TMI Blog1960 (4) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the court was delivered by S K. DAS, J.--This is an appeal with special leave from the judgment and orders dated March 31, 1952, and March 2, 1953, of the High Court of Bombay in an Income-tax Reference No. 48 of 1951 made by the Income-tax Appellate Tribunal, Bombay, under section 66(1) of the Indian Income-tax Act, 1922, and section 21 of the Excess Profits Tax Act, 1940. We may shortly state the relevant facts first. The assessee Messrs. Shoorji Vallabhdas and Co., Bombay, appellant herein, is a firm registered under the Indian Income-tax Act. It held the managing agency of three companies, namely, (1) the Malabar Steamship Co. Ltd., (2) the New Dholera Steamships Ltd., and (3) the New Dholera Shipping and Trading Co. Ltd., for the periods material in this case. The appellant as also the aforesaid three managed companies were resident in the taxable territories within the meaning of the Indian Income-tax Act. The business of the Malabar Steamship Co. Ltd. and of the New Dholera Steampships Ltd. was to carry cargo in cargo boats which touched ports in British India, Cochin State, Travancore State, and Saurashtra, as they were then known. The appellant became the manag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following terms : "That the managing agents shall as and by way of remuneration for their service receive a commission at the rate of 25 per cent. of the net profits of the company. Such remuneration shall be payable to the managing agents at the place where the same is earned by the managing agents unless otherwise requested by the managing agent." The appellant was assessed to income-tax for three assessment years, namely, 1945-1946, 1946-1947 and 1947-1948, the previous years being the financial years 1944-1945, 1945-1946, and 1946-1947 respectively. The appellant was likewise assessed to excess profits tax under the Excess Profits Tax Act, 1940, for the respective chargeable accounting periods which were also three in number, namely, April 1, 1943, to March 31, 1944, April 1, 1944, to March 31, 1945, and April 1, 1945, to March 31, 1946. The Income-tax Officer and the Excess Profits Tax Officer assessed the appellant to tax in respect of the whole of the managing agency commission received from the three managed companies on the footing that the entire managing agency commission accrued or arose in British India. The appellant went up in appeal to the Appellate Assis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and the High Court answered the question by saying that the actual business of the managing agency which yielded the commission was done at Bombay and not at Cochin. In arriving at the conclusion the High Court proceeded on the footing that the finding of the Tribunal in effect was that barring freight and collecting it at Cochin, all other important and responsible work of managing the managed companies was done from the head office at Bombay. It has been argued on behalf of the appellant that the High Court erroneously reformulated the question, and that the real question of law is whether on the facts and circumstances of the case, any part of the managing agency commission accrued outside British India so that the appellant would be entitled to an apportionment of the managing agency commission and to claim exemption from tax in respect of the commission which accrued outside British India under section 14(2)(c) of the Indian Income-tax Act, 1922 (as it then stood) and the third proviso to section 5 of the Excess Profits Tax Act, 1940. It has been further contended that in view of the findings of the Tribunal that (a) the commission earned was a percentage of the freight a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal concluded its supplementary statement thus : "As for the staff maintained at Cochin, it was alleged that K. P. Joshi and subsequently G. H. Narechania were paid Rs. 18,000 each year. The so-called payment was disallowed by the Appellate Tribunal. It observed that debit entries in regard to the salaries paid by the assessee firm were collusive and fictitious. As for the presence of the partners of the assessee firm at Cochin, it appears from the Appellate Assistant Commissioner's order that it was admitted before him that none of the partners of the firm ever attended to the company's business at Cochin or Alleppey." "There is no clear evidence on the record as to what the assessee firm did as the managing agents of the three managed companies ; in other words, how the assessee firm was carrying on the managing agency business. The partners of the assessee firm (not necessarily all) were on the board of directors of the managed companies. They held a large number of shares in the managed companies. The Malabar Steamship Co. Ltd. had an office of its own 'to secure freight'. The Cochin office of the assessee firm, as far as one could make out, did practically nothing, exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the profits of the business must arise only at one place, namely, the place of central control of the business. Delivering the judgment of the Privy Council in that case, Sir George Rankin observed : "The words 'accruing or arising in British India' may be taken, provisionally and in the first place, as an ordinary English phrase which derives no special meaning from the Act. The alternative 'accruing or arising in' and the antithesis between these words and the words 'received in' or 'brought into' afford no safe inference of any special meaning, 'Profit . . . accruing or arising in British India' are words which in their ordinary meaning seem to require a place to be assigned as that at which the result of trading operation comes, whether gradually or suddenly, into existence....... Their Lordships are not laying down any rule of general application to all classes of foreign transactions, or even with respect to the sale of goods. To do so would be nearly impossible and wholly unwise...They are not saying that the place of formation of the contract prevails against everything else. In some circumstances it may be so, but other matters--acts done under the contract, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has made some very serious comments. The facts of that case were these : the assessees, a company incorporated in Bombay were the managing agents of another company incorporated in Bombay and having its salt works at Aden and at Kandla in the Kutch State. The assessee's registered office was in Bombay, where the board of directors met, the books of account were maintained and various types of work connected with the company were done. Under the managing agency agreement the assessees were entitled to a commission at the rate of 12 1/2 per cent. per annum on the annual net profits of the company and in any event a minimum of Rs. 30,000 per annum. The agreement also provided that such portion of the commission as was attributable to the net profits of the company arising or accruing in the Indian State was to be paid to the managing agents in such State and that with regard to the minimum commission half of it was to be paid in the State. In pursuance of the assessees' articles of association the board of directors passed a resolution delegating a particular director to guide the company's operation in the State of Kutch and during the year of account that director supervised the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary in the present case to decide the question of performance of services and resultant apportionment, if any, on a theoretical or hypothetical basis, because the case can be disposed of on the short ground that on the findings of the Tribunal, the remuneration of the managing agents accrued at Bombay. We had referred earlier to the findings reached by the Tribunal. These findings show that except for an attempt at make-believe, no services were really performed by the appellant at Cochin. No doubt, some freight was secured and paid for at Cochin. But the managed company also had an office at Cochin to secure freight. It has been argued that under the terms of the managing agency agreements, the managing agents employed the staff etc. and for two of the companies which carried on the cargo business, securing freight was the principal part of the managing agency business. The High Court, however, rightly pointed out : "In our opinion it is not possible to read the managing agency agreement in that light. All that clause 2 of the agreement does is to lay down the standard by which the commission is to be computed and determined, and it lays down two different standards, one wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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