TMI Blog1960 (5) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... by S. K. DAS, J.--This is an appeal on a certificate granted by the High Court of Bombay under section 66A(2) of the Indian Income-tax Act, 1922. The short facts are these. The Cotton Agents Ltd., Bombay, are a limited liability company registered under the Indian Companies Act and will be called the assessee company in this judgment. It held a substantial number of shares of the New Swadeshi Mills of Ahmedabad Ltd. (hereinafter called the mills company). Messrs. Shivnarayan Surajmal Nemani (called the Nemani group) also held a block of shares of the mills company along with its managing agency. The assessment year was 1946-1947, and the year ending with Diwali, 1945 (October 18, 1944, to November 4, 1945) was the accounting year. Sometime in 1944 some differences arose between the assessee company and the Nemani group; these differences were referred to one Govindram Seksaria, who decided that the Nemani group should sell its block of shares to the assessee company at an agreed price. It was further decided that a sum of Rs. 5,00,000 be paid by the assessee company to the Nemani group as the price of the managing agency rights. This arrangement was approved by the shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emani, or to the assessee ? " The High Court held that the matter was concluded by the decision of this court in E. D. Sassoon and Co. Ltd. v. Commissioner of Income-tax. With reference to the argument of learned counsel for the assessee company that the commission was payable on the sale proceeds and not on the profits as in Sassoon's case, it said: "We would have given serious thought to this aspect of the matter but for the view we take that the decision of the Supreme Court with regard to the question of creation of the debt and with regard to the serving by the managing agents for a term of one year being a condition precedent for their being entitled to receive payment, is indistinguishable on the facts of this case. We may point out that here as in Sassoon's case the commission of 3 1/2 per cent. is to be earned in any year, and also by clause 3 of the agreement the commission is to become due to the managing agents at the end of each financial year. Therefore, till the end of the financial year there is no debt whatsoever created in favour of the managing agents and also their right to receive payment depends upon their having served for a whole year. Under the circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er articles manufactured by the company earned in any year or other period for which the accounts of the company are made up and laid before the general meeting. Provided etc... [It is unnecessary to quote the proviso.] " (3) The said commission shall become due to the managing agents at the end of each financial year or other period for which the accounts of the company are to be laid before the general meeting and shall be payable and paid immediately after such accounts have been passed by the general meeting. Clauses (6) to (11) recited the rights and duties of the managing agents, one of such rights being to retain, reimburse and pay themselves "all sums due to the agents for commission". Clauses (13) and (14) dealt with the right to assign the remuneration and the managing agency, and said inter alia that "it shall be lawful for the agents to assign this agreement and the benefit thereof and their rights and privileges etc. to any person or firm or company having authority by its constitution to become bound by the obligations undertaken by the agents.... and the company shall be bound to recognise the person, firm or company aforesaid as the agents of the company ". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some of the decisions cited at the Bar. As to the decision in Sassoon's case, it is pointed out that the commission there payable by way of remuneration was a percentage on the net profits and this, it is argued for the assessee company, distinguishes that decision from the present case. Indeed, it is true that in Sassoon's case the remuneration was fixed at a percentage on the net profits, but the real point of the decision was as to when the remuneration accrued. On this point the majority of the learned judges said: "It is clear therefore that income may accrue to an assessee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in praesenti, solvendum in futuro; see W.S. Try Ltd. v. Johnson and Webb v. Stenton and Others, Garnishees. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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