1960 (2) TMI 7 - SC - Income Tax

Whether there was a voluntary relinquishment on the part of the managing agents of a part of the income i.e. 1, 00, 000 which was the difference in both cases between the commission payable under the original agreements and the commission calculated on the modified agreements? Held that - In both these appeals the amount liable to income-tax would be the amount which the respective managing agents were entitled to receive as commission ; for that would be the amount which would accrue or arise in each case and the amounts they were entitled to were 1, 00, 000 less than what they would have received had the terms of the managing agency agreements not been varied. Appeals dismissed.

Summary

Issues:
1. Whether the managing agents voluntarily relinquished a part of their income, affecting the taxability of the entire commission amount.
2. Determination of the taxable income for the managing agents based on the modified agreements and original agreements in two separate cases.

Analysis:

In the first case (C.A. No. 162 of 1958), the managing agents were appointed under an agreement with specified commission rates. Subsequently, the terms were modified by the managed company, reducing the commission payable. The Income-tax authorities contended that the full commission amount was taxable income accrued during the previous year. However, the Income-tax Appellate Tribunal held that the modified agreement altered the managing agents' right to claim the full remuneration, making the reduced amount taxable. The High Court affirmed this view, emphasizing that the income was not the original sum but the reduced amount agreed upon. The Supreme Court concurred, stating that the taxable income was the reduced commission, considering the modification of the agreement and the managing agents' entitlement.

In the second case (C.A. No. 210 of 1958), a similar scenario unfolded where the managing agent's commission was reduced through a supplemental agreement. The Tribunal ruled in favor of the managing agent, and the High Court upheld this decision. The Commissioner of Income-tax appealed to the Supreme Court, arguing the taxability of the reduced commission. The Court, aligning with its decision in the first case, reiterated that the taxable income for the managing agents was the reduced commission amount as per the modified agreement, reflecting their entitlement.

The Supreme Court emphasized that the determination of taxable income hinged on the managing agents' entitlement under the modified agreements, which superseded the original terms. The Court analyzed the integrated nature of the commission clauses, highlighting that the right to receive commission accrued at the end of the accounting year when all sales and profits were calculated. The Court rejected the contention that interim entries or manner of accounting affected the taxable income, affirming that the managing agents' entitlement to commission, as per the modified agreements, dictated the taxable amount. Consequently, the Court dismissed the appeals, upholding the reduced commission as the taxable income for the managing agents in both cases.