TMI Blog1974 (7) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... chinery and electrical plants purchased, constructed or erected ; (c) a commission of 1% on the cost of cotton kappas ; cotton and stores purchased and on the cost of the electric energy consumed for the purpose of the company ; and (d) a commission of 10% of the net profits of the company available after deducting all working expenses and interest and the aforesaid commission, but before providing for depreciation and excess profits tax and appropriating funds for income-tax reserve or special funds. After obtaining sanction from the Government of India, the terms relating to the managing agency remuneration had been varied by providing a minimum remuneration in case the company incurs loss during any particular assessment year, and the relevant resolution of the company was this : " That the managing agents of the company be paid a minimum, remuneration of Rs. 50,000 in case of absence or inadequacy of profits for each and every financial year commencing from January 1, 1957, as sanctioned by the Central Government and that the variation in the terms of the managing agency agreement to the extent be and is hereby approved. Further resolved that the minimum remuneratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continued to be managing agents up to the end of the accounting year, when alone the net profits of the company and the 10% thereof could be determined. The decisions in E. D. Sassoon and Company v. Commissioner of Income-tax and Cotton Agents Ltd. v. Commissioner of Income-tax have been referred to as supporting the Tribunal's view. We are not, however, inclined to agree with the Tribunal that the managing agents cannot at all claim remuneration for the services rendered till August 15, 1960, when the managing agency agreement ceased to be effective in view of section 330 of the Companies Act. In E. D. Sassoon Company Ltd. v. Commissioner of Income-tax, there was an assignment of the managing agency agreement and the question arose whether in the relevant assessment year both the assignor as well as the assignee could be assessed on the whole of the commission or a proper apportionment being made between them. Their Lordships of the Supreme Court took the view that the managing agency commission was not liable to apportionment between the assignor and the assignee in the proportion of the services rendered, as managing agents by each one of them and that the entire managing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company was that since the profits from the business of the company can only accrue at the end of the accounting period and not before the company having been forced to close down its business in the middle of the accounting year, it is not liable to be assessed at all for that accounting year under the Income-tax Act. In support of that contention, the above observations of the Supreme Court in Commissioner of Income-tax v. Ashokbhai Chimanbhai earlier referred to were relied on. The Supreme Court distinguished the said decision on the ground that in that case the right to receive a share in the profits had been transferred or divested and that by virtue of such a transfer or divestiture no income could accrue or arise to the assessee. Dealing with the facts of the case before them, their Lordships of the Supreme Court held that profits directly arose to the company till its undertaking was taken over and such profits could be ascertained by the method of accounting normally adopted by the company at the end of the year or when the business was closed. Though the said decision of the Supreme Court was in relation to the actual income for a period up to which the company carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company as on August 15, 1960, the Income-tax Officer proceeded to calculate the remuneration up to August 15, 1960, on the basis that the company has not earned profits during the accounting year. Mr. Swaminathan, the learned counsel for the assessee-company, would, however, contend that though the agreement has provided for two modes of determination of the quantum of remuneration payable to the managing agents, one when the company has earned profits and the other when the company has not earned profits, the Income-tax Officer was not justified in proceeding on the basis that the company has not earned profits, when it has actually been found that the company has earned profits at the end of the accounting year. According to Mr. Swaminathan, the inability to determine the profits which is to be taken as the basis for calculating the remuneration payable to the managing agents cannot lead to the assumption that the company has not earned profits, while, in fact, it has earned profits during the accounting year. We are inclined to agree with Mr. Swaminathan that the Income-tax Officer is not justified in proceeding on the basis that the company has not earned profits du ..... 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