TMI Blog1979 (7) TMI 77X X X X Extracts X X X X X X X X Extracts X X X X ..... dinarily the tax rates leviable on companies are more or less uniform, whatever be the total income of the company. However, in the present case, the question assumes some significance because of the penalty proceedings. We shall first set out the facts relating to the assessment proceedings before going into the penalty proceedings. The assessee entered into an agreement with M/s. Simco Meters Ltd. on 12th April, 1962, under which it was appointed as the managing agent for a period of 10 years from 27th September, 1961, that being the date of the incorporation of the managed company. Clause 3 of the agreement provided that the assessee should be paid for its work as managing agent remuneration as detailed therein. It was to be at the rate of 10 per cent. on the first Rs. 10 lakhs of net profit or fraction thereof of the managed company, and thereafter, the percentage of net profit payable as remuneration went on going down on a progressively reduced scale. In the absence of or inadequacy of profits, the agent was to be paid such minimum remuneration per year as may be fixed by the Government, and the managing agent could draw the same in twelve equal instalments on the last work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sum of Rs. 76,429 accrued to the assessee as managing agency remuneration only after 31st March, 1970, so as not to be assessed in the assessment year 1970-71. The question as to when the managing agency remuneration is liable to be assessed, has been considered by the Supreme Court in some cases. Before referring to the decisions, it may be useful to refer to the relevant provisions of the Companies Act. Prior to the Companies Act of 1956, the managing agency remuneration fell under two parts ; one was the monthly remuneration called office allowance, and the other was based on net profits and sometimes on the turnover either by way of sale or by way of purchase or both. Section 354 of the Companies Act, 1956, provided that the managing agent shall not be paid any office allowance and, therefore,what was previously paid as monthly remuneration was no longer available. The remuneration calculated on the net profits of the company could alone be contracted for. It was provided in. s.348 of the Companies Act, that a company shall not pay to its managing agent in respect of any financial year beginning at or after the commencement of the Act, by way of remuneration, any sum in exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was payable by Agarwal Co. and Sassoon Co. on proper apportionment being made between them having regard to the period during which they rendered service. The Supreme Court held that the managing agency remuneration was not liable to apportionment in proportion to the services rendered by each one of them, but that Agarwal Co. was liable to pay tax on the whole commission. The majority of their Lordships considered that the remuneration payable by the managed company to the managing agents arose only on the completion of the definite period of service, and that it was a condition precedent for the recovery of any wages or salary that the services or duties should be completely performed. The right to receive the remuneration or commission would, according to their Lordships, arise only at the end of the year which was the terminus ad quem for the making up of the accounts and ascertaining the net profits earned by the managed company. This decision established the proposition that the managing agency remuneration did not accrue de die in diem or daily, but only at the end of the year. In Morvi Industries Ltd. v. CIT [1971] 82 ITR 835 (SC), the assessee was the managing age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it, was pointed out. This problem came to be considered, again in CIT v. Birla Gwalior (P.) Ltd. [1973] 89 ITR 266 (SC). The assessee in that case was also a managing agent of two companies. The managing agent was entitled to an office allowance and also commission. No date was fixed for the payment of commission in the managing agency agreement. The assessee gave up the managing agency commission due for the previous years relevant for the assessment years 1954-55, to 1956-57 after the end of the previous years but before the accounts were made up by the managed companies. The Appellate Tribunal held that the commission given up was not the managing agent's real income and that in any event it had been given up on grounds of commercial expediency and was, therefore, an allowable deduction under s. 10(2)(xv) of the Indian I.T. Act, 1922. The High Court on a reference came to the conclusion that the commission forgone was not the real income. When the matter came to be considered by the Supreme Court, there were two questions which were considered by the Supreme Court.One was whether the commission forgone by the assessee was allowable as a revenue expenditure and the other was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accrual will be the same as the date of the right to receive it. In the present case, the income did not accrue at all to the assessee on or before March 31, 1970, so that there is no question of it being assessed in the assessment year 1970-71. The result is that the question in T.C. No. 433 of 1975 has to be and is answered in the affirmative and in favour of the assessee. Now turning to the reference in T.C. No. 432 of 1975, relating to the levy of penalty, the question arose on account of the deficiency in the payment of the advance tax. A notice u/s.210 of the I.T. Act was issued to the assessee calling upon it to pay the advance tax of Rs. 6,806 on the estimated income of Rs. 10,470. The assessee paid the instalments in response to the said notice. However, it filed a return on September 24, 1970, disclosing an income of Rs.22,297 and the tax payable thereon amounted to Rs. 13,145. The assessment was completed on a total income of Rs. 98,730 and the tax payable was Rs. 56,019. In the assessment so made, the sum of Rs. 76,429 was added as the managing agency remuneration. The ITO noting that the tax payable even on the income as returned exceeded the advance tax demanded ..... X X X X Extracts X X X X X X X X Extracts X X X X
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