HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Ram Kumar Agarwalla and Brothers v. Commissioner of Income-Tax, Central, Calcutta
Civil Appeal No. 176 of 1966
[1967] 1 SCR 955 ·
Indian Income-tax Act, 1922: sections 4(3)(vii) and 66(1)
Sources & disclosures includedDownload original judgment / order
3-judge bench · J. C. Shah, J. · V. Ramaswami, J. · V. Bhargava, J.
Assessment years: 1947-48
01 · Facts of the case
The assessee firm, carrying on business as share brokers, share dealers and paper merchants, joined an accountant and a solicitor in negotiations concerning the controlling interest in Swadeshi Cotton Mills Ltd. Mangturam Jaipuria offered Rs.6 lakh if the group secured the interest for it, gave up competing claims and assigned any acquired interest. Jaipuria bought the shares for Rs.4.03 crore and paid Rs.6 lakh, of which the assessee received Rs.2 lakh. The assessee paid Rs.25,000 for services, initially credited Rs.1.75 lakh as brokerage, then revised its return for assessment year 1947-48 to exclude it. The Tribunal found the payment remunerated services in a venture in the nature of trade, and the Calcutta High Court upheld that finding.
Source: Negotiations, payment, return treatment and Tribunal finding: SCR pp.956-958 / PDF pp.2-4
02 · Discussion by the Hon’ble Court
The Court rejected the argument that two Tribunal members had already made a concurrent non-compete finding; only the Accountant Member took that view, and the whole appeal went to the third member. The offer letter made remuneration for securing the controlling interest a primary object. The Appellate Assistant Commissioner's remand report, accepted by the Tribunal, supported that the payment was for services. The assessee's principal business, absence of proof of financing for a Rs.4 crore acquisition, and failure of the principal partner to testify further supported the finding that the group did not genuinely intend to buy the mills. The Rs.2 lakh therefore arose from business. Cases involving genuine payments to refrain from acting or importing were distinguished. Because section 4(3)(vii) expressly did not apply to receipts arising from business, the casual-and-non-recurring exemption was unavailable.
Source: Evidentiary basis and services-versus-non-compete analysis: SCR pp.958-959 / PDF pp.4-5; Business-receipt exclusion from section 4(3)(vii): SCR p.960 / PDF p.6
03 · Judicial decision
The Court held that the Tribunal's finding was supported by evidence and that the assessee received the payment for services rendered in the course of a trading venture. The amount was a revenue receipt arising from business and could not obtain the section 4(3)(vii) exemption. The appeal was dismissed with costs.
Source: Revenue character, exemption rejection and dismissal: SCR pp.959-960 / PDF pp.5-6
04 · Outcome / in whose favour
In favour of the Revenue. The assessee firm's appeal was dismissed and the business-receipt assessment stood; the ruling did not establish that every payment containing non-compete language is revenue.
Source: Business nexus and operative dismissal: SCR p.960 / PDF p.6
05 · AKHB REVIEW POINT
AKHB analysis: for a services/non-compete characterisation dispute, evidence the payer's commercial object, the recipient's capacity and funding to compete, services actually rendered, accounting entry, payment allocation and witness testimony. Contract wording is important but not conclusive where the record shows remuneration for execution of a transaction. Apply current income-tax provisions and later restrictive-covenant jurisprudence before using this historical fact finding.
Source: AKHB analysis based on the letter, financing evidence, services and accounting treatment
Source & verification
Download original judgment / order · Open cited source rendition
Full 6-page SCR source file read. PDF p.1 is the editorial headnote; the unnumbered judicial text begins on PDF p.2 and concludes on PDF p.6. OCR page-number corruption on the scan does not change the printed citation range, SCR pp.955-960.
- Exact source bytes, SHA-256 and six-page count match catalogue asset 1967_1_955_960; every page was read.
- The judicial text verifies Civil Appeal No. 176 of 1966, decision date 26 October 1966 and the three-member bench.
- Search of content/supreme-court-cases.json found no published record matching this title, citation or decision.
Statutory scope
This decision applies section 4(3)(vii) of the repealed Indian Income-tax Act, 1922 to a fact-specific 1946 transaction. Current business-income, capital-receipt and restrictive-covenant treatment has not been checked.
Later treatment
Source checked 2026-10-10. Later judicial treatment and present statutory applicability have not been comprehensively checked; no current citator clearance is represented.
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