TMI Blog1949 (9) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ributable to the salt works at Aden and ₹ 88,065 was attributable to the salt works at Kandla. In this reference we are only concerned eight the sum of ₹ 88,065 and the narrow question that we have to consider is whether this sum accrued or arose at Kandla or it accrued and arose in British India, because if it accrued and arose in Kandla, it is common ground that it was never brought into British India and as the amount accrued and arose in a Native state, under section 14(2)(c) the assessee would not be liable to pay any tax on that amount. Under the managing agency agreement the assessees were entitled to a commission at the rate of 12? per cent per annum on the annual net profits of the company. The agreement also provided that in any event they were entitled to a minimum of ₹ 30,000 per annum. The agreement also provided that such portion of the commission as shall be attributable to the net profits of the company arising or accruing in an Indian State shall be payable and be paid to the said agents in such Indian State, unless and until the said agents otherwise direct in writing, and with regard to the minimum commission of ₹ 30,000 the agreement p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned is to be found in Section 4A(c) and one of the conditions which makes a company resident in British India in may year is if the control and a management of its affairs is situated wholly in British India in that year, and Mr. Kolah's argument is that the control and management contemplated by this section is not de jure control and management, but de facto control and management, and the whole of Mr. Kolah's argument is that as in the year of account the control and management of the Kandla affairs of the company was de facto not in British India but in Kutch, therefore the profits of that business must be considered to have accrued and arisen in Kutch. Mr. Kolah has relied on a decision of the House of Lords, Mitchell v. Egyptian Hotels, Ltd. [1915] A.C. 1022. There the company was incorporated in England. It had two hotels which were both situated in Egypt and a local board was appointed by an amendment of the articles of association of the company which managed the hotels in Egypt, and on these facts the House of Lords came to the conclusion that the company was assessable to tax only in respect of the profits remitted to England and not in respect of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orney from the directors, though the accounts were made up in Bombay, and the question was whether the profits of the company arose or accrued in the territory of the Nizam or in British India, and Sir Norman Macleod in taking the view that the profits arose in the Nizam's territory stated at page 119:- No authorities have been cited for the preposition that because the affairs of a company are directed from a particular place while the actual business of the company is carried on in another, therefore the profits accrue or arise in the former place. Therefore, the test to be applied in order to determine where the profits accrue or arise is to find out where the actual business of the company is done which yields the profits which are sought to be taxed. The question as regards control or supervision is immaterial and irrelevant as far as this particular question is concerned. Therefore, applying that test to the facts of this case, what we have to ask ourselves is, where did the commission of the assessee company accrue or arise, and for that purpose we have also got to consider where was the business of the managing agency done which made it possible for the managi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndla. That is not the scheme of the managing agency agreement. It is not as if the managing agents were entitled to commission if there was profit at Kandla irrespective of what happened at Aden. Their right to earn any commission at all depended upon the profits being made not at Kandla or at Aden, but profits being made by the company in all its operations, and the commission was to be calculated on the net profits of the company. It was only then that the managing agents would become entitled to a commission of 12? per cent. on the net profits, It may conceivably be that although there was profit at Kandla there might be a large loss at Aden which might completely wipe off the profit at Kandla., In that event, the managing agents would not be entitled to a 12? per cent . commission because there would be no profits, but then they would only be entitled to their minimum of ₹ 30,000. Therefore, the commission to which the managing agents are entitled under the agreement would only arise or accrue to them after the profits of all the undertakings of the company were determined, and then only it could be said that the managing agents were entitled to a particular commission. 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