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TMI Blog1963 (10) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... tore spinning and Weaving Company Ltd. It will be convenient to refer to the managed company in the judgment as the company. The assessee firm was appointed as managing agents for a period of twenty years from October 1, 1944. Clause (3) of the managing agency agreement provided the following remuneration for the services to be rendered by the managing agents : (a) an office remuneration of ₹ 1,500 per mensem; (b) a commission at the rate of 1 percent. on all purchases of cotton and stores and 2 1/2 percent. on all capital expenditure incurred from time to time; (c) a commission at the rate of 10 percent. on the net profits of the company as defined in another clause of the agreement. 2. The commission is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n conformity with the previous practice adopted by the department, substituted for this sum the amount of ₹ 1,18,999 made up of as under : (a) Remuneration for the period April 1, 1952, to June 30, 1952, ₹ 46,684. (b) Remuneration for the period July 1, 1952, to March 31, 1953, ₹ 72,315. 4. Later on the sum of ₹ 72,315 was modified as a result of action taken under section 35 of the Act as ₹ 73,417. This figure was worked out by the assessees auditors. The details of the amount, ₹ 72,315 are : (1) 2 1/2 per cent. commission on capital expenditure, ₹ 815 and (2) One percent. commission on cotton and stores purchases, ₹ 71,550 : total ₹ 72,315. 5. The assessee d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal to the Tribunal by the assessee, but that also failed. The question set out above has been referred at the instance of the assessee on an application preferred to this court under section 66(2) of the Act. 7. It seems to be clear that the assessees only contention before the department and the Tribunal was based upon the alleged waiver of its right to the amount of ₹ 72,315. Evidence of this act of waiver is furnished by the following resolution passed at the directors meeting of the company held on December 13, 1953. Resolved that the action of the managing agents in waiving the commission due to them on purchases and capital expenditure amounting to ₹ 80,437 in view of the loss sustained by them be reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter June 30, 1953. The managing agency commission cannot be split up even before the company's accounting year is completed. On March 31, 1953, the assessee had not completed its service to the company for the full year as contemplated and provided for under the managing agency agreement. Whether the managing agency will continue or not after May 31, 1953, could not have been predicted on that date. It might have been open to the managing agents themselves to have given up or relinquished their agency, in which case they would not be entitled to the commission even for the period for which they have rendered service. The point need not be laboured further in view of the decision of the Supreme Court in Cotton Agents Ltd. v. Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the 3 1/2 per cent commission on sales made when the Nemani group was the managing agent accrued to that group and not to the assessee, that a debt was created in favour of the Namani group on every sale during its period of managing agency and that only the payment of the debt was deferred till the accounts of the company was passed at a general meeting and that therefore the commission prior to the close of the year 1944 was assessable in the hands of the Nemani group and thereafter, in the hands of the assessee company. The departments contention was that the whole of the managing agency commission accrued to the assessee. The following question of law was referred to the Bombay High Court for decision : Whether on the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the managing agency work of the assessee company constituted business within the rule of the decision in Lakshminarayan Ram Gopal and Son Ltd. v. Government of Hyderabad, and on that footing we have decided the question of accrual. 11. The principle laid down by the Supreme Court is that the managing agency commission based upon percentage of sales or purchases does not accrued de die in diem as and when each transaction takes place, but only at the end of the year when the transactions during the year have got to be taken note of and the commission fixed. The very fact that the commission is payable only after the company's accounts are closed each year would seem to imply necessarily and inevitably that it would not be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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