TMI Blog1953 (3) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... as a permissible deduction. The Tribunal held that as the jeep business was not started, the expenditure in respect of this prosecution was not expenditure incurred by the assessee company in the carrying on of its business and therefore it disallowed this amount. In our opinion, the Tribunal was right in the conclusion it came to. The business of the assessee is cotton business and it intended to start a business which is entirely disconnected with its ordinary business and all that it had done was to enter into an agreement for the purchase of jeeps and trucks. Therefore on the facts on the record it is clear that the finding of the Tribunal is justified, viz., that the jeep business had not yet been started when this sum of ₹ 8,150 was spent for the prosecution. It is difficult to understand how the assessee company can claim this sum as a permissible deduction in respect of carrying on a business when that business had not been started at all. This expenditure stands on the same footing as preliminary expenses which a business man or a business company may incur in order to start a business. Just as those preliminary expenses are not permissible deductions, equally so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Central Government on the 10th of December, 1947. Sir Nusserwanji's contention is that but for this agreement, as the company is resident and ordinarily resident in India, the whole of the income of the company both in Bombay and in Karachi would be liable to be taxed, and it is merely because of the agreement arrived at between the two Dominions that the income of the assessee company earned in Pakistan is exempt from tax. But, says Sir Nusserwanji, what is exempt from tax is not the gross profit earned by the assessees in Pakistan, but the net profits, and Sir Nusserwanji says that the assessees themselves have ascertained the net profits in Pakistan at ₹ 4,94,879 and in arriving at those net profits they themselves have deducted from the gross profits the sum of ₹ 1,23,719 which is the managing agency commission attributable to the profits earned in Karachi. Sir Nusserwanji says this is not merely a case of interpreting the Income-tax Act, but also giving proper and equitable effect to the agreement between the two Dominions. He says that it could never have been contemplated that an Indian assessee governed by the Indian Income-tax Act should be exempt f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onment is made as between the profits of the Karachi business and the profits of the Bombay business. Therefore it is only when the profits of the whole business are ascertained and they would be ascertained in Bombay at the head office of the managing agency company-that the managing agents would be entitled to 20 per cent. commission. It may happen in a particular case that there may be a loss in the Karachi business and a profit in the Bombay business or vice versa, but the commission to which the managing agents would be entitled would not depend on what profits were earned at Karachi and what profits were earned at Bombay; the commission would depend upon the net profits of the business of the managed company as one integrated business. It is also important to note that the managing agency commission accrued to the managing agents in Bombay and it was received by them in Bombay and paid to them in Bombay. Now, what Sir Nusserwanji says is that whatever may be the position under the managing agency agreement, we have got to consider the agreement between India and Pakistan and when we consider that agreement we must look at the Karachi business and the Bombay business as two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Chief Justice relied on an English case, McMillan v. Guest [1943] 11 ITR 35 (HL), which laid down that although a director was concerned with matters entirely outside England, and he resided outside England and even was paid outside England, still as he was a director of a company incorporated in England he held the office of a director in England and therefore the fees received by him were liable to tax in England. Relying on this decision the learned Chief Justice has expressed the opinion that even if a director of Messrs. Birla Bros. lived in Gwalior (that was the Indian State which the Calcutta High Court was concerned with) and gave the whole of his time to the Gwalior business, nevertheless the director would be regarded as earning his director's fees in Calcutta and would be liable to Indian income-tax, and the learned Chief Justice points out that if these directors are carrying on their business in Calcutta then it appears to me quite clear that their remuneration is an expense which can be set off against the income of this Calcutta business . Now, the position of the managing agents in this case is identical. As we have already pointed out, the private ..... X X X X Extracts X X X X X X X X Extracts X X X X
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