LexTHE COMMISSIONER OF INCOME-TAX, NELHI versus THE DELHI FLOUR MILLS CO., LTD., DELHI
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
28
SUPREME COURT REPORTS (1959) Supp.
r95x
THE COMMISSIONER OF INCOME-TAX, nELHI
r...
October .1.
v.
THE ])ELHI FLOUR MILLS CO., LTD., DELHI
(VENKA'fARAMA AIYAR, GAJENDRAGADRAR
and A. K. SARKAR JJ.)
J~xcess 1-'rofits-Assesstn4!nt-Asse.ssee company's agreement
;.·ith 1na1taging age11ts-Cornmissio11 on net projits-Coniputation
-Tax. if can be deducted·- "Net profits", meaning of.
An agreement betwten the assessee company and its manag-
ing agents provided : "In consideration for acting as managing
agents the company should pay to the firm remuneration at
Rs. 750/- p.m ............. and in addition a comn1ission equal to 10~~
of the annual net profits. Such net profits will he arrived at
after allowing the working expenses, interest on Joans and due
depreciation, but without setting aside anything to reserves or
other special funds". The question was whether the excess pro-
fits tax payable by the company should be deducted from its
profits for the purpose of arriving at the annual net profits of
which a percentage should be paid to the managing agents as
thr-ir commission under the agreeinent.
Held, that the words "net profits" in the agreement meant
divisible profits, profits divisible between the company and the
managing agents, and that in ascertaining such profits, deduction
had to be made, besides the items expressly mentioned in the
agreement, of excess profits tax payable by the company.
James Finlay & Co .. Ltd. v. Finlay Mills Ltd., (1942) 47
Born. L.R. 77-t and Walchand & Co., Ltd. v. Hinduslhan Con<lmc-
tion Co .. Ltd .. (1943) 45 Born. L.R. 951, considered.
Ashton Gas Company v. Attorney-General, [1906] A.C. ro and
Re G. B. Ollivant & Co. Ltd.'s Agreement, [1942] 2 All E. !{. 528,
distinguished.
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
211of1955.
Appeal from the judgment and order dated Decem-
ber 30, 1952, of the Punjab High Court in Civil Refer-
ence Case No. 18 of 1952.
H.J. Umrigar and Jl. El. Dhebar, for tlw nppel-
ln.nt.
.(
llardayal Hardy, for the respondent.s.
1958. October 3. The Judgment of the Court was
delivered by
J
•
--.. .
(1) S.C.R.
SUPREME COURT REPORTS
29
SARKAR J.-By an agreement made in 1936, the
assessee company appointed a firm as its managing
agents. The agreement provided that the manag-
ing agents would be remunerated in the manner
following:
" In consideration for acting as Managing Agents
the Company should pay to the firm remuneration at
Rs. 750 p.m. or such principal sum as may from time
to time be deemed reasonable by the Directors and in
addition a commission equal to 10% of the annual net
profits. Such net profits will be arrived at after allow-
ing the working expenses, interest on loans and d ne
depreciation, but without setting aside anything to
reserves or other special funds."
The question is whether the commission payable tu
the managing agents under this agreement is to he ten
per cent. of the profits of the assessee without deduc-
tion of the excess profits tax payable by -it on its
profits or after deduction.
The question has arisen in the course of the assess-
ment of excess profits tax payable by the assessee.
The Excess Profits Tax Officer held that the commis-
sion has to be ascertained on the profits remaining
after deduction of excess profits tax. This view was
upheld by the Appellate Assistant Commissioner on an
appeal being taken to him by the assessee. On a
further appeal by the assessee to the Appellate Tribu-
nal it was held that the commission has to be ascer-
tained on the profits without any deduction of the tax.
The revenue authorities then applied for and obtained,
an order from the Tribunal referring the following
question for decision by the High Court:
" Whether on a true construction of the Managing
Agency Agreement between the assessee Company and
its Managing Agents entered into in 1936, the relevant
clause of which is quoted above, the Excess Profits
Tax payable should be deducted from the profits of
the Company for the purpose of arriving at the annual
net profits of which a percentage should be paid to the
Managing Agents as their commission."
The High Court answered the question in the negative.
Commissioner of
Income·la~
v.
Del/ii Flour Mills
Co., Ltd.
Sarkar ].
30
SUPREME COURT REPORTS
[1959] Supp.
The present a.ppea.l is by the revenue authorities
a.gs.inst the judgment of the High Court.
Commissioner of
Tb
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Income-tax
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