TMI Blog1937 (4) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... February 1932, viz., ₹ 3,35,861, is a proper deduction to be allowed for the purposes of arriving at the amount on which this company should be assessed for the purposes of income-tax and super tax, within the meaning of Section 10 (2) (ix) . It should be added that the material sub-section of the Indian Income Tax Act, 1922, is Section 12 (2), which, after providing that the tax shall be payable under the head other sources in respect of income, profits and gains of every kind, enacts as follows: Such income, profits and gains shall be computed after making allowance for any expenditure (not being in the nature of capital expenditure) incurred solely for the purpose of making or earning such income, profits or gains, provided that no allowance shall be made on account of any personal expenses of the assessee. The appellant company is incorporated and registered in Bombay under the Indian Companies Act, 1913. Prior to the date of the agreement of 1932, out of which the present problem arises, the appellant company carried on in India the business of communication by wireless, Whilst a company known as the Imperial and International Communications Ltd. (whom it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as and from the appointed date pay to the Communications Company :- (a) The sum of Pounds ninety thousand sterling which represents an assessment of the expense proportionate to the traffic of the combined undertaking' emanating in India exclusive of the Karachi business, of the maintenance by the Communications Company of its communications system throughout the world exclusive of India. The said sum shall be payable by four equal quarterly instalments on the thirty-first March, the thirtieth June, the thirtieth September, and the thirty-first December in each year and each instalment shall be remitted to London by and at the expense of the Radio Company within six weeks after the date on which the same shall become payable. (b) One-half of the net profits of the Radio Company for each of its financial years which shall be payable to or at the direction of the Communications Company and paid in Rupees in Bombay as follows :- (1) As to eighty per cent, thereof by such payments on account from time to time as the Board of Directors of the Radio Company shall consider that finances of the Radio Company justify. (2) As to the balance thereof within fourteen day ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Communications Company guaranteed that the plant ref(referred to in clause 3 thereof should be handed over in good working order to the satisfaction of the chief engineer of the appellant company. By Cl. 7(a) the Communications Company undertook : so to uphold and maintain the Communications including cables, land lines and radio services from time to time belonging to it outside India and shore ends and cable-connections therefrom to the cable offices in Bombay and Madras as to keep its system in good working order and up to the standard of efficiency required for fast communications, act of God, Governments and peoples, civil commotions, strikes and lockouts alone excepted. (b) The Communications Company were : to permit the appellant Company to receive and retain the total receipts derived from the cable and wireless traffic emanating in India, less rebates and out payments to other administrations and companies, save and except receipts derived from cable traffic for the Persian Gulf and Iraq only entrusted to the Communications Company by the Indian Government Telegraph Department at Karachi. By (d) the parties agreed that during the period of the ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expiring on December 31, 1934, and at a rent equal to that payable under the lease held by the Communications Company, and (b) a lease of certain premises at Madras whereof the Communications Company were the owners for a term expiring on the said December 31, 1944, at a nominal rent, the said underlease and lease to contain clauses enabling the Communications Company to re-enter upon the premises the subject thereof upon the termination of the said agreement. In pursuance of the agreement possession of the plant and premises of the combined undertaking was given to the appellants. For the year 1933-34 ended March 31, 1934, the appellants were assessed by the Income-tax Officer of the Companies Circle Bombay, to income tax on a total income of ₹ 18,86,366 derived from business and securities. The only question now in dispute with regard to the assessment is whether in computing the profits of the appellants' business the appellants were entitled to deduct the sum payable to the Communications Company under Cl. 5 (b) of the agreement, namely, one half of the net profits of the appellants for the financial year in question, which was stated to amount to ₹ 3,35,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a rent, nor does the agreement contain several of the clauses which a lease of plant of such a character would naturally contain. Circumstances of greater importance are that the sum payable may be small or great or nothing-a most unusual feature in the case of rent-and that it is impossible to presume or infer that the half share of profits is being paid only as rent, or as a similar payment, in consideration - merely of the use of the plant the subject of the licence in Cl. 3 of the -agreement. The sum is in truth made payable as part of the consideration in respect of a number of different advantages which the appellants derive from the agreement and not all of them can be shown to be of a purely temporary character. The agreement as a whole is much more like one for a joint adventure for a term of years between the appellant company and the Communications Company than one for a lease for that period. Speaking generally, receipts in respect of business emanating from abroad are to be retained by the Communications Company while receipts arising in India are to be retained by the appellants and that irrespective of whether the messages are sent by cable or by wireless; and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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