HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Gillanders Arbuthnot and Co., Ltd. v. Commissioner of Income Tax, Calcutta
Civil Appeals Nos. 825–828 of 1963
[1964] 8 SCR 121 ·
Indian Income Tax Act, 1922: section 66(1) and capital-versus-revenue receipt principles · Business Profits Tax: related chargeable accounting period ending 31 March 1949
Sources & disclosures includedDownload original judgment / order
3-judge bench · K. Subba Rao, J. · J. C. Shah, J. · S. M. Sikri, J.
Assessment years: 1948-49, 1949-50, 1950-51
01 · Facts of the case
Gillanders conducted many agency, importing, trading and shipping businesses. Its longstanding explosives distributorship for Imperial Chemical Industries was terminable at will. The principal’s March 1947 letter ended it from 1 April 1948 and offered payments based on post-transfer commissions over three years. It proposed a formal restraint against competing business, but no agreement was executed or even drafted for signature. Revenue assessed the receipts as income and related Business Profits Tax; the Tribunal and High Court rejected the capital-receipt claim (SCR pp.122–127; PDF pp.2–7).
Source: Primary judgment: facts
02 · Discussion by the Hon’ble Court
The Court found no evidence of consideration paid for goodwill or an undertaking not to compete. The absence of a signed restraint was considered alongside the parties’ conduct and failure to establish an implied bargain, rather than as a universal rule requiring writing (SCR pp.127–129; PDF pp.7–9). Applying Kettlewell Bullen, it held that acquisition and cancellation of individual agencies were ordinary incidents of Gillanders’ diversified operations. Most magazine staff were financed by the principal; five officers transferred and six were absorbed elsewhere. Losing this agency did not substantially impair the trading organisation or destroy an enduring asset; the payments replaced lost trading profits (SCR pp.129–133; PDF pp.9–13).
Source: Primary judgment: discussion
03 · Judicial decision
The Court dismissed all four appeals with costs. It upheld treatment of the compensation as income and the rejection of any allocation to goodwill or a restrictive covenant on the evidentiary record (SCR p.133; PDF p.13, read with pp.127–129; PDF pp.7–9).
Source: Primary judgment: decision
04 · Outcome / in whose favour
In favour of Revenue. The terminated agency was a trading avenue within a continuing diversified business, and the compensation was not proved to be the price of an enduring capital asset (SCR pp.132–133; PDF pp.12–13).
Source: Primary judgment: outcome
05 · AKHB REVIEW POINT
AKHB analysis: support any proposed allocation of a termination payment with the actual bargain, contemporaneous correspondence, valuation and enforceable obligations. Measure the effect on staff, facilities, business structure and replacement opportunities. A long agency relationship or a proposed non-compete clause alone does not establish capital consideration; present statutory rules must also be checked (based on SCR pp.127–133; PDF pp.7–13).
Source: Primary judgment: reviewPoint
Source & verification
Download original judgment / order · Open cited source rendition
Full 13-page SCR report read and checked. The editorial headnote was distinguished from the judgment text and operative order.
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Statutory scope
This decision addresses historical income-tax and business-profits-tax assessments and the evidence supporting the character of the receipt. Its observations on goodwill and restrictive covenants are not a statement of their current statutory tax treatment.
Later treatment
Source checked 2026-10-10. Later judicial treatment and current statutory applicability have not been comprehensively checked; no current-law or citator clearance is represented.
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