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TMI Blog1967 (7) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... , and, under the terms of the managing agency agreement, became entitled to remuneration at varying percentages depending upon the magnitude of the net profits of the managed company. After the passing of the Companies Act, in the year 1956, there was a fresh agreement entered into between the assessee and the Gauhati Electric Supply Corporation (1927) Ltd., on June 4, 1957, for a term of 10 years, from January 15, 1957, and clause 9 of the agreement was to the following effect : "In the event of the company, being taken over by the State Government, local authority, or the State Electricity Board, as the case may be, before the expiry of the period of ten years from 15th January, 1957, the managing agents shall be entitled to compensation by the company for loss of office as provided in section 366 of the Companies Act, 1956." Subsequent events show that there was some purpose for the managing agents to have clause 9 incorporated in the fresh managing agency agreement, because about three weeks after the execution of the fresh agreement, the managed-company was taken over by the State Government, on or about June 25, 1957. A little over two years after the take over, Gauhati E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an income from business. The Appellate Assistant Commissioner, however, found that there was no evidence to show that the payment had been made at a time when the assessee had ceased to act as the managing agent of Gauhati Electric Supply Corporation (1927) Limited. He also found that the provisions of section 10(5A) were attracted to the payment made to the assessee under the resolution dated September 28, 1959. Although of that view, he held that only the amount actually received by the assessee during the accounting year should be the amount of income taxable during the year. The assessee had mentioned in the return that it received only a sum of Rs. 11,500 during the year of assessment. The Appellate Assistant Commissioner, however, found from the company's balance-sheet that the amount actually received by the assessee was Rs. 13,486. Accordingly he included the sum of Rs. 13,486 in the income of the assessee and deleted a sum of Rs. 79,204 from the assessment. Aggrieved by the order, the assessee and the Revenue both appealed before the Appellate Tribunal. The Tribunal allowed the appeal preferred by the Revenue with the following observation : "We must say that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 10(5A) is that if there was a termination, may be for any reason whether by compulsory acquisition or compulsory cessation of the business, it would be tantamount to termination and any compensation or offered payment whether it is deemed to be received or is received shall be deemed to be the profits on account of business. We, therefore, do not think that this reason is valid enough to take the case out of the mischief of the provisions of section 10(5A)." The Tribunal was not also satisfied with the other argument, advanced on behalf of the assessee, that the intention which lay behind the introduction of section 10(5A) in the statute did not include compensation payable to the managing agent by reason of compulsory acquisition of the managed company by the State Government. The Tribunal repelled the argument with the following observation : "As a matter of fact, the question of intention as is sought to be raised has itself no worth in this case inasmuch as we have no materials before us to judge the intention ... Apart from it since the provisions of section 10(5A) are clear and unambiguous in its terms, we do not find any justification in the learned counsel's demand t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case to such cases. But that sub-section does not necessarily imply that if that sub-section were not there the kind of payment referred to therein would have been treated as capital receipt in all cases." We do not find anything contained in the judgment of the Supreme Court, which goes to support the argument of Mr. Mitter that termination, in the context of section 10(5A), must mean termination by act of parties and not any other kind of termination. In our view, a contract of managing agency is basically a creature of the Contract Act, although in many respects controlled by the special provisions in the Companies Act. A managing agency contract is a contract of agency in pith and substance. Now, section 201 of the Contract Act deals with termination of agency agreements in the following language : "An agency is terminated by the principal revoking his authority ; or by the agent renouncing the business of the agency ; or by the business of the agency being completed ; or by either the principal or agent dying or becoming of unsound mind ; or by the principal being adjudicated an insolvent under the provisions of any Act for the time being in force for the relief of insol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough the resolution in 1959 was made retrospective with effect from the date of the take-over. If the managing agency agreement of the assessee would not have been terminated by the resolution, as it purported, what would have happened we do not know but in the facts of this case we find that the managed company terminated the managing agency agreement by resolution and this was a case of termination of agency by the principal revoking the authority of the agent. In our opinion, such a resolution was required to be passed because unless compensation was paid to the assessee under the terms of clause 9 of the agreement it might not have left or be relieved (sic) the managing company, although it would not have anything to manage. In the view that we take, we do not find any substance in the first branch of the argument of Mr. Mitter. We now turn to the other branch of the argument of Mr. Mitter. He submitted that in the year 1959 the assessee was not carrying on the managing agency business of Gauhati Electric Supply Corporation (1927) Limited. If that was so, the income was not an income within the meaning of section 10(1) which provides : "10. (1) The tax shall be payable b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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