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TMI Blog1974 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... her half of the managing agency commission was brought to tax by the Income-tax Officer, Companies Ward III, Lahore (Pakistan). Later on, the Income-tax Officer, Lahore, reopened the assessment of Birla Brothers Private Ltd., Okara, Pakistan, for the purpose of assessing 100% of the total managing agency commission in Pakistan in view of the decision of the Pakistan Supreme Court in the case of Octavious Steel Co. Ltd. v. Commissioner of Income-tax, Dacca, Civil Appeals Nos. 5D and 6D of 1960 decided on May 31st, 1960. By the aforesaid judgment, the Supreme Court of Pakistan had held in more or less similar circumstances that the entire managing agency remuneration, that is to say, 100%, accrued or arose in Pakistan and was taxable in Pakistan. In the instant case, the assessee-company did not disclose in India for the relevant years the managing agency commission from Sutlej Cotton Mills Ltd., situated in Pakistan in its books of account on the ground that the Pakistan authorities intended to tax the entire commission from the said total instead of 50% as was being done so far. We were told from the Bar that subsequently, the Pakistan tax authorities have taxed the entire remune ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng question has been referred to this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Income-tax Officer was not justified in including 50% of the managing agency commission in the assessment of the assessee ?" In deciding this controversy, we will have to refer to the agreement between the Sutlej Cotton Mills Ltd. and Birla Brothers Private Ltd. by which the assessee-company was appointed as the managing agents. The agreement as mentioned before was entered into originally on May 16, 1936, and was subsequently modified. The relevant clauses of the agreement as it stood were as follows : " 1. The business of the company shall be carried on by managing agents subject to the control and supervision of the Board of Directors. The first managing agents shall be Birla Bros. Ltd., or their assigns or successors in business whether under the same or any other style or firm, and they shall be entitled to remain and continue in the said office (unless it be resigned by them) for 25 years from the incorporation of the company with a further option to them for 25 years and thereafter until they be removed therefrom by an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the same is hereby deleted and in place thereof, the following clause be and the same is hereby substituted: '2. As from 1st April, 1956, the managing agency shall be paid by way of remuneration 10 per cent. of the net profits of the company to be computed in the manner provided in sections 349 and 350 of the Companies Act I of 1956'." Incidentally, we may mention that reference was made to the Two-man Committee Report dated April 22, 1957, but we do not find the said report to be very relevant in deciding the present controversy in accordance with law. The Tribunal has also referred to the Two-man Committee Report meetings on July 14, 15, 16, 1953, the minutes of which provided, as follows: " The gist of the basis is that 50% of the managing agency should be allocated to the dominion in which the head office of the managing agents is situated and the other 50% shall be allocated between the two dominions according to the income of the managed agency arising in each dominion." The Tribunal was not sure as to what was the value of the arrangement recorded in the said agreement. Incidentally, we may mention that the head office of the assessee was situate in India. We were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as managing agent of a third company which during the relevant accounting periods confined its business to stevedoring and trading only on a remuneration of 25% of the net profits of the company. The Department sought to assess the entire managing agency commission from the three companies as having accrued or arisen in British India whereas the assessee contended that that part of the commission that accrued in Cochin and Travancore States was exempted from tax. The Appellate Tribunal found that apart from booking and collecting freight at Cochin, all other important responsible work of managing the companies was done from the head office in British India. It was held that normally commission payable to the managing agents accrued at the place where the business was actually done, that is to say, where the services of the managing agents were performed. In this case, the Supreme Court found that as the assessee performed practically all the services in British India, the commission in respect of the two shipping companies though computed on the percentage freight or passage money, accrued or arose in British India. The remuneration for managing the third company whose business w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it had to have officers and men to look after the repairs of the ships, renovation of the ship and replacement of the ships. Similarly, in this case, the factory had to be run ; the managing agents must perform that function. The manner of computation of the resultant profit and the right to claim payment after computation do not, in the absence of other indications, conclude the point that profit accrued at the place or income accrued at the place where computation was made. In this case, the assessee pointed out that as profit had accrued or income had accrued in Pakistan, it had not disclosed this part of the income. That the entire manufacturing process was done in Pakistan and sales were made in Pakistan go to indicate that the work of managing its affairs which brought in income out of which commission was earned was done in Pakistan. No other fact was established to indicate that any activity of managing the affairs of the managed company was performed in India. In the aforesaid view of the matter and in view of the principles laid down by the Supreme Court, we are of the opinion that the Tribunal came to the correct conclusion in the instant case. In the premises, the que ..... 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