TMI Blog1937 (3) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ons Ltd. and these companies and should perform and be bound by all the obligations and duties thereby imposed, and further that the appellants should receive all commissions and other remuneration to which Tata Sons Ltd. were entitled thereunder. The appellants for their part covenanted to carry out and perform the terms and conditions of the agreements with D.E. Dinshaw Ltd. and Richard Tilden Smith and to indemnify Tata Sons Ltd. against any consequences of the non-observance thereof. They further undertook if so required to enter into separate agreements in their own names with F.E. Dinshaw Ltd. and Richard Tilden Smith in the same terms. Under the agency agreement between Tata Sons Ltd. and the Tata Power Co. Ltd. which was dated September 24, 1919, and the benefit of which the appellants thus acquired, the remuneration of Tata Sons Ltd. for their services consisted of a commission of 10 per cent. on the annual net profits of the Tata Power Co. Ltd. with a minimum of ₹ 50,000 whether that company should make any profits or not, and they were also entitled to have their expenses reimbursed. In return for this remuneration Tata Sons, Ltd. undertook to use their best end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts came in room and place of Tata Sons Ltd. in all respects both as regards the right to receive from the Tata Power Co., Ltd. the stipulated agency remuneration and as regards the obligation to pay out of that remuneration 12? per cent. to F.E. Dinshaw Ltd. and 12 per cent. to Richard Tilden Smith's administrator. In the year 1932 the appellants duly earned and received payment from the Tata Power Co. of their commission of 10 per cent. on the net profits of that company and duly paid over to F.E. Dinshaw Ltd. and to Richard Tilden Smith's administrator, 12? per cent. thereof each, or 25 per cent. in all. The assessment of the appellant's income for tax purposes for the fiscal year to March 31, 1934, which is in question in the present appeal, is based on their income, profits and gains for the year 1932 and the question is whether in the computation for tax purposes of their income, profits and gains for that year they are entitled to deduct a sum representing the 25 per cent. of the commission earned and received from the Tata Power Co. Ltd. which they paid over to F. E. Dinshaw Ltd. and Richard Tilden Smith's administrator under the agreements abovementio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived by the appellants from the Tata Power Company, Ltd., was properly included without deduction in the assessment of the profits or gains of the appellants' business, in conformity with the decision in the case of C. Macdonald Co. v. Commissioner of Income-tax, Bombay, within which the learned Chief Justice said that the present case exactly fell. He further expressed the opinion that the question whether the expenditure in question was incurred solely for the purpose of earning the profits or gains of their business was a question of fact and that as there was no finding of fact on which the Court could hold that the deduction claimed was one falling within the statute, the question must be answered in the negative. By their order of March 27, 1935, the High Court accordingly answered the first of the questions stated by the Commissioner in the affirmative and the second in the negative. In the case of C. Macdonald Co. to which the learned Chief Justice refers, the assessees carried on the business of managing agents of another company from whom they received a commission for their services. This commission the assessees were bound under an agreement to share with cer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isition of the agency business by the present appellants the payments assumed a different character. The appellants, he said, did not take any part in obtaining the loans nor did they incur the liabilities in question in the course of rendering any services to their principals. The obligation to make the payments in question was taken over by them as part of the transaction whereby they acquired the agency business from Tata Sons Ltd., and the payments were, therefore, made not for the purpose of earning profits in the conduct of the agency business but in fulfillment of the terms on which they purchased the business. Their Lordships recognise and the decided cases show how difficult it is to discriminate between expenditure which is and expenditure which is not, incurred solely for the purpose of earning profits or gains. In the present case their Lordships have reached the conclusion that the payments in question were not expenditure so incurred by the appellants. They were certainly not made in the process of earning their profits; they were not payments to creditors for goods supplied or services rendered to the appellants in their business : they did not arise out of any tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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