Bombay High Court
Commissioner Of Income-Tax, Bombay ... vs New Jehangir Vakil Mills Co. Ltd. on 29 October, 1958
JUDGMENT S.T. Desai, J.
1. On this reference, learned counsel for the Department has a very difficult position to support. The assessee is a limited liability company and owned a textile mill at Bhavnagar and the managing agents of the mills were Messrs. Rustomji Mangaldas & Co. Under the agreement of managing agency, the managing agents were entitled to a remuneration of Rs. 4,58,388 for the assessment year 1950-51. The managing agents agreed to forgo Rs. 1,52,796 out of that amount of their remuneration. Ultimately the net payment received by them was Rs. 3,05,592. In the balance sheet of the company, the payment was shown in the following manner :
Agents' commission Rs. 4,58,388-0-0
Less 1/3rd of the total commission
voluntarily given up. Rs. 1,52,796-0-0
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Rs. 3,05,592-0-0
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2. When making the assessment on the managing agents, the Income-tax Officer brought to assessment the whole amount of Rs. 4,58,388. That matter was carried to the High Court and in I. T. Reference No. 67 of 1956 this court agreed with the view taken by the Department and held that the sum of Rs. 1,52,796 was voluntarily forgone by the assessee and therefore could not be allowed as a revenue deduction. The result was that the whole amount of Rs. 4,58,388 was taxed in the hands of the managing agents. In the matter of the assessment of the assessee company before us for the assessment year 1950-51, the company had at first only claimed deduction of the sum of Rs. 3,05,592 which had actually been paid to the managing agents. At the stage when the matter was pending before the Appellate Assistant Commissioner, the assessee claimed a deduction of the sum of Rs. 4,58,388 contending that that was the amount which they were liable to pay to the managing agents and that was the amount which had been brought to assessment in the hands of the managing agents. The matter was ultimately carried to the Tribunal and the Tribunal relying upon the judgment of the High Court held that the effect of the voluntary giving up of a part of the commission by the managing agents was that the liability had been incurred first and then there was a giving up of commission and the liability that had been incurred by the company was for the whole amount of Rs. 4,58,388 and that was the amount for which deduction should have been allowed. In the opinion of one of the members of the Tribunal, the company had received this amount of Rs. 1,52,796 as a gift from the managing agents and on that ground also the company was entitled to claim deduction of the whole amount. The Commissioner has come before us on this reference and the questions which we are asked to decide are :
(1) Whether on the facts and in the circumstances of the case the assessee company is entitled to a deduction of Rs. 4,58,388 or Rs. 3,05,592 as managing agency remuneration ?
(2) Whether on the facts and in the circumstances of the case, the sum of Rs. 1,52,796 being the ex gratia payment made by the managing agents, is a revenue receipt of the assessee company and liable to income-tax ?
3. It has been argued before us by Mr. Joshi that the correct position has not been properly appreciated by the Tribunal. It is said that once the managing agent gave up something, it meant that he did not receive it. If the managing agent did not receive this sum of Rs. 1,52,796, then the company must be held to have been liable to pay not the whole amount but only this amount of Rs. 3,05,592. The argument of Mr. Joshi comes to this that the liability of the company was Rs. 4 lakhs odd but the managing agents voluntarily gave up a part of the same and, therefore, the actual liability of the company in that context of tax law was Rs. 3,05,592. The question really lies in a very narrow compass. What we have to consider is what was the legal obligation or the liability that was incurred by the company. We are not dealing here with any cash payment or cash receipt and in our judgment the only possible view is that the liability incurred by the company was not the lesser amount but the whole amount of Rs. 4,58,388 and if that be the position, then we do not see how the Department was justified in withholding full deduction of Rs. 4,58,388.
4. It has also been argued by Mr. Joshi that the amount was given up by the managing agents as a matter of business expediency an not ex gratia as stated by one of the members of the Tribunal and therefore, says Mr. Joshi, it is a receipt and income in the hands of the company. The finding of this court in the earlier reference relating to the assessment of the managing agents was that the managing agents were not compelled under the provisions of any agreement to give up the amount but it was voluntarily given up by them. That being the position, it is extremely difficult for us to see how this amount which was voluntarily given up by the managing agents and received as such by the company can be treated as receipt or income in the hands of the company.
5. Our answer to the first question will be that the assessee company is entitled to deduction of Rs. 4,58,388 as managing agency remuneration.
6. Our answer to the second question will be that on the facts and in the circumstances of the case, the payment made by the managing agents is not a revenue receipt of the assessee company and is not liable to income-tax.
7. Commissioner to pay the costs.
8. There is a notice of motion taken out at the instance of the commissioner. In the application to the Tribunal under section 66(1) the commissioner wanted three more questions to be framed by the Tribunal and the Tribunal was of the view that the questions as framed brought out the point in issue. We agree that the questions as framed bring out the points sought to be raised by those questions and it was not necessary to raise them. There will be no order on the notice of motion.
9. Reference answered accordingly.