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TMI Blog1942 (4) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. The question turns entirely on the construction of Clause 2(b) of the managing agency agreement, which provides for payment of commission to the managing agents of the following amount: A commission of ten per cent. on the net annual income of the company before setting aside any sum to reserve or depreciation funds or for payment of income-tax or super-tax or any other tax on income. That is the only portion of the clause which is relevant. 3. Now, if excess profits tax falls within the words any other tax on income, it seems to me that there is nothing to be said on the subject. The question has been answered by the parties themselves, because they have said that the commission of ten per cent. is to be based on the net an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits during any chargeable accounting period exceed the standard profits a tax (in this Act referred to as 'excess profits tax') which shall, in respect of any chargeable accounting period ending on or before the 31st day of March, 1941, be equal to; fifty per cent. of that excess and shall, in respect of any chargeable accounting period beginning after that date, be equal to such percentage of that excess as may be fixed by the annual Finance Act. It is, therefore, clear that the tax is imposed in respect of any business upon certain profits of the business, and I find it very difficult to see why it should not be described as a tax on income. It is a tax on certain income derived from a business; it is not a charge on the capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h was followed by the Court of Appeal, though with some doubt on the part of Scrutton L.J., in Vulcan Motor and Engineering Co. v. Hampson [1921] 3 K.B. 597. Those cases were, I think, founded on the general consideration, that where one is dealing with a profit sharing agreement, an agreement under which an employer is paying an employee a commission based on the profits of the business, it is reasonable to suppose that what the parties intended to share were the profits which otherwise would have belonged to the employer, and that a portion of the profits taken bodily by the revenue authorities, which the employer himself never gets the benefit of, was probably not intended to be shared with the employee. But in arriving at that conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits duty is a debt due to the Crown. That may be so, but the tax remains a tax on income. If that is so, in my view, the parties have really answered the question themselves, and have provided that in arriving at the net annual income, on which the commission is to be based, no deduction is to be made for excess profits tax. 7. We must, therefore, answer the question in that sense. 8. The parties are agreed that there should be no order as to costs. Kania J. 9. I agree. The point for consideration, on the true construction of the agreement between the parties in this case, is, what is the meaning to be attached to the words: A commission of ten per cent on the net annual income of the Company before setting aside any sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fits Tax Act is a different Act from the Income-tax Act, does not by itself therefore make the tax any the less a tax on income. 11. I do not propose to deal with the question of what would be the meaning of the words net annual income in a profit sharing agreement, if the words stood by themselves without the additional words as found in the agreement in question. It may not be disputed that before arriving at the divisible profits amongst shareholders, in the normal course, amounts are set apart for reserve or depreciation funds. Those would be voluntary deductions from the profits, which otherwise might be divided between the shareholders. But in the present case the parties have expressly agreed that no such deduction should be per ..... X X X X Extracts X X X X X X X X Extracts X X X X
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