a result of the discussion aforesaid, the present appeal, namely Misc. (First) Appeal No. 139 of 1960 fails and is dismissed with costs of both the <ORG>, while the connected appeal, namely, Misc. (First) Appeal No. 146 of 1960 succeeds and is allowed with costs of both the courts. Counsel's fee in each case Rs. 100/- if certified'.


PETITIONER: THE COMMISSIONER OF INCOME TAX AND EXCESS PROFITS TAX, Vs. RESPONDENT: <ORG>, KARAIKUDI. DATE OF JUDGMENT: 14/03/1956 BENCH: <NAME>, SUDHI RANJAN BENCH: <NAME>, SUDHI RANJAN BHAGWATI, <NAME>, T.L. VENKATARAMA CITATION: 1956 AIR 492 1956 SCR 223 ACT: Indian Income Tax Act , 1922 (XI of 1922), s. 10-Whether money received by the Assessee in the accounting period-As a revenue receipt or capital receipt-On the facts and in the circumstances of the instant case. HEADNOTE: The assessee-a private limited company-carried on the busi- ness 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 the assessee used to advance monies to producers of films and secure the right of distribution of the films produced with the help of the monies so advanced by the assessee. In the course of such business it advanced monies to <ORG> for the production of three films and acquired the right of distribution of these three films under three agreements in writing dated the September 1941, July 1942 and May 1945. The said agreements expressed in similar language contained similar provisions. In the accounting year ending 31st March 1946 and in the previous years the assessee bad exploited its rights of distribution of the three pictures. On 31st October 1945 the assessee and <ORG> 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 <ORG> during the accounting period as compensation. The question for determination was whether on the facts and in the circumstances of the case the sum of Rs. 26,000, received by the assessee from the <ORG> was a revenue receipt assessable under the Indian Income Tax Act . Held, per S. R. <NAME> C. J. and <NAME>, (<NAME> dissenting) 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:- (i) the sum paid to the assessee was not truly compensation for not carrying on its business but was a sum paid in ordinary course of business to adjust the relation between the assessee and the producers of the films; 30 224 (ii) the agreements which were cancelled were by no means agreements on which the whole trade of the assessee 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 <CITATION> ( 26 T.C. 406); and (iii) one cannot say that the cancelled agreements constituted the framework or whole structure of the assessee's profit making apparatus in the sense the agreement between the two margarine dealers concerned in <ORG> v. <NAME> (L.R.  A.C. 431) was. It is not always easy to decide whether a particular payment received by a person is his income or whether it is to be regarded as his capital receipt. Income is a word of the broadest connotation and difficult and perhaps impossible to define in any precise general formula. Though in general the distinction between an income and a capital receipt was well recognised and easily applied, cases did arise where the item lay on the border line and the problem had to be solved on the particular facts of each case. No infallible criterion or test can be or has been laid down and the decided cases are only helpful in that they indicate the kind of consideration which may relevantly be borne in mind in approaching the problem. The character of the payment received may vary according to the circumstances. <NAME> (dissenting): that in the instant case, the pictures, if produced by the assessee itself would have been capital assets of the assessee. What the assessee did was that instead of producing the pictures itself it advanced monies to the producers for the purpose of producing the pictures which it acquired for the purpose. of distribution and exploitation. Nonetheless, the pictures thus acquired were capital assets of the assessee which it worked upon in carrying on its business of distribution and exploitation, the monies it spent on the acquisition of the pictures were thus capital expenditure and whatever monies were realised by it by working these capital assets were its capital receipts except of course the commission which it earned by distribution and exploitation of the pictures which cer- tainly would be its trading receipts. Having regard to the terms of these agreements it could certainly not be predicated of these pictures that they were its stock-in- trade so as to constitute the payment in question a trading receipt of the assessee. <CITATION> . ( L.R. 59 I.A. 206; A.I.R. 1932 P.C. 138; 6 I.T.C. 178), <CITATION> ([1943) 11 I.T.R. 513, 521; L.R. 70 I.A. 180), <ORG> v. <ORG> ( 12 T. C. 955), <ORG> v. Commissioners of Inland Revenue ( 21 T. C. 608), <ORG> v. <ORG> ( 12 T.C. 427), <NAME> 225 (H. M. Inspector of Taxes) v. <ORG> ( 25 T.C. 52), <NAME> (H.M. Inspector of Taxes) v. <ORG> ( 27 T.C. 167), <CITATION> (A.I.R. 1932 P.C. 138), <ORG> v. <NAME> (Inspector of Taxes) (L.R.  A.C. 431; 19 T. C. 390; 3 I.T.R. (Suppl.) 17) and <CITATION> ( 26 T.C. 406), referred to. The facts of the case as taken from the judgment of the Hon'ble <NAME> are shortly as follows:- The assessee is a private limited company. It 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 the assessee used to advance monies to producers of films and secure the right of distribution of the films produced with the help of the monies so advanced by the assessee. In the course of such business it advanced monies to <ORG> for the production of three films and acquired the right of distribution of these three films under three agreements in writing dated the 17th September 1941, 16th July 1942 and 5th May 1945. The said several agreements were expressed in similar language and contained similar provisions. The assessee bound itself to advance a certain sum in instalments specified therein and retain the balance to be utilised for the purpose of press publicity in such way as it thought fit and proper and at its sole discretion. <ORG> in its turn bound itself to arrange for the delivery to the assessee of twelve copies of the film to be produced after it would be passed by <ORG> (clause 1). The territories within which the assessee was to have the right of distribution and exploitation of the film was specified in clause 2 and such right was to enure for a period of five years from the date of the release of the film. The assessee was given the right, at its sole discretion, to distribute the films at such rates and on such terms and conditions and in such manner as it might deem fit (clause 2). The amounts realised by the distribution of the films was to be utilised by the assessee in the following way: namely, in paying itself its distribution commission and in retaining the available balance until the entire amount of advance would be discharged (clause 3) and after the entire amount of the advance would be discharged, in paying to <ORG> the net realisations from the film after deducting its commission (clause 4). In case the full amount of advance could not be recouped from the realisations of the film on or before the expiry of one and half years from the date of the first release of the film <ORG> would be liable to pay to the assessee whatever balance would remain due with compound interest at twelve per cent. per annum calculated in the manner men- tioned in clause 6. The assessee's commission for distribution and 226 exploitation of the film through its Organisation was, by clause 8, fixed at 15 per cent. of the net realisations. In case of sale of district or territorial rights of the film made by consent of both parties the assessee alone would be entitled to put through such sales and receive the proceeds and would be entitled to a commission of ten per cent. thereon and to appropriate the balance towards the payment and discharge of the advance made by it (clause 9). The assessee was to submit to <ORG> a monthly statement of account and show all books of account to <ORG> (clauses 11 and 12). The assessee was given liberty to appoint sub-agents and sub-distributors at its sole discretion (clause 13). The amount advanced by the assessee was made immediately repayable in the event of the film being banned or not passed by <ORG> (clause 14). Clause 15 gave the assessee a charge by way of security on the negative and positive copies of the film for whatever amount might be due to the assessee on account of the advance made and in case the negative and positive copies were in possession of <ORG> the same were to be held by the latter as trustee of the assessee. The burden of insuring the negative copies of the film was placed on <ORG> at its own cost (clause 16). <ORG> agreed to indemnify the assessee against all claims or demands of any nature whatsoever by any person or agency in or upon the film and against all claims of any person or agency on account of any infringement of copyright (clause 17). If <ORG> failed to deliver the film within the time specified therein, the assesses was given the right, at its option, to complete the picture at its own cost and in such event, <ORG> was to be liable to the assessee for all such expenses with compound interest thereon at 12 per cent. per annum and the assessee would have all the rights of distribution, sale, etc. as aforesaid (clause 19). The last clause provided that on the expiry of the period of 5 years the assessee would return to <ORG> all copies of the film and balance stock of loan and saleable publicity materials subject to wear and tear. In the accounting year ending 31st March 1946 and in the previous years the assessee had exploited its right of distribution of the three pictures. On 31st October 1945 the assessee and <ORG> entered into an agreement cancelling the three several agreements relating to the distribution rights in respect of the three films and in consideration of such cancellation <ORG> agreed to pay to the assessee towards commission the sum of Rs. 8,666-10-8 (rupees eight thousand six hundred and sixty-six annas ten and pies eight) for each of the three pictures aggregating in all to Rs. 26,000 (rupees twenty-six thousand). It is this sum of Rs. 26,000 (rupees twenty-six thousand) which was paid during the accounting year which forms the subject matter of the question that has arisen between the assessee and the department. JUDGMENT:

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 32 of 1954.

On appeal from the judgment and order dated the 26th September 1951 of <ORG> in Case Referred No. 18 of 1949.

<NAME>, Solicitor-General of India (<NAME> and <NAME>, with him) for the appellant. <NAME>, for the respondent. 1956. March 14. <NAME> the year 1945 the respondent company (hereinafter called the "assessee") received a payment of a sum of Rs. 26,000 (rupees twenty-six thousand) from <ORG> of Madras (hereinafter referred to as <ORG>) pursuant to the terms of an agreement between the assessee and <ORG> dated the 31st October 1945. In the course of the proceedings for the assessment of the assessee's income-tax for the year 1946-47 and the excess profits tax for the chargeable accounting period from 1st April 1945 to 31st March 1946, the following question arose:-

"Whether on the facts and in the circumstances of the case, the sum of Rs. 26,000 received by the assessee from <ORG>, is a revenue receipt assessable under the Indian Income-Tax Act ?"

The Income-Tax Officer took the view that the sum was in the nature of a revenue 'receipt and was liable to be brought to account for purposes of calculating the tax. The Appellate Assistant Commissioner upheld this decision. On further appeal by the assessee <ORG> held that the case was governed by the decision of <ORG> in <CITATION> (1) and that the sum received by the assessee was a capital receipt. Accordingly on 26th August 1948 the <ORG> reversed the decision of the Appellate Assistant Commissioner. At the instance of the Commissioner of Income-Tax and (1)  L.R. 59 I.A. 206; A.I.R. 1932 P.C. 138; 6 I.T.C.

178. Excess Profits Tax, Madras the <ORG> under section 66(1) of the Indian Income-Tax Act, 1922 referred to <ORG> of Madras the question of law quoted above. <ORG> agreed with the Income-Tax Appellate <ORG> and answered the question in the negative. The present appeal is directed against this decision of <ORG>. [After stating the facts of the case which gave rise to the present point in controversy and which have been stated above His Lordship proceeded as follows:] As already indicated the question for consideration is whether this payment constituted a capital receipt or a revenue receipt. It may be mentioned here that the answer to this question will be relevant and helpful only in respect of assessments of other assessees for assessment years prior to the date when the new sub-section (5-A) was, by the Finance Act of 1955, added to section 10 of the Indian Income Tax Act, 1922.

It is not always easy to decide whether a particular payment received by a person is his income or whether it is to be regarded as his capital receipt. Income, said Lord <NAME> in <CITATION> (1), is a word of the broadest connotation and difficult and perhaps impossible to define in any precise general formula. Lord <NAME> said in <ORG> v. <NAME> (Inspector of Taxes)(2) that though in general the distinction between an income and a capital receipt was well recognized and easily applied, cases did arise where the item lay on the border line and the problem had to be solved on the particular facts of each case. No infallible criterion or test can be or has been laid down and the decided cases are only helpful in that they indicate the kind of consideration which may relevantly be borne in mind in approaching the problem. The character of the payment received may vary according to the circumstances. Thus the amount received as consideration for the sale of a (1)  11 I.T.R. 513, 521; L.R. 70 I.A. 180, 192. (2) L.R.  A.C. 431: 19 T.C. 390; 3 I.T.R. (Suppl.)

17. 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. The problem that confronts us has to be approached keeping in mind the different kinds of consideration taken into account in the different cases. The assessee before us is a company carrying on a business and it received the sum in question in connection with that business. We have, therefore, to ask ourselves as to what is the substance of the matter from the point of view of a businessman. The assessee contends that in receiving this sum it was not carrying on its business,/which was to distribute films, but that it received this amount as and by way of compensation for not distributing those films, that is to say for not carrying on its business. The sum was, according to the assessee, received by it in return for its ceasing to engage in the business of distributing those three films. We do not think that is the intrinsic business of the matter. Here was the assessee whose business was to distribute films, purchased or produced by itself or in respect of which it secured the distribution rights under agreements with the producers. For the purpose of this distribution business the assessee obviously,had arrangements with the proprietors of different/cinema halls. If any producer failed to deliver an film as agreed then the exigencies of the assessee's business would certainly have required the assessee to treat that agreement as terminated by breach and to enter into another agreement for securing the distribution right in some other film so as to enable it to fulfil its engagement with the proprietors of the cinema halls by distributing the new film in the place of the one that had not been supplied. Likewise if a particular film secured by the assessee failed to attract public enthusiasm, business exigencies might well have required the assessee to enter into an arrangement with the producers concerned to cancel the agreement for distribution of that film and to enter into another agreement with the same or other producers for acquiring the distribution right in another film likely to bring a better box-office collection. The termination of the agreement in each of the circumstances hereinbefore mentioned could well be said to have been brought about in the ordinary course of business and money paid or received by the assessee as a result of or in connection with such termination of agreements would certainly be regarded as having been so paid or received in the ordinary course of its business and therefore a trading disbursement or trading receipt. There was no covenant made by the assessee with <ORG> not to enter into agreements with other producers or not to distribute films secured from other producers. In fact in the accounting year the assessee had distribution rights in respect of eleven films including these three. These three agreements would have come to an end on the expiration of the period of five years from the respective dates of release of the films and had only a part of the period to run, a fact which may also be relevantly borne in mind. The cancellation of these agreements must have left the assessee free, if it so chose to secure other films which could be distributed in the place of these films and/which might have brought in better box-office collections, In the language of Lord <NAME>, M. R. in <ORG> v. The Com- missioners of Inland Revenue(1) the sum paid to the assessee was not truly compensation for not carrying on its business but was a sum paid in ordinary course, of business to adjust the relation between the assesse and the producers of the films. The agreements which were cancelled were by no means agreements on which the whole trade of the assessee bad 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 <CITATION> (2). Nor can one say that the cancelled agreements constituted the framework or whole structure of the assessee's profit making apparatus in the sense the agreement between the two margarine dealers concerned in Van Den Berghs (1)  12 T.C. 955, 973.

(2) [1945] 26 T.C. 406, Ltd. v. <NAME> (Inspector of Taxes) (supra) was. Here' were three agreements entered into by the assessee in the ordinary course of his business along with several similar agreements. These three agreements were by mutual consent put an end to. The termination of these three agreements did not radically or at all affect or alter the structure of the assessee's business. Indeed the assessee's business of distribution of films proceeded apace notwithstanding the cancellation of these three agreements.

Learned counsel for the assessee has, as did <ORG>, strongly relied on the decision of <ORG> in <NAME> case (supra). In that case there was no fixed period within which the distributing agency was to continue, whereas in the case before us the agreement was only for a fixed period of five years out of which a considerable part had already expired. In <NAME> case the entire distributing agency work was completely closed, whereas the termination of the agreements in question did not have that drastic effect on the assessee's business at all. His business of distribution of films continued notwithstanding the cancellation of these three agreements. In <NAME> case, therefore, it could possibly be said that the amount paid there represented a capital receipt. It is pointed out that in <NAME> case there were other agencies also which were continuing. A reference to that case reported sub-nom Shaw Wallace & Co. v. Commissioner of Income Tax, Bengal(1) will show that <ORG> carried on business as merchants and managing agents of various companies and that they were also the distributing agents of the two oil companies as well. The business of managing agency of a company is quite different from the business of distributing agency of the products of oil companies. The different managing agencies in that case were entirely different from and independent of the distributing agency of the two oil companies and this aspect of the matter was emphasised (1) [1931] 5 I.T.C. 211.

by Sir <NAME> towards the end of his judgment where he said:-

"It is contended for the appellant that the "business" of the respondents did in fact go on throughout the year, and this is no doubt true in a sense. They had other independent commercial interests which they continued to pursue, and the profits of which have been taxed in the ordinary course without objection on their part. But it is clear that the sum in question in this appeal had no connection with the continuance of the respondent's other business. The profits earned by them in 1928 were the fruit of a different tree, the crop of a different field". If <ORG> had other distributing agencies similar to those of the two oil companies then it would be difficult to reconcile the decision in that case with the later decisions in <NAME> all <ORG> v.<ORG>) and other cases. It has been urged that the agreements did not create merely an agency for the distribution of the films but were composite agreements consisting partly of a financing agreement creating a security on the films for the monies to be advanced and conferring the right even to complete the films in case the producers failed to do so and partly of a distributing agency agreement giving the assessee the utmost latitude in the matter of the terms and conditions on which it could exploit and distribute the films. It was argued that the rights acquired by the assessee under the agreements were in the nature of capital assets of the assessee's business and the amounts received by the assessee were the prices or considerations for the sale or surrender of such capital assets or were received by way of compensation for the sterilization or destruction of those capital assets. <NAME> <ORG>'s case and <ORG> case referred to above were sought to be distinguished on the ground that there the payments were made in respect of the cancellation of contracts directed to result in the making of the trading profits, whereas in the present case the cancelled agreements were directed to the acquisition (1) [1938] 21 T.C. 608.

of rights in the films which when worked were to yield profits. The terms of the agreements summarised above clearly show that they constitute a financing agreement and a distributing agency agreement. In so far as they were only financing agreements they gave the assessee a charge on the films to be produced with moneys advanced by it but gave it no right to distribute the films or otherwise work them for making income, profits or gains. Therefore, it can hardly be said that by the financing agreements the assessee acquired capital assets for carrying on its distributing agency business. In this respect the case differs from the case of <ORG> v. <ORG>), for in that case the lease of the fire clay fields authorised the assessee who was a manufacturer of fire clay goods to extract fire clay and manufacture fire clay goods and consequently was a capital asset of the assessee's business. Further, in the present case there is no suggestion that any part of the moneys advanced by the assessee for the production of the films was outstanding. Assuming that to start with the films constituted capital assets, the entire capital outlay had been recovered and the security had been extinguished and that part of the agreements which constituted financing agreements had been fully worked out and bad come to an end and the three films ceased to be capital assets and the assessee was holding the films only under that part of the agreements which consti- tuted the distributing agency agreements which only were subsisting. In the premises the amount received by the assessee was only so received "towards commission", that is to say, as compensation for the loss of the commission which it would have earned bad the agreements not been terminated. In our opinion, in the events that had happened, the amount was not received by the assessee as the price of any capital assets sold or surrendered or destroyed or sterilized but in the language of <NAME> in <ORG> case (supra) the amount was simply received (1) [1922] 12 T.C. 427.

by the assessee in the course of its going distributing agency business from that going business. In our judgment, on the facts and in the circumstances of the present case, it falls within the principles laid down in <ORG> and <ORG>'s cases rather than within those laid down in <ORG> case or <ORG> case or <ORG> case.

Reference was made to section 10 (5- A) of the Indian Income Tax Act , 1922, and it was urged that the language of that sub-section impliedly indicated that the sum of Rs. 26,000 (rupees twenty-six thousand) was a capital receipt. We are unable to accept this suggestion. That sub-section was obviously introduced to prevent the abuse of managing agency agreements being terminated on payment of huge compensation and to nullify the application of the decision in <ORG> case to such cases. But that sub-section does not necessarily imply that if that sub-section were not there the kind of payment referred to therein would have been treated as capital receipt in all cases.

For the reasons stated above the referred question should in our opinion have been answered in the affirmative and we answer it accordingly. The appeal is, therefore, allowed with costs throughout.

<NAME> had the privilege of reading the judgment just delivered by my Lord the Chief Justice but I regret I cannot agree with the same.

The facts leading up to the present appeal have been fully set out in that judgment and it is not necessary to repeat the same. The relevant portions of the agreement dated the 17th September 1941 which is the sample of the three agreements entered into between <ORG> and the assessee may be, however, set out herein:

"Whereas the producer has taken on hand the production of a Tamil talkie picture 'Kannagi' hereinafter called the said picture........ and whereas for the purpose of the said production the producer has approached the distributors for financial assistance and for the distribution and exploitation of the said picture by the distributors through their organization and the distributors have agreed to render such financial assistance by advancing to the producer altogether a sum of Rs. 57,000 on the terms and in the manner hereinafter appearing and. to distribute and exploit the said picture through their organization as requested by the producer................. Cl. 1. The distributors shall advance to the producer a sum of Rs. 57,000 only altogether in the manner hereinafter set out:

(a) a sum of Rs. 7,000 only should be advanced on the execution of these presents;

(b) a further sum of Rs. 5,000 should be advanced as soon as 5,000 feet of film shall have been completed and roughly edited, rushprint thereof shown;

(c) a further sum of Rs. 10,000 should be advanced as soon as a further 10,000 feet of film shall have been completed;

(d) a further sum of Rs. 10,000 should be advanced as soon as a further 15,000 feet of film shall have been completed;

(e) a further sum of Rs. 12,000 should be advanced on the last shooting day of the picture;

(f) a further sum of Rs. 10,000 should be advanced as soon as the picture is passed by <ORG> and 12 copies of the film delivered to the distributors; and the balance of Rs. 3,000 to be retained by the distributors to be utilised for the purpose of Press Publicity in regard to the said picture to be made by the distributors on behalf of the producer from time to time. The distributors may utilise the said sum for publicity as they think fit and proper and at their sole discretion.

Cl. 3. The distributors shall from the realisations of the said picture made by them:

(a) pay themselves all amounts spent by them for publicity in respect of the said picture such an expenditure having been incurred only after obtaining the consent of the producer;

(b) pay themselves their distribution commis-

sion in respect of the said picture as hereinafter provided; and

(c) pay themselves the available balance until the entire advance of Rs. 57,000 should be completely discharged and satisfied.

Cl. 6. If the distributors should fail to realise the full amount due to them as aforesaid from the realisation of the said picture in the manner hereinbefore set out on or before the expiry of one and a half years from the date of the first release of the said picture, the producer shall be liable to pay to the distributors whatever balance may be then due by them with compound interest at 12 per cent. per annum the said interest to be calculated on the said balance amount from the date of expiry of the said one and a half years and the said payment to be made before the expiry of one month therefrom.

Cl. 15. And it is hereby expressly agreed by and between the distributors and the producer that until the entire amount of Rs.

57,000 to be advanced by the distributors should be repaid and discharged in full and all other claims of the distributors arising hereunder completely satisfied the negative and positive copies of the said picture shall constitute the security for whatever amount may be due to the distributors and shall, if in the possession of the producer or any one on his behalf, be held by them only as trustees for the distributors.

Cl. 19. In the event of the producer failing to deliver the said copies of the said picture duly passed by <ORG> as hereinbefore provided before the said period, namely 1-5-1942, the producer shall become liable to pay to the distributors at the letters' option such amount as has been advanced by the distributors to the producer including monies ,spent by the distributors in respect of publicity with interest thereon at 12 per cent. per annum. But if the said picture be not delivered within two months thereafter, viz., on or before 1-7-1942 the distributors may at their option complete the picture at their own cost and in such case the producer shall be liable to the distributors for all the expenses with compound interest thereon at 12 per cent. per annum and the distributors shall have all rights as to the distribution, sale, etc., as aforesaid.

Cl. 20. On the expiry of the period of five years mentioned in this agreement, the distributors shall return to the producer all copies of films and balance stock of loan and saleable publicity materials of the said picture, subject to usual wear and tear and subject to the distributors receiving back from the producer such unrealised amount, if any, as mentioned in clause (6) above".

The said three agreements *were dated 17th September 1941, 16th July 1942 and 10th May 1945, each having a period of five years to run ending with 16th September 1946, 15th July 1947 and 9th May 1950 respectively.

The only question which falls to be determined by us herein is whether the payment of Rs. 26,000 received by the assessee from <ORG> on the cancellation of the said three agreements on the 31st October 1945 is a capital receipt or income, profits or gains liable to tax in the assessment year 1946-47.

The assessee was no doubt carrying on the business of distributors which involved as a necessary corollary the acquisition of films for the purpose of distribution. Those films could either be produced by it or could be acquired by it from the producers who hired them out to it for the purpose of distribution. There was, however, an activity in this business of distributors which consisted of advancing monies to the producers to enable the producers to produce the films and the agreements which were entered into between the producers and the assessee as distributors were composite agreements incorporating therein the terms in regard to the financial assistance as also the distribution and exploitation of the films thus produce by the producers with the financial assistance rendered to them by the assessee. They were not mere agreements for distribution and exploitation of the pictures which by themselves would not require any investment of capital but would merely involve the work of distribution and exploitation of the pictures. The terms above set out were designed for the purpose of protecting the interests of the assessee in so far as it advanced considerable sums to the producers for the purpose of producing the films. Apart from the commission which the assessee derived from the distribution and exploitation of the pictures which would certainly be its revenue receipt in the course of the carrying on of its business as distributors, it was entitled under the terms of the agreements to repay itself the amounts of the advances which it made for the production of the pictures as also the interest thereon and the agreements also provided that the negative and positive"., copies of the pictures should constitute the security for whatever amount might be due to the assessee not only in respect of the amounts advanced by it to the producers but also in respect of all other claims arising under the agreements. The negative and positive copies of the pictures if in possession of the producers or any one on their/behalf would only be held by them as trustees of the assessee and the assessee was invested with a species of proprietary rights over the same. If the pictures were not delivered within the specified period the assessee was at liberty to complete the same and in such a case the producers were liable to it for all the expenses with compound interest at 12 per cent. per annum and all the rights as distributors were to fasten upon the same. The copies of the films and all the other publicity materials were to be returned by the assessee to the producers after the expiry of the period of five years mentioned in the agreements subject to its receiving from the producers all unrealised amounts under the agreements. What is it that the assessee was, acquiring from the producers under the terms of these agreements? Was it acquiring capital assets which it would work upon by way of distribution and exploitation in order to earn its income, profits or gains or was it acquiring stock-in-trade of its business as distributors? If it was capital assets which it thus acquired the monies which it advanced to the producers for acquiring the same would necessarily be capital expenditure and would not be debited by it in its accounts as trading expenses which would be the position if what it, acquired under the terms of the agreements was mere stock-in-trade of its/business. The realisations which it made by distribution and exploitation of the pictures would be undoubted trade receipts and, therefore, income, profits or gains and no part of the same would go to its capital account. The monies which it had advanced for the production of the pictures would, however, as and when realised, be./ credited by it in its accounts as capital receipts and they would certainly not be liable to be treated as trading receipts. There was thus a sharp distinction between the capital account and the trading account, the amounts advanced towards the production of the pictures being capital expenditure and the repayments of these advances as and when made being capital receipts, as distinct from the monies spent by it in the distribution and exploitation of the pictures being trading expenses and the commission realised by it from such distribution and exploitation being trading receipts. As in the cases of mining leases and other species of proprietary rights obtained by an assessee being capital assets available to the assessee for working upon the same and earning income, profits or gains, so in the case of these pictures which it acquired by advancing monies to the producers to be available to it for distributing and exploiting the same, what it would be acquiring under the terms of the agreements would be capital assets and if an agreement was subsequently entered into by it either transferring these capital assets or surrendering them for value, whatever payment would be realised out of the same would be capital receipts and, not trading receipts. The nomenclature of that receipt as commission for distribution and exploitation under the agreements would not make any difference to the position nor would the fact that, at the time when the said three agreements were. cancelled., no part of the monies which had been advanced at the commence-

ment remained outstanding and the only activity of the assessee qua these pictures was then confined to the distribution and exploitation of the same. The agreements were composite agreements and what we have got to look to is what were the rights in these pictures which the assessee had acquired under the terms of the agreements. It had a species of proprietary rights in these pictures all throughout the period of the agreements not only in respect of advances which it had made for producing the same but also in respect of all other claims under the terms of the agreements and the nature of those rights would not be changed by the accident of the full amount of the advances being repaid to it at a particular period of time during the currency of the agreements. If it acquired capital assets those assets continued in its possession as such all throughout the period of the agreements and it would not be legitimate at any intermediate period of time to see what was the position obtaining at that time for the purpose of converting what were acquired as capital assets at the dates of the agreements into stock-in-trade of its business of distribution and exploitation of the pictures. If this be the true position on the construction of the agreements it follows that what was done by the assessee on the 31st October 1945 was to surrender these capital assets to the producers for a consideration. These capital assets qua the agreements of the 17th September 1941, 16th July 1942 and 10th May 1945 were to endure up to 16th September, 1946, 15th July 1947 and 9th May 1950 respectively. A sum of Rs. 8,666-10-8 was fixed as the consideration for the surrender of each and the capital assets which had been acquired were all of them surrendered by the assessee to the producers with effect from the 31st October 1945. The payment thus received by the assessee could only be a capital receipt being the price of the surrender of the capital assets and could not be considered a trading receipt at all.

It is well recognised that the problem of discriminating between an income receipt and a capital receipt and between an income disbursement and a capital disbursement is not always easy to solve. Even, though the distinction is well recognised and easily applied in general, cases do arise from time to time , where the item lies on the border line and the task of assigning it to income or capital becomes one of much refinement. "While each case is found to turn upon its own facts, 'and no infallible criterion emerges, nevertheless the decisions are useful as illustrations and as affording indications of the kind of considerations which may relevantly be borne in mind in approaching the problem................................ The nature of a receipt may vary according to the nature of the trade in connection with which it arises. The price of the sale of a factory is ordinarily a capital receipt, but it may be an income receipt in the case of a person whose business it is to buy and sell factories" (Per Lord <NAME> in <ORG> v. <NAME> (H. M. Inspector of Taxes(1)). It may also be borne in mind that the provisions of the Indian Income-tax Act are not in pari materia with those of the English Income-tax Statutes so that the decisions on the English Act s are in general of no assistance in construing the Indian Act s (Vide the observations of <ORG> in <CITATION> .(2) and in <CITATION> tax, Bihar & Orissa(3)).

The authorities which were cited at the Bar may, however, be shortly referred to. Counsel for the appellant particularly relied upon the decisions in <ORG> v. <ORG>) and <ORG> v. <ORG>) in support of the position that the cancellation of the agreements in the present case and the receipt of Rs. 26,000 by the assessee was in the ordinary course of business in order to adjust the relations between the producers and the assessee and was simply a receipt in the course of a (1) [1935] 19 T.C. 390, 428, 431.

(2) [1932] L.R. 59 I.A. 206, 212.

(3) [1943] L.R. 70 I.A. 180, 188.

(4) [1927] 12 T.C. 955.

(5) [1938] 21 T.C. 608.

going business from that going business and nothing else. It was submitted that it was an essential part of the assessee's business to enter into agreements of the nature in question and that it was an ordinary incident of its business that such agreements may be altered or terminated front , time to time. It was therefore a normal incident of the business such as that of the assessee that the agreements might be modified and in parting with the benefits of the agreements the assessee could not be said to be parting, with something which could be described as an enduring asset of its business.

This position would have been tenable if the agreements in question were merely distributing agreements without anything more. It would then have been an essential part of the assessee's business to enter into such agreements and also it would have been a normal incident of its business to modify or terminate the same and to adjust the relations between the parties. In neither of these cases was there any question of any capital asset having depreciated in value or become of less use for the purpose of the assessee's business. <NAME> observed in <ORG> v. <ORG> (supra) at page 968 that the money was not received in respect of the termination of any part of the assessee's business nor was it received in respect of any capital asset as was the sum in the <NAME>'s case(1). Lord <NAME> also emphasized this aspect of the matter in <ORG> v. <ORG> (supra) at page 622 that there was no finding that in consequence of the termination, any capital asset was depreciated in value or became of less use for the purpose of the assessee's business. If the assessees in those cases bad by virtue of the agreements in question acquired capital assets which they could work in order to earn income, profits or gains, the payments received on termination of the said agreements would certainly not have been held to be trading receipts but capital receipts and as such not liable to tax. (1) [1922] 12 T.C. 427.

Reliance was placed on behalf of the assessee on the decisions in <ORG> v. Commissioners of Inland Revenue(1) and <ORG> v. <NAME> (H.M. Inspector of Taxes) (supra), for showing that, if the capital asset of the assessee was sterilized or destroyed, the payment would be a capital receipt. Lord <NAME>, in <ORG> v. <ORG> (supra) at page 463, expressed the opinion that "it made no difference whether it be regarded as the sale of the asset out and out, or whether it be treated as a means of preventing the acquisition of profit that would otherwise be gained. In either case, the capital asset of the company was to that extent sterilized and destroyed and it was in respect of that action that the sum had been paid". Lord <NAME> also, at page 464 stated that "the mining leases were capital assets of the company, the company's objects were to acquire profits by working the mines under and by virtue of the titles and rights which they hold under the leases and the payment was made to the assessee for abstaining from seeking to make a profit". Put it in another way: "The right to work the area in which the working was to be abandoned was part of the capital asset consisting of the right to work the whole area demised. Had the abandonment extended to the whole area all subsequent profit by working would., of course, have been impossible but it would be impossible to contend that the compensation would be other than capital. It was the price paid for sterilising the asset from which otherwise profit might have been obtained. What is true of the whole must be equally true of the part"' (Page 465). In <ORG> v. <NAME> (H. M. Inspector of Taxes) (supra) it was held that the payment in question was the payment for the cancellation of the assessee's future rights under the agreements which constituted a capital asset of the assessee and that it was accordingly a capital receipt. Justice <NAME>, whose judgment was ultimately restored by <ORG>, observed at page 413:

(1) [1922] 12 T.C. 427.

The ground is not very easy to express, but the ground upon which I desire to put this part of the case is this, that the true view here is that the agreement which was cancelled was just a capital asset of, the <ORG> and, if that is right, it seems to me to follow that, distinguishing such cases as Short Brothers(1), one ought to hold that the sum received was not an income receipt at all". Lord <NAME>, after discussing the various authorities which according to him were useful as illustrations and as affording in- dications of the kind of considerations which maybe relevantly borne in mind in approaching the problem, construed the agreements in question as not ordinary commercial contracts made in the course of the carrying on of the assessee's trade. The agreements in the facts and circumstances of the case before him related to the whole structure of the assessee's profit-making apparatus, they regulated the assessee's activities, defined what they might and might not do and affected the conduct of their business and he had difficulty in seeing how money laid out to secure, or money received for the cancellation of, so fundamental an organization of a trader's activities could be regarded as an income disbursement or an income receipt. He expressed the opinion that the asset, the congeries of rights which the appellants enjoyed under the agreements and which for a price they surrendered, was a capital asset. They provided a means of making profits but they themselves did not yield profits.

Applying the same ratio here, could it not be said that the pictures which were acquired by the assessee from the producers were capital assets of the assessee, the object of the assessee being to acquire profits by distributing and exploiting the pictures under and by virtue of the titles and rights which the assessee acquired under the agreements or that they provided the means of making profits though they themselves did not yield profits? That being the true position on the construction of the agreements, the only result would be that the pictures constituted capital assets (1) [1927] 12 T.C. 955.

of the company and the payment in question was one for the cancellation of the assessee's rights under the agreements and was accordingly a capital receipt.

The distinction between capital assets on the one hand and the stock-in-trade on the other was sought to be supported by reference/to the decisions in <NAME> (H. M. Inspector of Taxes) v. <ORG> (1) and <NAME> (H. M. Inspector of Taxes) v. <ORG> (2). These were cases of assessees which carried on the business of building and selling houses or building and development business and in the course of their business acquired plots of land which they utilised for, the purpose of constructing buildings thereupon, which buildings together with the plots of land on which they stood were sold by them for a consideration. The question which arose was whether the acquisition of the plots of land on which the buildings were thus constructed was the acquisition of a capital asset or a trading asset ,by the assessees. Justice <NAME>, whose judgment in <ORG> was the final judgment in <NAME> (H. M. Inspector of Taxes) v. <ORG> (supra) remarked at page 57 that "it was not disputed that in the course of such a trade as this, the trade of building houses for sale, the land on which the houses were-" built was part of the stock-in-trade of the business and was not a capital asset. The land being thus a part of their stock-in-trade, the payment in question for the bit sold by the assessees would have been a trading receipt and the right to build on the plots was likewise- a trading asset".In <NAME> (H. M. Inspector of Taxes) v. <ORG> (supra), also, the judgment of the same learned Judge was the final judgment on the point in issue. The following observations of the learned Judge at page 172 are very instructive: "Although in most cases land belonging to a trading company was part of its capital assets, in the case of a company engaged in ribbon development the land which is acquired for the purposes of such development is not part of its capital. In such a case the land forms part of its stock-in-trade., just (1) [1943] 25 T.C. 52.

(2) [1946] 27 T.C. 167.

as much as the materials which it buys for the purpose of erecting the buildings on it. The cost of the land must come into its trading account as a trading expense. If it sells the land the price must come into its trading account as a trading receipt. And, likewise, compensation for injurious affection must also, in my opinion, be regarded as a trading receipt".

In the instant case also, the pictures, if produced by the assessee itself would have been capital assets of the assessee. What the assessee did was that instead of producing the pictures itself it advanced monies to the producers for the purpose of producing the pictures which it acquired for the purpose of distribution and exploitation. Nonetheless, the pictures thus acquired were capital assets of the assessee which it worked upon in carrying on its business of distribution and exploitation, the monies it spent on the acquisition of the pictures were thus capital expenditure and whatever monies were realised by it by working these capital assets were its capital receipts except of course the commission which it earned by distribution and exploitation of the pictures which certainly would be its trading receipts. Having regard to the terms of these agreements it could certainly not be predicated of these pictures that they were its stock-in- trade so as to constitute the payment in question a trading receipt of the assessee.

Both <ORG> and <ORG> relied upon the decision of <ORG> in commissioner of <CITATION> . (supra), and were of the opinion that the present case was covered by that decision. On the facts of the case as set out in the above appeal it does not appear to be clear whether the two selling agencies there were the only selling agencies which had been acquired and worked by <ORG>, and it, is debatable under the circumstances whether the authority of that decision is not shaken by the decisions in <ORG> case (supra) and <ORG> case (supra). It is sufficient to observe that the agreements in the case of <ORG> were not deemed to constitute capital assets of the assessee and that aspect of the question was not at all considered by <ORG>. It is not, therefore, necessary to express any opinion on the correctness or otherwise of that decision in this case. Having regard to all the circumstances adverted to above, it is, therefore, clear that the payment of Rs. 26,000 received by the assessee from the producers was in consideration of the surrender by the assessee of the capital assets which it had acquired from the producers under the three agreements in question and constituted a capital receipt not liable to tax for the assessment year 1946-47. The answer given by <ORG> to the referred question was, therefore, correct and I would dismiss the appeal with costs. ORDER.

BY THE COURT:-In accordance with the Judgment of the majority, the appeal is allowed with costs throughout.


CASE NO.: Appeal (civil) 2765 of 2005 PETITIONER: <ORG> RESPONDENT: <NAME> and two others DATE OF JUDGMENT: 20/04/2005 BENCH: ARIJIT PASAYAT & <NAME> JUDGMENT:

J U D G M E N T (Arising out of SLP(C) No.6144 of 2004) ARIJIT PASAYAT, J.

Leave granted.

<ORG> (hereinafter referred to as the '<ORG>') calls in question legality of the judgment rendered by <ORG> of <ORG> dismissing the appeal filed by the <ORG>. By the impugned order <ORG> confirmed the compensation awarded to the respondents by <ORG>, Principal District Judge, <NAME> (in short the 'Tribunal').

Background facts in a nutshell are as follows:

On 30.8.2001 one <NAME> (hereinafter referred to as the 'deceased') lost his life in an automobile accident. His widow (respondent no.1) and minor son (respondent no.2) filed petition claiming compensation under the Motor Vehicles Act , 1988 (in short the 'Act'). Deceased's mother was impleaded as respondent no.2 in the claim petition, while the <ORG> was impleaded as respondent no.1. It was stated in the claim petition that the accident occurred due to rash and negligent driving of the <ORG>'s driver. Claim of Rs.20 lakhs was made. Tribunal noted that the deceased was about 38 years of age and was getting monthly salary of Rs.4688/- (annually Rs.56,208/-) from the <ORG>. After deductions one-third for personal expenses contribution of the deceased was fixed at Rs.37,472/- per annum. As the deceased was about 38 years of age, multiplier of 16 was applied. Accordingly, the compensation was worked out at Rs.6,09,552/-. The award was questioned in appeal before <ORG> and <ORG> as noted above, dismissed the same.

In support of the appeal, learned counsel for the appellant submitted that quantum as arrived at by applying multiplier of 16 is high. There is no appearance on behalf of the respondents in spite of the notice. While issuing notice on 22.3.2004 the dispute was restricted to the appropriate multiplier to be adopted. The question regarding appropriate multiplier has been considered by this Court in <CITATION> . (1994 (2) SCC 176) and <CITATION> . 1996 (4) SCC

Certain principles were highlighted by this Court in the case of <CITATION> (1966 (3) SCR 649) in the matter of fixing the appropriate multiplier and computation of compensation. In a fatal accident action, the accepted measure of damages awarded to the dependants is the pecuniary loss suffered by them as a result of the death. "How much has the widow and family lost by the father's death?" The answer to this lies in the oft quoted passage from the opinion of Lord <NAME> in <NAME> v. <ORG> (1942 AC 601) which says:

"The starting point is the amount of wages which the deceased was earning, the ascertainment of which to some extent may depend on the regularity of his employment. Then there is an estimate of how much was required or expended for his own personal and living expenses. The balance will give a datum or basic figure which will generally be turned into a lump sum by taking a certain number of years' purchase. That sum, however, has to be taxed down by having due regard to uncertainties, for instance, that the widow might have again married and thus ceased to be dependent, and other like matters of speculation and doubt."

The rule in common law in <NAME> v. <NAME> (1979 (1) All ER 774) enunciated by Lord <NAME> was that "in a Civil Court, the death of a human being could not be complained of as a injury,". Indeed, the maxim action personalis moritur cum persona, had the effect that all actions in tort, with very few exceptions, also became extinguished with that person. Great changes were brought about by the Fatal Accidents Act , 1846 (now Fatal Accidents Act , 1976) and the Law Reforms (Miscellaneous Provisions) Act, 1934. Under the statute, as indeed under the Indian Statute as well, there are two separate and distinct cause of action, which are maintainable in consequence of a person's death. There were the dependant's claim for the financial loss suffered and acclaim for injury, loss or damage, which the deceased would have had, had he lived, and which survives for the benefit of his estate.

The measure of damage is the pecuniary loss suffered and is likely to be suffered by each dependant. Thus "except where there is express statutory direction to the contrary, the damages to be awarded to a dependant of a deceased person under the Fatal Accidents Act s must take into account any pecuniary benefit accruing to that dependant in consequence of the death of the deceased. It is the net loss on balance which constitutes the measure of damages." Lord <NAME> in the <NAME>'s case (supra) said, "The actual pecuniary loss of each individual entitled to sue can only be ascertained by balancing on the one hand the loss to him of the future pecuniary benefit, and on the other any pecuniary advantage which from whatever sources comes to him by reason of the death." These words of Lord <NAME> were adopted as the principle applicable also under the Indian Act in <CITATION> (1962 (1) SCR 929) where this Court stated that the general principle is that the actual pecuniary loss can be ascertained only by balancing on the one hand the loss to the claimant of the future pecuniary benefit and on the other any pecuniary advantage which from whatever sources comes to them by reason of the death, that is, the balance of loss and gain to a dependant by the death, must be ascertained.

The assessment of damages to compensate the dependants is beset with difficulties because from the nature of things, it has to take into account many imponderables, e.g., the life expectancy of the deceased and the dependants, the amount that the deceased would have earned during the remainder of his life, the amount that he would have contributed to the dependants during that period, the chances that the deceased may not have lived or the dependants may not live up to the estimated remaining period of their life expectancy, the chances that the deceased might have got better employment or income or might have lost his employment or income together.

The manner of arriving at the damages is to ascertain the net income of the deceased available for the support of himself and his dependants, and to deduct therefrom such part of his income as the deceased was accustomed to spend upon himself, as regards both self- maintenance and pleasure, and to ascertain what part of his net income the deceased was accustomed to spend for the benefit of the dependants. Then that should be capitalized by multiplying it by a figure representing the proper number of year's purchase.

Much of the calculation necessarily remains in the realm of hypothesis "and in that region arithmetic is a good servant but a bad master" since there are so often many imponderables. In every case "it is the overall picture that matters", and the court must try to assess as best as it can the loss suffered.

There were two methods adopted to determine and for calculation of compensation in fatal accident actions, the first the multiplier mentioned in <NAME> case (supra) and the second in <NAME> v. <ORG> (1951 (2) All ER 448) .

The multiplier method involves the ascertainment of the loss of dependency or the multiplicand having regard to the circumstances of the case and capitalizing the multiplicand by an appropriate multiplier. The choice of the multiplier is determined by the age of the deceased (or that of the claimants whichever is higher) and by the calculation as to what capital sum, if invested at a rate of interest appropriate to a stable economy, would yield the multiplicand by way of annual interest. In ascertaining this, regard should also be had to the fact that ultimately the capital sum should also be consumed-up over the period for which the dependency is expected to last.

The considerations generally relevant in the selection of multiplicand and multiplier were adverted to by Lord <NAME> in his speech in <NAME> v. <NAME> (1969 (2) All ER 178) where the deceased was aged 25 and left behind his widow of about the same age and three minor children. On the question of selection of multiplicand Lord <NAME> observed:

"The starting point in any estimate of the amount of the 'dependency' is the annual value of the material benefits provided for the dependants out of the earnings of the deceased at the date of his death. But....there are many factors which might have led to variations up or down in the future. His earnings might have increased and with them the amount provided by him for his dependants. They might have diminished with a recession in trade or he might have had spells of unemployment. As his children grew up and became independent the proportion of his earnings spent on his dependants would have been likely to fall. But in considering the effect to be given in the award of damages to possible variations in the dependency there are two factors to be borne in mind. The first is that the more remote in the future is the anticipated change the less confidence there can be in the chances of its occurring and the smaller the allowance to be made for it in the assessment. The second is that as a matter of the arithmetic of the calculation of present value, the later the change takes place the less will be its effect upon the total award of damages. Thus at interest rates of 4- 1/2% the present value of an annuity for 20 years of which the first ten years are at $ 100 per annum and the second ten years at $ 200 per annum, is about 12 years' purchase of the arithmetical average annuity of $ 150 per annum, whereas if the first ten years are at $200 per annum and the second ten years at $ 100 per annum the present value is about 14 years' purchase of the arithmetical mean of $ 150 per annum. If therefore the chances of variations in the 'dependency' are to be reflected in the multiplicand of which the years' purchase is the multiplier, variations in the dependency which are not expected to take place until after ten years should have only a relatively small effect in increasing or diminishing the 'dependency' used for the purpose of assessing the damages."

In regard to the choice of the multiplicand the Halsbury's Laws of England in vol. 34, para 98 states the principle thus:

"98. Assessment of damages under the Fatal Accident Act, 1976  The courts have evolved a method for calculating the amount of pecuniary benefit that dependants could reasonably expect to have received from the deceased in the future. First the annual value to the dependants of those benefits (the multiplicand) is assessed. In the ordinary case of the death of a wage-earner that figure is arrived at by deducting from the wages the estimated amount of his own personal and living expenses.

The assessment is split into two parts. The first part comprises damages for the period between death and trial. The multiplicand is multiplied by the number of years which have elapsed between those two dates. Interest at one-half the short-term investment rate is also awarded on that multiplicand. The second part is damages for the period from the trial onwards. For that period, the number of years which have based on the number of years that the expectancy would probably have lasted; central to that calculation is the probable length of the deceased's working life at the date of death."

As to the multiplier, <ORG> states:

"However, the multiplier is a figure considerably less than the number of years taken as the duration of the expectancy. Since the dependants can invest their damages, the lump sum award in respect of future loss must be discounted to reflect their receipt of interest on invested funds, the intention being that the dependants will each year draw interest and some capital (the interest element decreasing and the capital drawings increasing with the passage of years), so that they are compensated each year for their annual loss, and the fund will be exhausted at the age which the court assesses to be the correct age, having regard to all contingencies. The contingencies of life such as illness, disability and unemployment have to be taken into account. Actuarial evidence is admissible, but the courts do not encourage such evidence. The calculation depends on selecting an assumed rate of interest. In practice about 4 or 5 per cent is selected, and inflation is disregarded. It is assumed that the return on fixed interest bearing securities is so much higher than 4 to 5 per cent that rough and ready allowance for inflation is thereby made. The multiplier may be increased where the plaintiff is a high tax payer. The multiplicand is based on the rate of wages at the date of trial. No interest is allowed on the total figure."

In both <NAME> and <NAME>'s cases (supra) the multiplier appears to have been adopted taking note of the prevalent banking rate of interest.

In <NAME> case (supra) it was noted that the normal rate of interest was about 10% and accordingly the multiplier was worked out. As the interest rate is on the decline, the multiplier has to consequentially be raised. Therefore, instead of 16 the multiplier of 18 as was adopted in <NAME> case (supra) appears to be appropriate. In fact in <NAME> case (supra), after reference to Second Schedule to the Act, it was noticed that the same suffers from many defects. It was pointed out that the same is to serve as a guide, but cannot be said to be invariable ready reckoner. However, the appropriate highest multiplier was held to be 18. The highest multiplier has to be for the age group of 21 years to 25 years when an ordinary Indian Citizen starts independently earning and the lowest would be in respect of a person in the age group of 60 to 70, which is the normal retirement age.

Considering the age of the deceased and the principles indicated above, the appropriate multiplier would be 12 and not 16 as adopted by the <ORG> and affirmed by <ORG>. By applying multiplier 12, amount of compensation is fixed at Rs.4,50,000/- (in round figures). The <ORG> has fixed interest @ 9% per annum from the date of the claim petition. Taking note of the prevailing rate of interest in bank deposits, the same is fixed at 7.5% per annum. It is stated that a sum of Rs.4,00,000/- has been deposited pursuant to the order dated 22.3.2004. The balance amount shall be deposited with the <ORG> within four weeks from today. Out of the total deposit 90% of the amount shall be kept in fixed deposit in the name of widow (respondent no.1), minor child (respondent no.2) and the mother (respondent no.3) in the proportion of 35%, 40% and 15% respectively. Rest 10% shall be paid in cash equally to the widow and the mother. Fixed deposits shall be made initially for a period of five years and no withdrawal permitted and only monthly interest will be paid, so far as the fixed deposits in the names of the widow and the mother are concerned. So far as the minor child is concerned, fixed deposit shall be made initially for a period of five years and shall be renewed till the child attains majority. The monthly interest on the deposit shall also be released to the mother as the guardian of the minor.

No loan advance of any kind and/or pre-mature encashment shall be permitted in respect of the fixed deposits. However, on an application being made to the <ORG> and it being satisfied about the urgency of any need and absence of financial resources to meet any urgent financial need may permit loan or advance or pre-mature encashment by a reasoned order.

Appeal is allowed to the extent indicated. No costs.


JUDGMENT <NAME>, Kt., C.J.

1. The petitioner filed a petition in <ORG> at Dharwar praying for a declaration that the election of opponents Nos. 1 to 4 as councillors of the Hubli Municipality, was illegal and void on account of the corrupt practices described in the petition, and further that he and opponent No. 5 should be declared as validly elected members of the Hubli Municipality. Opponents Nos. 1, 2 and 4, resisted the application on the grounds set out in their written statement They denied the corrupt practices attributed to them, and contended that the petition, not having been legally and properly presented to the District Judge, was barred by time.

2. The first issue was whether the petition was or was not legally and properly presented to the District Judge within the prescribed time. The petition was as a matter of fact presented to the clerk of <ORG> within ten days of the declaration of the results of the elections for the Hubli Municipality. The question then was, whether such a presentation amounted in the eye of the law to its presentation to the District Judge as required by Clause (1) of Section 22 of the Bombay District Municipal Act III of 1901.

3. The Assistant Judge held that the presentation of the application to the clerk of the Court of the District Judge was not a presentation of the application to the District Judge, and accordingly the application was rejected.

4. The petitioner now applies to this Court, under Section 115 of the Civil Procedure Code, to get aside the order of the Assistant Judge, and he is met with the objection that the District Judge acting under Section 22 of the Bombay District Municipal Act III of 1901, as further amended, was not a Court within the meaning of the word in Section 115. A similar point arose in <NAME> v. <NAME> (1895) I.L.R. 21 Bom. 279, under the Bombay District Municipal Act II of 1884, Section 23, and it was held by this Court that the District Judge was not a Court within the meaning of Section 622 of the Code of 1882 so that this Court had no jurisdiction to revise the order refusing to set aside an election.

5. But it has been urged before us, as a ground for admitting this application, that in this case as the District Judge, or the Assistant Judge acting for the District Judge, has refused to entertain the application on the ground stated in the judgment, that enables this Court to interfere. But the District Judge remains a persona designata whether he hears the petition and makes an order thereon, or Whether he refuses to entertain the application, because it has not been presented to him in time.

6. If it seems desirable that <ORG> should have powers of superitendence over the District Judge acting under Section 22 of the Bombay District Municipal Act III of 1901, then that is a matter for the legislature to consider. As the law stands at present we cannot entertain this application.