TMI Blog1956 (3) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... AGWATI., S. R. DAS., VENKATARAMA AIYAR JUDGMENT The judgment of the Court was delivered by VENKATARAMA AYYAR, J.---The question that arises for decision in this appeal is whether a sum of Rs. 1,23,719 paid by the respondent as commission to its managing agents on account of profits of its Karachi branch can be allowed as deduction against the Indian profits. The respondent is a company registered under the Indian Companies Act, 1913, and is carrying on business in cotton. Its head office is in Bombay, and it maintains a branch at Karachi for purchasing cotton for shipment to Bombay or export direct to other places. Separate accounts are maintained and separate profit and loss statements are prepared for the business at Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are not material for the present purpose, determined the total income at Rs. 13,09,375. The correctness of this figure is not now in dispute. As part of this income was earned in Karachi, that would also be chargeable to income-tax in Pakistan. To avoid the hardships arising from the same income being subjected to taxation twice over in the two Dominions, section 49-AA of the Income-tax Act, as it stood before it was replaced by section 49(b), provided that "the Central Government may enter into an agreement with Pakistan ... for the avoidance of double taxation of income, profits and gains under this Act ". And in exercise of the powers conferred under this section, a notification was issued on the 10th December, 1947, providing for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd confirmed the order of the Income-tax Officer. The respondent took the matter in appeal to the Tribunal, which held that under the terms of the managing agency agreement, the entire commission was payable at Bombay, and that accordingly no portion of it should be debited to the Karachi branch. In the result, the appeal was to that extent allowed. Thereupon, on the application of the Commissioner, the Tribunal referred the following question for the decision of the High Court : " Whether on the facts and in the circumstances of the case, the amount of Rs. 1,23,719 paid to the managing agents as commission at 20 per cent. of the net profits of the Karachi branch, is allowable as a revenue deduction against the Indian profits of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,50,804 that had been allocated, Rs. 7,55,925 for the business at Bombay and Rs. 4,94,879 for the Karachi business, and that to disallow Rs. 1,23,719 which had been included in the profit and loss statement of Pakistan would be to give relief twice over in respect of the same income. It was also contended that as the assessee had itself deducted that amount from the profits as business allowance in its profit and loss statement for Karachi and obtained relief in Pakistan on that footing, it was not entitled to claim relief in respect of that very amount under the terms of the Agreement between the two Dominions. For the respondent, Mr. Kolah contended that under the provisions of the Income-tax Act the respondent was not entitled to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the Indian profits. We do not see any force in this contention. Whether the respondent is entitled to a particular deduction or not will depend on the provision of law relating thereto, and not on the view which it might take of its rights, and consequently, if the whole of the commission is under the law liable to be deducted against the Indian profits, the respondent cannot be estopped from claiming the benefit of such deduction, by reason of the fact that it erroneously allocated a part of it towards the profits earned in Karachi. What has therefore to be determined is whether, notwithstanding the apportionment made by the respondent in the profit and loss statements, the deduction is admissible under the law. Section 10(2)(xv) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he managing agency agreement, and is indeed opposed to them. Under that agreement, the managing agents are entitled to a 20 per cent. commission on the annual net profits of the company, and to ascertain those profits, one has to take into account the result of the trade in all its branches. In the present case, profits were earned during the accounting period both in Bombay and in Karachi, and the apportionment of the commission between the two branches makes no material difference in the result. But it might happen that the business at Bombay results in profit, while that at Karachi ends in loss. In that event, what the managing agents would be entitled to would be commission not on the profits made in Bombay but on the net profits after ..... X X X X Extracts X X X X X X X X Extracts X X X X
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