TMI Blog1990 (1) TMI 313X X X X Extracts X X X X X X X X Extracts X X X X ..... right in law in holding that for the purpose of allowing deduction or relief under section 80-I of the Income-tax Act, 1961 commercial or accounting profits should be taken to be the actual profits ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal having held that the accounting profits as worked out by the assessee should be the commercial profits for the purpose of section 80-I of the Income-tax Act, 1961, the conclusion of the Tribunal that the assessee is entitled to additional deduction under section 80-I of the said Act in respect of the proportionate managing agency commission that had been allowed as deduction in computing the business income if the assessee is unreasonable and/or perverse ? 2. The assessment years involved are 1968-69 and 1969-70. The accounting periods are year ended on 31-3-1968 and 31-3-1969, respectively. 3. In the statement of the case the Tribunal has also mentioned three other questions in paragraph 4 as to have been directed to be referred in Matter No. 189 of 1978. But it appears in the order passed by this Court that the Rule was issued only in respect of the question which has been referred hereinabove a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two assessment years at ₹ 9,79,120 and ₹ 86,580, respectively. Relief was worked out by applying 8 per cent of the aforesaid amount of net profit for each of the assessment years. He took net profit as per profit and loss account for the respective assessment years at ₹ 5,95,338 and ₹ 97,63,784. The ITO followed the assessee in regard to the deduction of proportionate managing remuneration for the purpose of section 80-I but unlike the assessee he deducted the development rebate for finding out the net profit in order to compute the relief under section 80-I. There was slight difference in ITO s computation of development rebate allowable to the assessee. These figures for the respective assessment years were ₹ 20,79,082 and ₹ 8,57,613. In this regard it may be mentioned that the assessee credited development rebate reserve by debiting the profit and loss account with amount equivalent to development rebate. Being aggrieved, the assessee appealed before the AAC and contended before him that the deduction under section 80-I should have been allowed with reference to the profit and gains from the priority industry without deducting develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief, we are in complete agreement with the contention taken up by the learned counsel for the assessee who relied on the decisions of the Supreme Court in CIT v. C. Parakh Co. (India) Ltd. [1956] 29 ITR 661 and CIT v . Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452. It is now well-settled that the income-tax authorities must not deduct proportionate managing agency commission while computing income of a branch. In other words, managing agency commission payable by a company to its managing agents related to the finally determined profits of the company. In the instant case before us the assessee-company paid managing agency commission to Birla Gwalior Ltd. The assessee might have debited such proportionate managing agency commission in the accounts of its different units. But this would not in our opinion prevent the assessee from availing of the benefit which is otherwise due to it under the law. Therefore, we direct the ITO to revise his orders for the aforesaid two assessment years, i.e., 1968-69 and 1969-70 by allowing additional deduction under section 80-I in respect of the proportionate managing agency commission to the assessee. 6. Section 80 is one of the section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of computation of profits in Pakistan. There the assessee carried on some business at a number of places. The net profits of the business had to be ascertained by putting together the profits of all the branches and deducting therefrom all the expenses. The fact that some of the branches were in foreign territories did not make any difference to the position because the assessee was an ordinary resident within the taxable territories . The Supreme Court held that whether the assessee was entitled to a particular deduction or not would depend on the provisions of law relating thereto and not on the view which the assessee might take of its rights. In that case the assessee- company had its head office at Bombay and maintained a branch office at Karachi for purchasing cotton for shipment to Bombay or for export direct to other places. The managing agents of the assessee-company were entitled to a remuneration of 20 per cent of the net annual profits of the assessee-company. The assessee had apportioned the managing agency commission and debited the proportionate amount in the respective profits and loss accounts for the Bombay head office and the Karachi Branch. In comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cane and the manufacture of sugar by the assessee constituted one single and indivisible business. The question was whether a part of the managing agency commission paid by the company could be allowed on the ground that the part related to the management of sugarcane cultivation income from which was exempted from tax as agricultural income. It was held by the Supreme Court that the entire managing agency commission was laid out or expended for the purpose of business carried on by the assessee and was allowable under section 10(2)(xv) of the Indian Income- tax Act, 1922. The fact that the income from a part of the business was not exigible to tax under the Act was not a relevant circumstance. The Supreme Court pointed out that equitable consideration was wholly out of place in construing the provisions of a taxing statute. If the allowance claimed is permissible under the Act, then the same has to be deducted from the profits. 11. The principles laid down by the Supreme Court in the aforesaid cases clearly apply to the facts of the instant case. It is not the case of the revenue that various units of business carried on by the assessee independently are separate business conce ..... X X X X Extracts X X X X X X X X Extracts X X X X
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