TMI Blog1951 (9) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... ing agency between the private limited company, namely, Messrs. E.D. Sassoon Co. Ltd., and one Mr. Tansukhrai N. Karnadia, a partner of the assessee firm, and the terms of the transfer of the agency were agreed upon in a letter dated September 3, 1943, written by E.D. Sassoon Co. Ltd., to Mr. Tansukhrai. In this agreement, the transaction which as to be entered into was set out, and it was provided that, in the event of this transaction being completed in its entirety, the assessee firm would be entitled to receive the commission payable by the mills under the managing agency agreement on the profits for the calendar year 1943. E.D. Sassoon Co. Ltd., assigned the managing agency under a deed dated January 26, 1945, but the managing agency itself changed hands from December 1, 1943. The managing agency commission for the year 1943 amounted to ₹ 27,94,504, and this amount was paid to the assessee firm in 1944. The question that arises is whether the firm of Messrs. Agarwal Co., to whom the managing agency was transferred, is liable to pay tax on the whole of this agency commission, namely, ₹ 27,94,504, or whether the tax is payable both by Messrs. Agarwal Co., a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the sum of ₹ 27 lacs and odd received by Agarwal Co., constituted wholly the income of that firm, and that, as they were appointed the managing agents from December 1, 1943, the managing agency commission accrued to them only on December 31, 1943, when the profits were ascertained, and it was determinated that the commission was payable to them in a particular sum. It is further urged that, when the managing agency agreement was transferred by E.D. Sassoon Co. Ltd., on December 1, 1943, it was impossible to predicate that any commission had been earned at all, because, even though the mills might have made a profit for a period of 11 months, in the twelfth month there might have been heavy losses which would have had to be set off against the profits and no commission whatever would have been due to the managing agents except the minimum guaranteed under the managing agency agreement. It is, therefore, strongly urged that the income which is sought to be taxed by the department accrued only at the end of the calendar year, and, therefore, Agarwal Co., should be taxed in respect of the whole of that income. Now, there is an obvious fallacy in the argument adv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the mills. It is impossible, in my opinion, to say that, when the commission was paid to Agarwal Co., in respect of the calendar year 1943, no part of it was earned by E.D. Sassoon Co. Ltd., although they had served as the managing agents for 11 months. The commission was the result of the services rendered by the managing agents and was brought about by the work done by them which had resulted ultimately in the profits from which the commission had to be ascertained. The mere fact that the ascertainment of the quantum of the income was to be postponed till the 31st of December, or the mere fact that the income was not to accrue till the 31st of December every year, does not necessarily lead to the conclusion that the income which was ultimately ascertained and which ultimately accrued was the income of the person to whom that income accrued. It is quite possible that an income of A may, under certain circumstances, accrue to B; but the mere fact that it accrues to B does not make it the income of B; it still remains the income of A. As I said, it may accrue to B or it may even be received by B; but still, for the purpose of the Income Tax Act, the pertinent question that has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose in British India. We held that the profits arose in British India because we came to the conclusion that only after the accounts were submitted at the head office in Bombay and the profits were determined could it be said that the right to receive commission at the rate specified in the managing agency agreement had arisen and the managing agents had become entitled to a certain specified commission. The third case relied on by Mr. Joshi is again a judgment of this Court in Hiralal Kalyanmal, In re. That case also dealt with the place of accrual, and the question that fell to be considered by Beaumont, C.J., and Mr. Justice Kania, as he then was, was whether the commission accrued where the sale took place or where the sale proceeds were received. The Court came to the conclusion that the commission accrued where the sale took place, because the sales were the source from which the commission was earned. The next case on which Mr. Joshi relied was Rownson, Drew and Clydesdale, Ltd. v. Commissioners of Inland Revenue. In that case, Mr. Justice Rowlatt, at page 604, was dealing with two specific sums to which the assessee company was entitled under an agreement with the Ministry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., had was to receive the managing agency commission when it accrued on the 31st of December. In order that it should accrue, they had already worked for 11 months and they transferred the right and the obligation of managing agents to the assignees for the remaining period of one month. Therefore, the consideration of ₹ 57,80,000 paid to Agarwal Co., obviously and clearly included the right to receive this commission when it was ascertained and when it accrued at the end of the calendar year. Therefore, this is a clear case of the assignment by E.D. Sassoon Co. Ltd., of part of the income which they had already earned by working as managing agents for 11 months. When the income did accrue and was paid to Agarwal Co., the question then fell to be determined as to how the income should be apportioned between the two managing agents; one who had worked for 11 months, and the other who had worked or 1 month. But, in my opinion, it is wholly erroneous to say that the income was brought about or was earned only by Agarwal Co., and that E.D. Sassoon Co. Ltd., had nothing whatever to do with the production of that income. 7. We would, therefore, answer the question su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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