Commissioner of Income-tax, West Bengal Iii and ors. Vs. Ramendra Nath Ghosh - Court Judgment

Excerpt:
- [s.m. sikri, c.j.,; h.r. khanna,; j.m. shelat and; g.k. mitter, jj.] p and a carried on business. as chartered accountants in the name of d.v. & co.. on p retiring from partnership a deed of dissolution was executed which provided that the business would be carried on by a. by clause 2 of the deed, p, who owned the rights and interest in the goodwill, "agreed to sell" the goodwill to a and "as consideration for and in full satisfaction of the purchase price of the goodwill" a was to pay eight annas in the rupee in the net profits of the business payable during the life time of p and after him during the life time of his wife and then to their son during his life time. clause 6 provided that in the event of a entering into partnership or transferring or assigning his business so long as the business was carried on in the name of d.v. & co.. the partnership, the assignee or the transferee was to pay the share in the profits in the manner provided in cl. (2). a entered into partnership with c, the deed of partnership reciting that the goodwill of the business belonged solely to p which a had "bought" in consideration of his agreeing to pay a share of eight annas in the rupee and that the parties thereto pay five annas four pies share in the profits, by way of purchase price of the goodwill as agreed by p. the firm paid to p's wife, after the death of p, various amounts during the years 1955-59. it claimed that those amounts should be deducted in its assessments for those years. the income-tax officer and the appellate assistant commissioner rejected the claim holding that the payments were capital and not revenue payments and the transaction evidenced by the deed of dissolution was one of outright sales. on appeal, the tribunal held that the payment,constituted only fee or rent for the use of the goodwill so long as it was used and accordingly they were in the nature of revenue expenditure. on reference the high court answered in favour of the revenue. allowing the appeal, belt) : (sikri c.j. dissenting) on the facts of the case the transaction was a licence and not, a sale of the goodwill: the disbursements in question, therefore, were in the nature of royalty and must be treated as admissible deduction. [232 b] (i) there is no single test of universal application for deciding the question whether in agreement is for payment of price in stipulated instalments or for making annual payment in the nature of income and. therefore, the court has to look not only into the document relating to the transaction, but also the surrounding circumstances to decide its true nature, the name which the parties give to it being of little consequence. this does not mean that the legal character of the transaction which is the source of the receipt in question can be ignored and substituted by what the taxing authority considers the substance of the matter. [224 b] travancore sugars and chemicals ltd. vs. c.i.t., (1966) 62 i.t.r. 566, referred to. (ii) one of the tests courts have applied in distinguishing between capital and revenue expenditure is whether the expenditure in question was for bringing into existence an asset or an advantage of "an enduring nature", and is made "once and for all". it may be payable not necessarily al at once but even by instalments as against a recurrent expenditure in the nature of operational expenses. the question in such cases would be, is the expenditure the assessee's working expenditure laid out as part of the process of profit earning or a capital outlay necessary for the acquisition of a property or rights of a permanent character the possession of which is a condition of carrying on the trade. but the expressions "enduring benefit", and rights of a permanent character are only descriptive and not definitive and are relative in meaning, not synonymous with 'perpetual' or 'everlasting'. the expression "enduring benefit" is thus a relative term not enduring in the sense of its being permanent, but is sufficiently durable depending upon the nature of the terms upon which it can be acquired. so also the the expression "once and for all" which does not mean payment at one time of the whole amount but includes payment of a lump-sum, as distinct from recurrent, distributed in periodic instalments. [22 f] atherton v. british insulated and helsby cables ltd., 10 t.c. 155; assam bengal cement co. ltd. v. ci..t. 27 i.t.r. 34, 46; robert addie and sons' collieries ltd. v. commissioner of inland revenue, 8 t.c. 671; commissioner of taxes v. nchanga consolidated copper mines ltd., (1965) 58 i.t.r. 241; c.i.t. west bengal v. coal shipment (p) ltd., civil appeals nos. 1494 to 1498 of 1971, decided on october 14, 1971; c.i.t. v. finlay mills, (1951) 20 i.t.r. 475; henriksen.v. grafton hotel lid., 24 t.c. 453 and strick v. regent oil co. ltd., 43 t.c. 1, 38 referred to. the other test sometimes applied, is payment when it is referrable to fixed capital or capital assets as against payment referrable to circulating capital or stock-in-trade. this test also is not capable of being treated as of uniform application. [226 f] assam bengal cement co. ltd. v. c.i.t., 27 i.t.r., 34. 46, referred to. (iii) acquisition of the goodwill of a business is, without doubt acquisition of a capital asset, and therefore, its purchase price would be capital expenditure. it would not make any difference whether it is paid in a lump-sum at one time or in instalments distributed over a specific period. where, however, the transaction is not one for acquisition of the goodwill but, for the right to use it, the expenditure would be a revenue expenditure. [226 h] in re ramjidas jaini & co., (1945) i.t.r. 430; kuppuswami v. c.i.t. (1954) 25 i.t.r. 349; ogden v. medway cinemas ltd., 18 t.c. 691; the secretary of state for india v. scoble, [19o3], a.c. 299; jones v. commissioner of inland revenue, 7 t.c. 310; commissioner of inland revenue v. ramsay, 20 t.c. 79; vithaldas thakerdas and co. v. c.i.t., [1946] i.t.r. 822 and travancore sugars and chemicals ltd. v. c.i.t., (1966) 62 i.t.r. 566, referred to. (iv) in the present case even though cl. (2) of the deed of dissolution uses expressions such as "agreed to sell" and "the purchase price of the goodwill," these expressions are not determinative of the exact nature of the transaction or the relationship between the parties arising therefrom. clause (2), no doubt, prescribes the mode and the quantum of payment. but, the duration of payment is indefinite and secondly the amount is indefinite depending upon the rise and fall in the profits of the business. the payment is not related to any lumpsum fixed as the purchase price. but on the contrary it is directly related to and dependent upon whether at all and what profits are made. further, the document is totally silent as to what is to happen to the goodwill it a, or his partners, if he were to enter into a partnership, cease to carry on the business in the name of d.v. & co. the transaction thus contains all the grounds given in the case of travance sugars and chemicals ltd., upon which this court concluded that such payments could not be treated as capital disbursement, namely, an indefinite period, absence of any expressed lumpsum and payment relat- ing to profits and not being tied up with any fixed sum agreed to as the purchase price_of the capital assets. [230 f-h; 232 b] travancore sugars and chemicals ltd. v. c.i.t. (1966) 62 i.t. r. 566 applied. (v) quite apart, cl (6) itself contains indication of the transaction not being an outright purchase of the goodwill. if the transaction was an outright purchase of goodwill there was no necessity of cl. (6) providing for the partnership which a would enter into or his assignee or transferee having to pay the share so long as he or they continued to carry on business in that name. [231 b] per sikri, c.j. dissenting. (i) clause (2) of the dissolution deed says what it meant to convey, that is, there is an agreement to sell and sale of the goodwill of the partnership. the word,-, "as consideration for and in full satisfaction of the purchase price of the goodwill" cannot be watered down by any of the subsequent clauses. further, the deed executed by a and c also recited that a had "bought" the goodwill in consideration of his agreeing 10 pay a share of the profits. it is difficult to go against the express wording of the deed when there is no clear clause overriding these words. [216 e] (ii) a mode of payment of purchase price of any capital asset cannot convert a capital payment into a revenue payment in the hands of the vendee. it may be that the mode of payment may affect the character of the receipt in the hands of the vendor. [218 h] (iii) the grounds adopted by this court in travancore sugars and (chemicals ltd. cannot he regarded as conclusive in a case where there can be no doubt that the capital asset has been sold. [219 b-c] the absence of a clause providing what is to happen if the vendee of the goodwill ceases to carry on the business further reinforces the conclusion that it was an out and out sale. this clause was not inserted because it would be out of place in a case of sale. [219 d] (v) clause (6) does not have any bearing on the question under consideration. this clause has been inserted in order to safeguard the interest of the vendor who was keen to see that he would get as much as possible for the sale of the goodwill. [219 f] therefore, on the facts, the goodwill was an asset of an enduring nature. the fact that payment was to be made over a number of years and the nature of a chartered accountant's business lead to this conclusion. [219 f] - where the defendant or his agent or such other person as aforesaid refuses to sign the acknowledgment, or where the serving officer, after using all due and reasonable diligence, cannot find the defendant, and there is no agent empowered to accept service of the summons on his behalf, nor any other person on whom service can be made, the serving officer shall affix a copy of the summons on the outer door or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain, and shall then return the original to the court from which it was issued, with a report endorsed thereon or annexed thereto stating that he has so affixed the copy, the circumstances under which he did so, and the name and address of the person (if any) by whom the house was identified and in whose presence the copy was affixed. 12. in the result these appeals fail and they are dismissed.k.s. hegde, j.1. these appeals by certificate raise a common question of law, namely, whether the assessees (respondents in these appeals) have been properly served before action was taken under section 33b of the indian income-tax act, 1922, which will be hereinafter referred to as ' the act '.2. the assessment year with which we are concerned in these appeals are 1959-60, 1960-61 and 1961-62. the assessment for those assessment years was completed by the income-tax officer on november 28, 1961. there-after, the commissioner of income-tax initiated proceedings under section 33b and issued notices to the assessees on october 19, 1963. notices were issued by registered post. they were also entrusted to the income-tax inspector for personal service. it is conceded that the notices sent to the assessees by registered post were served long after the commissioner passed his orders under section 33b. he passed those orders on november 2, 1963, and the notices sent by registered post were only served on the assessees on november 18, 1963. therefore, we can ignore those notices.3. now coming to the notices sought to be served personally by the income-tax inspector, mr. neogi, we have two reports of his before us. in the first report dated october 21, 1963, he stated :had been to the above address for serving the notice under section 33b on the above assessee. i contacted two persons who had been working there and gathered from them that m. ramendra nath ghosh, a member of their family, who is usually available there had just then left for calcutta and that he would not turn up during the rest of the day. they have however asked me to call on mr. ghosh tomorrow. accordingly i have fixed up a time and have left a slip requesting mr. ghosh to wait for me.4. it may be noted that that report does not mention the names of the persons who pointed out the place of business of mr. ghosh to mr. neogi. now we proceed to the next report submitted by mr. neogi on october 22, 1963. that report reads thus :today also i had been to the above address again but unfortunately mr. ramendra nath ghosh was not available at the appointed time. however i contacted the said persons whom i saw there yesterday. enquired about mr. ramendra nath ghosh, they informed that mr. ghosh has left the station and is expected back after a month or so. on further enquiry they informed that there was no second man to receive the notice in the absence of mr. ghosh. mr. ghosh's correct address and the place for which he left were not also furnished. from my conversation with them it appeared to me that they were avoiding the service of the notice. in the circumstances, i contacted the income-tax officer concerned and served the notice by affixation under his orders.5. on the strength of those reports, the commissioner came to the conclusion that the assessees were properly served and on that basis he proceeded to exercise his powers under section 33b, ex parte.6. the assessee, instead of appealing against those orders, straightaway approached the high court of calcutta under article 226 of the constitution. the high court entertained those writ petitions. the learned single judge who heard the writ petitions at the first instance dismissed one of the petitions holding that the assessee had been given reasonable opportunity for representing his case before the commissioner. but strangely enough he had earlier allowed a writ petition of one of the other assessees whose case was identical with that of the assessee whose writ petition he later dismissed. but on appeal to the letters patent bench the decision of the learned single judge was reversed. the appellate bench came to the conclusion that there was no proper service on the assessees and therefore the impugned orders cannot be sustained. thereafter, this appeal has been brought after obtaining a certificate from the high court.7. as mentioned earlier the only question that we have to decide in these appeals is whether the assessees have been properly served. the facts in all these cases are identical. therefore, it would be sufficient if we deal with the case of ramendra nath ghosh.8. admittedly, the assessees have not been personally served in these cases. therefore, we have to see whether the alleged service by affixation was in accordance with law. it is necessary to mention that, according to the assessees, they had no place of business at all. they claim that they have closed their business long before the notices were issued. hence, according to them, mr. neogi must have gone to a wrong place. this contention of the assessees has been accepted by the appellate bench of the high court. bearing these facts in mind, let us now. proceed to consider the relevant provisions of law. section 63(1) of the act reads:a notice or requisition under this act may be served on the person therein named either by post or, as if it were a summons issued by a court, under the cpc, 1908 (v of 1908).9. rule 17 of order v of the civil procedure code reads:where the defendant or his agent or such other person as aforesaid refuses to sign the acknowledgment, or where the serving officer, after using all due and reasonable diligence, cannot find the defendant, and there is no agent empowered to accept service of the summons on his behalf, nor any other person on whom service can be made, the serving officer shall affix a copy of the summons on the outer door or some other conspicuous part of the house in which the defendant ordinarily resides or carries on business or personally works for gain, and shall then return the original to the court from which it was issued, with a report endorsed thereon or annexed thereto stating that he has so affixed the copy, the circumstances under which he did so, and the name and address of the person (if any) by whom the house was identified and in whose presence the copy was affixed. (emphasis applied)10. as seen earlier the contention of the assessees was that at the relevant time they had no place of business. the report of the serving officer does not mention the names and addresses of the person who identified the place of business of the assessees. that officer does not mention in his report nor in the affidavit filed by him that he personally knew the place of business of the assessees. hence, the service of notice must be held to be not in accordance with the law. the possibility of his having gone to a wrong place cannot be ruled out. the high court after going into the facts of the case very elaborately, after examining several witnesses, has come to the conclusion that the service made was not a proper service. hence, it is not possible to hold that the assessees had been given a proper opportunity to put forward their case as required by section 33b.11. we cannot leave this case without expressing our disapproval as regards the procedure adopted by the high court. the question whether the assessees had been served in accordance with the law or not is essentially a question of fact. the income-tax act provides for an appeal against the order under section 33b. normally, the assessee should have gone up in appeal against the order under section 33b. they should not have been allowed to invoke the extraordinary jurisdiction of the high court. this court has emphasised that aspect in more than one decision. the learned judges while noticing those decisions have tried to bypass those decisions. but, it is needless to go into that question now. it cannot be said that the high court had no jurisdiction to entertain the writ petitions though it should not have exercised its discretion in favour of the assessee in view of the adequate alternative remedy they had.12. in the result these appeals fail and they are dismissed. in the circumstances of the case, we make no order as to costs.