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TMI Blog1969 (4) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... s of several other limited liability companies. Under the managing agency agreement between the assessee-company and the managed company, the assessee-company was entitled to receive a commission @ 12 1/2 per cent. on the net profits of the managed company together with a sum of Rs. 18,000 for office allowance. The accounting year of both the managed company and the managing agents ended on the 31 st of March, each year. On the basis of the calculations of the net profits earned by the managed company, pursuant to the agreement between the parties, the managing agency remuneration that the assessee-company would have been entitled to for the assessment year 1954-55 was Rs. 1,11,779. For the accounting year ending on 31st March, 1954, the directors of the assessee-company passed a resolution on 8th November, 1954, agreeing to forgo the commission due to the assessee-company. The managed company's accounts were passed by the auditors on 4th December, 1954, and later adopted in the general meeting. In this year the commission was agreed to be given up by the assessee-company before the accounts of the managed company were finally made up. During the course of the assessment, for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anaged company had suffered losses in the past and had been carrying forward heavy unabsorbed depreciation for which no adequate provision had been made in the balance-sheets for the three assessment years under appeals. It was, therefore, claimed that such forgoing of the remuneration was allowable as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. The arguments and the submissions made on behalf of the assessee in this context are set out from the beginning of paragraph 3 of page 26 of the order of the Income-tax Tribunal up to the middle of page 27 of the said order. The first argument as mentioned hereinbefore ends with the following sentence : "Relying on the decision of the Supreme Court in the case of Commissioner of Income-tax v. Chandulal Keshavlal Co., the learned representative urged that the remuneration forgone was an expenditure incurred by the assessee for the purposes of his business and, as such, was allowable under section 10(2)(xv)." Thereafter, the Tribunal at page 27 deals with the argument on behalf of the assessee when reliance was placed on the decision of the Bombay High Court in the case of H. M. Kashiparekh Co. Ltd. v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal : "Whether, on the facts and in the circumstances of the case, the sum of Rs. 1,11,779 said to have been forgone by the assessee as managing agency commission was allowable as a revenue expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, for the assessment year 1954-55?" In the respondent's reply before the Tribunal the assessee suggested that in the event the Tribunal agrees to refer a case to the High Court, then only the following questions should be referred to the High Court : "(a) Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,11,779 representing managing agency commission forgone by the assessee stood to be included in the assessment for 1954-55? (b) If the answer to the foregoing question is in the affirmative did the forgoing of the said sum of Rs. 1,11,779 amount to expenditure laid out wholly and exclusively for the purpose of the business and deductible under section 10(2)(xv) in the assessment for 1954-55? (c) If the answer to the immediately foregoing question is in the negative, was the said amount of Rs. 1,11,779 which was forgone in the previous year relevant to the assessment year 1955-56, expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the addition of Rs. 1,11,779 be deleted from the total income of the assessee-company for the assessment year 1954-55." It was contended by Mr. R. C. Deb, learned counsel for the assessee, that we should decline to answer the question referred to this court inasmuch as, according to him, the Tribunal had decided the question of inclusion of Rs. 1,11,779 in the total income of the assessee on the basis of real income theory under section 10(1) of the Indian Income-tax Act. The question posed before this court is whether such amount was allowable as deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. It was contended that any answer given to the question referred to this court would be academic as it would not resolve the controversy between the parties. The decision of the Tribunal that it should not be included in the real income of the assessee has not been challenged nor has it been referred for adjudication to this court. Mr. B. L. Pal, learned counsel for the revenue, on the other hand, contends that, though two different contentions were urged before the Tribunal, the Tribunal has chosen to pose the question as mentioned before at page 28 : "That i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his remuneration was done due to commercial expediency, prior to the final making out of the accounts, the amounts given up or forgone do not form the income of the assessee and as the assessee's real income is liable to be taxed, these amounts should not be included in the income of the assessee. For this, reliance was placed on the decision of the Bombay High Court in the case of Kashiparekh Co. The Tribunal, when it observed that the decision of the Bombay High Court in Kashiparekh Co. is a complete answer to the question before it, in our opinion, was really saying that in view of the decision of the Bombay High Court the question of allowability under section 10(2)(xv) of the Income-tax Act, 1922, does not arise. A reference to the said case will make the position clear. What had happened in the said decision of Kashiparekh Co. was that the assessee who had maintained his accounts on the mercantile system was the managing agent of a paper mill company. Under the managing agency agreement it was under a duty to forgo up to one-third of its commission where the profits of the managed company were not sufficient to pay a dividend of 6 per cent. For the accounting year endin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Act, 1922, need not be answered. It appears that after posing the question in the instant case the Tribunal observed that the decision of the Bombay High Court is a complete answer to this question. It appears to us that this H. M. Kashiparekh's case can only be a complete answer to the question posed in the sense that if it is not to be included in the real income of the assessee, the question of the allowability of the said amount forgone as a deduction under section 10(2)(xv) of the Income-tax Act, 1922, does not arise. It further appears that, in any event, the Tribunal decided the question whether this sum should be included in the real income of the assessee, as the Tribunal observed as follows : " Their Lordships held that 'it was the real income of the assessee for the accounting year that was liable to be taxed and that the real income should not be arrived at without taking into account the amount forgone by the assessee'. " The Tribunal further observed that they were satisfied that the said remuneration due to it in respect of the managing agency of National Bearing Co. Ltd. was given up by the assessee for reasons of commercial expediency and it was jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax v. Smt. Anusuya Devi . There the Supreme Court observed that : "The power to reframe a question may be exercised to clarify some obscurity in the question referred, or to pinpoint the real issue between the taxpayer and the department or for similar other reasons." "It cannot be exercised", the Supreme Court observed further, "for reopening an enquiry on questions of fact or law which has been closed by the order of the Tribunal." At page 756 the Supreme Court observed that : "If the Tribunal refuses to state a case under sub-section (1) of section 66 on the ground that no question of law arises, and the High Court is not satisfied with the correctness of that decision, the High Court may in exercise of the power under section 66(2), require the Tribunal to state a case, and refer it. When the Tribunal is not invited to state a case on a question of law alleged to arise out of its order, the High Court cannot direct the Tribunal to state it on that question : See Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd . The reason of the rule is clear." According to the Supreme Court, "the High Court cannot hold that the decision of the Tribunal re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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