1957 (2) TMI 83 - HC - Income Tax

Summary

Issues Involved
1. Accrual of managing agency commission.
2. Apportionment of commission between different managing agents.
3. Interpretation of the Supreme Court's decision in E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax.
4. Creation of debt and right to receive payment.
5. Assessment of tax liability.

Issue-wise Detailed Analysis

1. Accrual of Managing Agency Commission
The primary issue was whether the managing agency commission accrued to the assessees for the period from 1st April 1944 to 31st December 1944, or only from 1st January 1945 to 31st March 1945. The assessees contended that they were liable to pay tax only on the commission earned from 1st January 1945 to 31st March 1945, amounting to Rs. 67,959, and not on the commission of Rs. 2,20,433 for the earlier period. The Tribunal had decided in favor of the assessees, but the Commissioner appealed against this decision.

2. Apportionment of Commission Between Different Managing Agents
The assessees argued that the commission should be apportioned between the original managing agents and themselves, as the commission accrued to the original agents for the period up to 31st December 1944. The Advocate-General, relying on the Supreme Court's decision in E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax, contended that the commission could not be apportioned and accrued only at the end of the financial year.

3. Interpretation of the Supreme Court's Decision in E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax
The Supreme Court had held that managing agency commission could not be apportioned and accrued only when a debt was created in favor of the managing agents. The Court emphasized that the commission was payable on the profits of the managed company and accrued at the end of the financial year. The High Court had to determine whether this principle applied to the present case, where the commission was payable on sale proceeds.

4. Creation of Debt and Right to Receive Payment
The assessees contended that the right to receive the commission arose when the sales were effected, even though the payment became enforceable only at the end of the financial year. The High Court, however, noted that the Supreme Court had equated the creation of a debt with the right to receive payment, and a debt must have come into existence for the commission to accrue. The Court concluded that the debt was created only at the end of the financial year, and the right to receive payment was contingent on the completion of the financial year.

5. Assessment of Tax Liability
The High Court held that the assessees were liable to pay tax on the entire commission of Rs. 2,88,392, as the commission accrued at the end of the financial year on 31st March 1945. The Court disagreed with the Tribunal's view that the debt was created when the goods were sold and that the payment was merely deferred. The Court also noted that the Taxing Department should not assess two parties for the same income and should decide whether to collect the tax from the original managing agents or the assessees.

Conclusion
The High Court concluded that the commission accrued to the assessees at the end of the financial year, and they were liable to pay tax on the entire amount. The assessees were ordered to pay the costs. The Court also emphasized that the Taxing Department should not seek to assess two parties for the same income.