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TMI Blog1960 (2) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... us and the former for reasons to be stated latter was not pressed. The appellant in C.A. No. 145 of 1958 is the Commissioner of Income-tax, Bombay, and the respondent is the assessee, a registered firm, which on March 8, 1941, was appointed the managing agents of Shri Ambica Mills Limited (hereinafter termed the managed company) the appellant in C.A. No. 323 of 1957. The duration of the managing agency period was 20 years. By clause (2) of the managing agency agreement it was provided : "(2). (a) The company shall pay each year to the said firm either the commission of 5 (five) per cent. on the total sale proceeds of yarn, and of all cloth, manufactured from cotton, silk, jute, wool, waste and other fibres and sold by the company, or a com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under it and that the managing agents had agreed to charge 3 per cent. on sales instead of 5 per cent. for the year ending December 31, 1950. A resolution was passed at the annual general meeting of the managed company on April 22, 1951, which was to the same effect. The resolution of the board of directors was ratified at an extraordinary general meeting of the shareholders of the managed company on October 7, 1951, and the same day a formal agreement embodying the terms of the resolution was executed between the managing agents and the managed company. For the accounting years 1950 and 1951, i.e., assessment years 1951-52 and 1952-53, the managing agents were taxed by the income-tax authorities on the basis that in those two years they h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case stated. But as the High Court upheld the contention of the managing agents the managed company did not press its application which was, therefore, dismissed. The appeal of the managed company is brought against that order. In the appeal by the Commissioner of Income-tax, i.e., C.A. No. 145 of 1958, it was argued that according to the terms of the agency agreement the managing agents were to get the commission on the sales and as the accounts were kept on a mercantile basis, the amount of commission accrued as and when the sales took place and paragraph 5 of the agreement was only a machinery for quantifying the amount. It was also argued that the managing agents by entering into an agreement with the mills had voluntarily relinquishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commission. At page 267 Ghulam Hassan, J., observed : "Lastly it was urged that the commission could not be said to have accrued, as the profit of the business could be computed only after the 31st March, and therefore the commission could not be subjected to tax when it is no more than a mere right to receive. This argument involves the fallacy that profits do not accrue unless and until they are actually computed. The computation of the profits whenever it may take place cannot possibly be allowed to suspend their accrual. In the case of income where there is a condition that the commission will not be payable until the expiry of a definite period or the making up of the account, it might be said with some justification, though we do not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for decision was whether the contract of service was such that the commission was only payable if the service was for a completed year or the assessee company was entitled to receive even for a portion of the year for which it had acted as a managing agent. It was held that it was the former. As was observed by Lord Wright in Commissioners of Inland Revenue v. Gardener, Mountain & D'Ambrumenil Ltd., "It is on the provisions of the contract that it must be decided, as a question of construction and therefore of law, when the commission was earned". The contract in the present case in paragraph 2 shows that (1) the company was to pay each year ; (2) that the managing agents were to be paid 5 per cent. commission on the proceeds of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued as and when the sales took place and that as a result of their agreeing to the modification of the agreement the managing agents had voluntarily relinquished a portion of their commission. On the other hand under the original agreement the managing agents were entitled to receive commission only at the end of the year and before then the agreement was varied modifying its terms as from the beginning of the accounting year. We are of the opinion, therefore, that the High Court correctly found against the appellant and we therefore dismiss C.A. No. 145 of 1958 with costs. In view of this Mr. Palkhivala for the managed company did not press C.A. No. 323 of 1957, which is therefore dismissed but the parties will bear their own costs in tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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