TMI Blog1970 (1) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... has been taxed under the above section was received by it in connection with the termination of an agency or the modification of the terms and conditions of an agency ? The facts appear in the statement of the case. The assessee is a private limited company. By an agreement dated April 29, 1955, made between Ciba Pharma Ltd. (which company was the importer of pharmaceutical products of Ciba Ltd., Basle,, Switzerland), and the assessee-firm, the latter was appointed distributor of the pharmaceutical products of Ciba Ltd. of Switzerland in the territories of Western and Central India and Hyderabad State on the terms and conditions contained in the agreement. The question that arises for decision is whether this agreement is an agreement of agency. The question has arisen because under section 10(5A), clause (d), tax is payable in respect of any compensation or other payment received by an assessee. The clause reads as follows : " (d) ...... holding an agency in, the taxable territories for any part of the activities relating to the business of any other person, at or in connection with the termination of his agency or the modification of the terms and conditions relating ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 3, the assessee-firm agreed to " act as distributors in the territory for the sale within the territory ... at prices from time to time fixed by the importers ". Under clause 4, the assessee-firm is authorised to appoint sub-distributors. Clause 7 provides in respect of the price that the distributors shall not sell the said goods above or below prices, from time to time fixed by the importers as the selling prices. In case of price reduction the importers shall credit the distributors with the difference of price for all stocks not sold. Under clause 8, the firm agreed to make a deposit of Rs. 3,00,000 to be utilised to cover delayed adjustments of outstandings or otherwise adjust monetary discrepancies which may arise in the accounts. Clause 9 provides that the importers' invoice shall be payable by the distributors and, inter alia, entitles the distributors to credit for 30 days and 45 days in respect of payments of the importers' invoices. Under clause 11, the distributors agreed to pay interest at the rate of 9 per cent. to the importers, in respect of amounts not paid at the delayed dates provided under clause 9. Clause 12 provides for the distributors truly, faithfully and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es made shall be upon the selling prices specified by the importers ... less a discount as the case may be of--- 10% (ten per cent.) thereon for goods sold to medical profession and dealers, or 20% (twenty per cent.) thereon for certain goods sold to hospitals ... and a discount for the distributors of 11 1/2% on the net price of the goods arrived at after deduction of such discount of 10% or 20% as the case may be. It is, however, understood that where the importers quote net prices, a discount of 11 1/2 to the distributors shall be calculated on such net prices only ... The distributors shall produce the original order from all the parties and copies of their invoices showing the discounts allowed to the different parties. " Clause 30 provides : " On the termination of this agreement whether by efflux of time or otherwise the importers shall. . . within six months from the date of such termination complete checking and take delivery of the stocks held by the distributors including stocks with sub-distributors and shall within the said period adjust the accounts between themselves and the distributors..." Now, apparently, the parties have, as mentioned in the introduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter of the legal relationship which arises upon a contract of agency made between a principal and an agent has not remained ambiguous and has been crystallized in India by the provisions in sections 182 to 238 of the Indian Contract Act. Section 182 provides that an agent is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, and who is so represented is called the " principal ". The question, therefore, in the matter of the present agreement is to ascertain if the assessee-firm was employed to do any act for the importers with whom the agreement was made and/or whether the assessee-firm is under the agreement appointed to do anything as representing the importers in dealing with third persons. Under sections 191 and 192, an agent is authorised to appoint a sub-agent ; but where a sub-agent is properly appointed, the principal is, so far as regards third persons, represented by the sub-agent and is bound by and responsible for his acts, as if he were an agent originally appointed by the principal. The sections 211 to 221 deal with the agent's duty to the principal and, conversely, the sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must carry on the business of resale of the pharmaceutical goods of the importers which come into its possession for itself and at its own risk as to costs and consequences. Though there are restrictions on the assessee-firm and the sub-distributors to be appointed by it as regards the prices to be charged, the importers are not concerned with the contracts made by the assessee-firm or by the subdistributors with the customers and constituents and/or outside purchasers. The losses that may be suffered on resales effected by the assessee-firm cannot be visited on the importers. The whole of the work which is described as distribution in fact provided for a scheme of resale of the goods delivered to the assessee-firm by that firm for itself and on its own behalf.. In this connection, we are unable to accept the submission made by Mr.Joshi that the scheme in clause 9 read with clause 27 is for payment of commission to the assessee-firm and does not involve payment of price by the assessee-firm to the importers. It is clear that under clause 9 the assessee-firm undertook an obligation to pay the prices mentioned in the invoices submitted to it by the importers upon supply of goods. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o other parties. Thus an agent for sale or purchase is debarred from being himself either buyer or seller without full disclosure to the principal. . . . . ." Reliance also has been placed on the decisions in the cases of P. H. Divecha v. Commissioner of Income-tax and Ganesh Export and Import Co. v. Mahadeolal Nathmal. It is sufficient to state that in both these cases questions for consideration arose in respect of an agreement which was in words stated to be an agency agreement and provided for several duties to be discharged by a selling agent. In the case of P. H. Divecha v. Commissioner of Income-tax, the agreement had lasted for more than 16 years and was in respect of conduct of business in electrical goods including electric lamps. The so-called agency firm was given exclusive rights to purchase and sell electric lamps manufactured by " Philips " in certain areas. The provisions were similar to the provisions in the present agreement ; but having regard to the material provisions in the agreement, the Supreme Court held that the agreement between the firm and Philips Electrical Company created a monopoly right of purchase for, and a monopoly right of sale in certain area ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
