1936 (3) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Whether the business of Chatterjee & Co. was carried on by the assessee.
2. What is the income properly assessable to income-tax of the assessee in respect of the business of Chatterjee & Co.
3. Whether the assessee is entitled to deductions under Section 10(2)(viii-a) or Section 10(2)(ix) of the Indian Income Tax Act.

Issue-wise Detailed Analysis:

1. Whether the business of Chatterjee & Co. was carried on by the assessee:

The court examined the agreement dated March 16, 1931, between the assessee and the three Chatterjees. The agreement specified that the Chatterjees were employed as managers to carry on the business of Chatterjee & Co. on behalf of the assessee. The terms of the agreement outlined that the business remained the property of the assessee, and the Chatterjees were merely managing it. Clauses 1, 2, and 3 of the agreement explicitly stated that the business was to be carried on for and on behalf of the proprietor (the assessee). The court concluded that the business was indeed carried on by the assessee through his managers, the three Chatterjees.

2. What is the income properly assessable to income-tax of the assessee in respect of the business of Chatterjee & Co.:

The court had to determine whether the assessee should be assessed on the full profits of the business (Rs. 45,082) or the amount he actually received (Rs. 14,510). Section 10(1) of the Indian Income Tax Act specifies that tax is payable by an assessee in respect of the profits or gains of any business carried on by him. Since the business was carried on by the assessee through his managers, the court held that the assessee should be assessed on the full profits of the business, i.e., Rs. 45,082.

3. Whether the assessee is entitled to deductions under Section 10(2)(viii-a) or Section 10(2)(ix) of the Indian Income Tax Act:

The assessee contended that deductions should be allowed for the remuneration paid to the Chatterjees. Section 10(2)(viii-a) provides for deductions for sums paid as bonus or commission for services rendered, provided such sums are reasonable and not payable as profits or dividends. The court found that the remuneration paid to the Chatterjees did not qualify as bonus or commission under this section. Additionally, the court referred to the Privy Council's decision in Pondicherry Railway Co. Ltd. v. Commissioner of Income Tax, Madras, which stated that payments out of profits cannot be considered as payments made to earn profits. Consequently, the court held that the remuneration paid to the Chatterjees could not be deducted under Section 10(2)(ix) either.

Conclusion:

The court concluded that the income properly assessable to income-tax of the assessee in respect of the business of Chatterjee & Co. is Rs. 45,082. The assessee is not entitled to any deductions for the remuneration paid to the Chatterjees under Section 10(2)(viii-a) or Section 10(2)(ix) of the Indian Income Tax Act. The reference was answered accordingly, and the Income Tax Commissioner was entitled to his costs.