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TMI Blog1936 (3) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ars to have appointed Sarat Chandra Chatterji, Tulshi Charan Chatterji and Radha Charan Chatterji who are described as merchants and land-holders, as managers of this business and the Chatterjis appear to have acted as managers of that business under certain agreements made between them and the proprietor. On the 16th of March, 1931, an agreement in writing was made between the assessee described as the proprietor of the business and the said three Chatterjis who were described as managers. In that agreement the previous agreements were referred to. Then the written agreement proceeds in its operative part- Now it is hereby Agreed and Declared as follows :- 1. The proprietor shall employ the managers as managers of his said business for the said period of five years commencing from the said 1st day of Baisakh, 1338 B. S., and the said business shall continue to be carried on by the managers up to the end of the month of Chaitra 1337 B. S., by virtue of and under the said hereinbefore in part recited agreement dated the 13th day of April, 1930, and all the terms, conditions and stipulations therein contained including the clause about adjustment of accounts shall be deeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,000 and 5 per cent. and 2 1/2 per cent. hereinbefore mentioned. 6. The assistant so to be appointed as aforesaid shall have free access at all times during office hours to all documents, papers, books of account, correspondence, vouchers, bills, etc., relating to the business of the said firm of Chatterjee Co., and the managers shall forthwith give every facility in that behalf. 7. If owing to any negligence or default on the part of the managers in carrying on the business of the firm of Chatterjee Co., there be any loss, the same shall be borne and paid by the managers and the proprietor shall not be liable to bear or pay the same or any part or portion thereof and the managers shall at all times indemnify any keep indemnified the proprietor against all such losses . 8. During the continuance of this agreement the managers shall have full power and authority to sign, endorse and negotiate all bills, cheques, etc., in the name of the said firm of Chatterjee Co. 9. During the continuance of this agreement the managers shall not directly or indirectly secure any business of Stevedoring or Dubashing with any new line of Steamship and vessels in their own name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd declared that nothing herein or in the said agreement, dated the 29th day of September, 1924, contained shall be deemed to constitute a partnership between the proprietor and the managers and the terms, conditions and stipulations contained in the said agreement, dated the 29th day of September, 1924, shall be deemed to be in full force and binding on the parties so far as they are not inconsistent with or repugnant to or expressly superseded by the terms, conditions and stipulations herein contained . Pursuant to that agreement the business of Chatterjee Co., was worked. In respect of the year of assessment the assessee received in accordance with the terms of the agreement ₹ 14,510. In respect of the same year the full profit of the business was computed by the Income-tax Officer to be ₹ 45,082. The question is whether the assessee is to be assessed upon the profits of the business, namely, ₹ 45,082 or upon ₹ 14,510 which he actually received. The assessee contends that he is to be assessed upon ₹ 14,510 whereas the Income Tax Officer contends that the assessee is to be assessed upon ₹ 49,082 which was the full profit of the business. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness. The assessee contends that by the agreement of March 16th, 1931, he (the assessee) had handed over the business for the period under the agreement to the three Chatterjis and that they were carrying on the business. To determine which of these two views is correct we must have regard to terms of the agreement of March 16th, 1931. Cl. (1) provides that the proprietor shall employ the managers as managers of his said business for the said period of five years. Cl. (2) provides that the managers shall continue to carry on and conduct the business of the proprietor, and secure all stevedoring and dubashing work for and on behalf of the proprietor in the name of his said firm of Chatterjee Co. in respect of certain lines of steamships and vessels. Cl. (3) of the agreement provides that the managers shall be at liberty to secure at any time during the continuance of this agreement contracts for stevedoring and dubashing work in respect of any other line of steamships and vessels for and on behalf of the proprietor and in the name of his said firm of Chatterjee Co. Cl. (4) provides that the managers shall pay to the proprietor five per cent. on the gross realizat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequently he falls to be assessed under sec. 10 (1) of the Indian Income Tax Act. What is the sum in respect of which he is to be assessed ? It is the profits or gains of that business subject to those profits or gains being computed after making the allowance set out in sec. 10 (2) (viii-a) or (ix). The whole profits in this case are ₹ 45,082. It is contended on behalf of the assessee that under sec. 10 (2) (viii-a) or 10 (2) (ix) a deduction or allowance should be made from that sum in respect of the Chatterjis for the services they have rendered. It is suggested that this sum should be evaluated at the difference between ₹ 45,082 and ₹ 14,510. It is contended that difference represents bonus or commission for the services Messrs. Chatterjis have rendered; in other words that the proprietor would have had to pay that sum to any manager for the purpose of running the business so as to earn the profit of ₹ 45,082. It is doubtful whether this sum, which in the agreement is called remuneration, is either bonus or commission for services. If it is not bonus or commission it is not deductible. If it is bonus or commission, Sec. 10 (2) (viii-a) provides that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essed to tax upon a sum of money which he never received in full and which he was not entitled to receive in full. But such is the operation, in my view, of the income-tax law in this particular case. The assessee has unfortunately made an agreement for the division of the trading surplus of his concern as between himself and his managers without having regard to the incidence of income-tax as laid down by the law. The Income tax Commissioner is entitled to his costs-seven gold mohurs to Mr. Pal instructing the Advocates in this case. The fees for the Advocate appearing will be taxed in the same manner as of hearing of an appeal from a decree on the Original Side. PANCKRIDGE, J. - I am of the same opinion. At first it appeared to me that some difficulty might be caused by the fact that no part of the profits as such was received by the assessee. Under Sec. 3 of the Indian Income Tax Act a tax at the appropriate rate is charged subject to the provisions of the Act in respect of all income, profits, and gains of the preceding year of every individual, Hindu undivided family, company, firm and other association of individuals. In Raja Bejoy Singh Dudhuria v. Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the business belonging to the first party. If that is he legal position established by this agreement then, in my opinion, the assessee can rightly be described as carrying on the business, although he carried it on, not personally but through his agents. The second clause appears to me to emphasize this aspect of the relationship, for that clause provides that the managers shall continue to carry on and conduct the business of the proprietor and secure all stevedoring and dubashing work for and on behalf of the proprietor in the name of the his firm Chatterjee Co. in respect of the specified lines of steamships. The third clause gives the managers liberty to secure contracts with other lines of steamships for and on behalf of the proprietor and in the name of the firm of Chatterjee Co. The assessee attaches considerable importance to the fact that under the agreement he has no control of the conduct of the business. I will assume that this is so, although I may observe that there is no covenant on his part to abstain from interfering with the business and, as has been pointed out, he could at any time revoke the authority of the managers, although if he did so wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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