1974 (8) TMI 42

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..... ts was made subject to a minimum of Rs. 25,000 per year. On April 2, 1960, one of the three partners of the managing agency firm died and the managing agency firm ceased to function thereafter. One of the surviving partners, one K. Ramachandran, was functioning as the managing director for the period April 2, 1960, till August 1, 1960, on which date a fresh managing agency agreement was entered into between the assessee-company and K. Venkataswamy Naidu and Co., a newly constituted firm, with the said managing director, K. Ramachandran, and the sons of the deceased partner as partners. For the period January 1, 1960, to March 31, 1960, the assessee paid a remuneration of Rs. 14,830 to the former managing agency firm as per the agreement da .....

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..... d of the accounting year, the managing agents were entitled to be paid remuneration on the basis of the net profits for the broken periods during which they have served the company. The revenue accepted the said decision so far as it related to the payment made to the latter managing agency firm, but challenged the same so far as it related to the payment made to the former managing agency firm by taking the matter to the Appellate Tribunal. It contended that, as the net profits accrued and could be ascertained only at the end of the accounting year, the managing agents' remuneration for the broken period can only be calculated on the basis of minimum remuneration that the net profits cannot be accurately ascertained for the broken period a .....

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..... ned after the end of the year. In that case also, the Income-tax Officer had held as in this case that the managing agents are entitled to be paid remuneration for the broken period only on the basis of the minimum remuneration on the ground that the net profits of the company cannot be ascertained before the close of the accounting year for the broken period. Dealing with that view, it has been pointed out in that case that the minimum remuneration provided for under the agreement is applicable only in case of absence or inadequacy of profits in any year and that clause will not come into operation when the company has, in fact, earned adequate profits. In our view, the decision in that case squarely applies to the facts of this case. The .....

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