MESSRS. GODREJ & COMPANY, BOMBAY vs COMMISSIONER OF INCOME-TAX, BOMBAY

The Supreme Court held that the sum of Rs. 7,50,000 paid to the managing agent was a capital receipt, as it was compensation for the release from the obligation to pay higher remuneration under the original agreement. The Court clarified that this payment was made to secure immunity from future liabilities and constituted capital expenditure, thus not liable to income tax. The decision was based on the interpretation of the nature of the payment in relation to the managing agency agreement and relevant case law, including the Commissioner of Income-tax v. Vazir Sultan and Sons.