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Interpretation of managing agency agreement and articles of association regarding deduction of excess profits tax before calculating net profits for managing agents' commission. Applicability of Section 87C of the Indian Companies Act, 1913. Analysis: The case involved a dispute over whether excess profits tax should be deducted before calculating the net profits for paying managing agents' commission, as per the managing agency agreement and articles of association. The managing agency agreement between the company and the managing agents specified the remuneration structure, including a percentage of net profits. The company argued that excess profits tax should not be deducted before calculating the commission, contrary to the decision of the Income-tax authorities. The Tribunal, relying on precedent, held that excess profits tax should indeed be deducted. The Court analyzed the relevant provisions of the agreement and articles of association to determine the meaning of "net profits" for commission calculation. The Court found that the definition of "net profits" in the agreement did not refer to "divisible" or "distributable" profits but was a specific calculation before deducting depreciation. The Court emphasized interpreting the agreement as written to understand the meaning of "net profits." Referring to a similar case, the Court held that excess profits tax should not be deducted before calculating net profits for managing agents' commission, as per the agreement. The Court also addressed the reference to Section 87C of the Indian Companies Act, 1913, which governs the remuneration of managing agents based on a fixed percentage of net profits. However, since the managing agents were appointed before the relevant Act came into force, Section 87C did not apply to the case. In conclusion, the Court determined that excess profits tax should not be deducted when calculating the net profits for paying managing agents' commission, in accordance with the managing agency agreement and articles of association. The Court clarified that while Section 87C of the Indian Companies Act, 1913, did not apply due to the timing of the managing agents' appointment, the agreement's terms governed the commission calculation. The reference was answered accordingly, with no orders as to costs.
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