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TMI Blog1977 (12) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Appellate Assistant Commissioner ? " The facts found and/or admitted in this reference are as follows : The assessee carries on business, inter alia, as managing agents of companies. On the lst February, 1931. one Reginald Foster was appointed as the manager of the assessee under an agreement dated the 9th March, 1931,on the following among other terms : (a) The assessee would employ from the 1st February, 1931, and Foster would act as one of the managers of the assessee in India for the period of fifteen years and thereafter for successive periods of three years at his option and the desire of Foster to continue this agreement for such periods to be notified to the assessee in writing three calendar months prior to the date upon which it otherwise would determine. (b) There would be paid to Foster by way of remuneration for his services a yearly sum equal to five per centum of the yearly net profits of the assessee. The amount of the net profit for the purpose of this clause would be arrived at half-yearly ...... (c) The said remuneration would be payable half-yearly and would become due and payable within one month from the date on which the profit and loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income-tax Officer. On appeal, the Appellate Assistant Commissioner confirmed the assessment and held that the payment of the said sum was not compensation for termination of service, but a price paid for buying off an onerous agreement. The appeal filed by the assessee against this order was found to be time-barred and dismissed by the Tribunal. Accordingly, the assessment became final. In the assessment of the business profits tax of the assessee, the Income-tax Officer did not allow the said sum of Rs. 10 lakhs paid to Foster. This disallowance was confirmed by the Appellate Assistant Cornmissioner. On appeal, the Tribunal set aside the order and remanded the matter to the Appellate Assistant Commissioner for consideration on merits. In the subsequent proceedings the Appellate Assistant Commissioner found from the books of the assessee that remuneration payable to Foster had been credited in his account for the years 1941 to 1946, twice a year, once on the 30th June and the other on the 31st December. But in the year 1947, the remuneration payable to Foster had not been credited in his account neither on the 30th June, 1947, nor on the 31st December, 1947, in spite of the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his sum in the income-tax return nor in the profit and loss account and further there was no evidence to show that Foster was acting as chairman and manager. It was pointed out that no remuneration was paid to Foster in 1947 and as such the currency of the agreement could not be accepted without proof. The Tribunal held that the genuineness of the agreement dated the 9th March, 1931, as varied by the supplementary agreement dated the 6th June, 1932, had never been in dispute and the amount paid to Foster on the basis of this agreement had been allowed as deduction year after year, though the terms of the agreement were peculiar, one-sided and loaded in favour of Foster. The Tribunal found that the agreement of 1931 was genuine, and the assessee's power to determine the said agreement could be exercised only when Foster would be unable or unwilling to devote the whole of his time and attention to the business of the assessee for at least 12 calendar months ; the alternative course open to the assessee was negotiation for termination of the agreement. It was found further that there was nothing sinister in the negotiations or in the manner in which the offer of Foster to terminate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case, the question before the Supreme Court was as follows : " Whether, on the facts and in the circumstances of this case, the amount of Rs. 18 lakhs paid by the assessee-company to the managing agents on the termination of their managing agency agreement dated May 10, 1950, was an admissible deduction under section 10(2)(xv) of the Income-tax Act ? " Here, the decisions of the Tribunal was assailed as defective in law on the ground that there was no clear finding recorded by the Tribunal, that the termination of the managing agency agreement was not bona fide or made with ulterior or oblique motive. It was urged that the Tribunal had not considered the relevant evidence in deciding the question. The Supreme Court held on the facts that the order of the Tribunal was highly unsatisfactory as it had not taken into account all the material evidence adduced that its finding was not clear and, therefore, defective in law. (c) Commissioner of Income-tax v. S. P. Jain [1973] 87 ITR 370 (SC). The judgment of the Supreme Court at page 381 of the report contains the following : " In our view, the High Court and this court have always the jurisdiction to intervene if it appears that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng observations made by the Supreme, Court at page 691 of the report : " The Tribunal does not appear to have discussed the entire evidence on which the findings were based but the order of the Appellate Assistant Commissioner and his findings as also the entire record were before it and there is nothing to suggest that all the material facts were not present to its mind except that they are not mentioned in detail. " In order to appreciate the scope of the dispute, the position of Foster vis-a-vis the assessee after the 31st January, 1946, is to be examined. The agreement of 1931 fixed the period of employment of Foster for an initial period of 15 years beginning from February, 1931. It cannot be disputed that Foster remained employed under the assessee from the 1st February, 1931, till the 31st January, 1946, when the initial period of 15 years came to an end by efflux of time. It is not in dispute that a letter was written by Foster on the 9th October, 1945, whereby he exercised his option to continue on the same terms for a further fixed period of three years. Therefore, on the exercise of such option by Foster his period of employment was extended up to the 1st February, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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