HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
P. H. Divecha and another v. Commissioner of Income-tax, Bombay I
Civil Appeal No. 332 of 1961
[1963] Supp. 2 SCR 949 ·
Indian Income-tax Act, 1922: sections 4(3)(vii), 10(5A)(d) and 12
Holding and result. The exclusive arrangement was an enduring trading source, not a purchase contract. The payments were not tied to lost profits or services and lacked the character of income; the assessee appeal was allowed.
Sources & disclosures includedDownload original judgment / order
Five-judge bench; judgment delivered by M. Hidayatullah, J. · S. K. Das, J. · J. L. Kapur, J. · A. K. Sarkar, J. · M. Hidayatullah, J. · Raghubar Dayal, J.
01 · Facts of the case
A three-partner firm held for 16 years an exclusive territory for sale of Philips bulbs. When renewal negotiations failed and the company took over selling, it agreed as a goodwill gesture to pay each partner Rs.40,000 annually for three years; each received two quarterly payments in the assessment year.
02 · Discussion by the Hon’ble Court
The agreement created an enduring monopoly-like source rather than specifying purchases, quantity or price. The payment was not shown to replace estimated profits, compensate outstanding contracts or remunerate services. Nature and quality, not amount or periodicity, controlled; the record also supported an ex gratia payment in appreciation of personal qualities.
Source: Primary judgment: reasoning
03 · Judicial decision
The receipts did not bear the character of income, profits or gains; section 4(3)(vii) therefore did not supply the primary answer, and section 10(5A)(d) did not apply.
Source: Primary judgment: holdings
04 · Outcome / in whose favour
Assessee appeal allowed with costs in the Supreme Court and High Court.
05 · AKHB REVIEW POINT
AKHB analysis: characterise the terminated right, payment basis and continuing obligations. Installments do not make a capital or ex gratia receipt revenue, but the factual source-and-substitution analysis is essential.
Source & verification
Download original judgment / order · Open cited source rendition
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Statutory scope
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Later treatment
Source checked 2026-10-12. No comprehensive later-treatment or present-law clearance is represented. The note reports the historical statutory text and result in this primary report only.
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AI disclosure & professional disclaimer
This AKHB research note was prepared with AI assistance from the identified primary report and has not been represented as independently human-reviewed.
General legal and tax research only; not legal or tax advice. Verify the complete judgment, governing statutory version and subsequent judicial treatment before reliance. The AKHB REVIEW POINT is editorial analysis, not the Court's holding, and no current-law clearance is claimed.