LexTHE STATE OF MADHYA PRADESH versus BINOD MILLS COMPANY LTD.
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1 S. C.R. SUPREME COURT REPORTS 205 THE STATE OF MA.DHYA PRADESH , v. BINOD MILLS COMPANY LTD. (P. B. GAJENDRAGADKAR, A. K. SARKAR, K. N. WANCHOO. K. C. DAS GUPTA and N. RAJAGOPALA AYYANGAR, JJ.) War Profits Tax-Assessment o.f company's profits- Deduction of managing agent's remuneration-" Included in the profits of the managing agency bu,qiness"-Gwalior War Profits Tax Ordinance, Samvat 2001, ss.2(.5), 2(10), 4(1), 5(1), Sch.I, r.4( 1) proviso (b). Sub-rule (1) of r.4 of Sch. I to the Gwalior War Pro- fits Tax Ordinance, Samvat 2001, provided: "In computing the profits of a bu~iness carried on by a company, no deduc- tion shall be made in respect of the remuneration paid to directors if during any part of the accounting period concerned, they had cuntrolling interest in the company; provided that this sub-rule shall not apply (a) ........ (h) to the remuneration of any managing agent where such remuneration is included in the profits of the managing agents' business for the purposes of the War Profits Tax" The respondent company was managed by a managing agency firm which had, by reason of its shareholding exceed- ing 50% of the issued share-capital, a controlling interest in the company. The company was assessed to War Profits Tax under the provi~ions of the Gwalior War P1 ofits Tax Ordi- nance, Samvat 2001, for three chargeable accounting periods between 1944 and 1946. During each of these accounting periods the company had paid remuneration to its manag-ing agent and claimed to deduct the remuneration so paid in the computation of its business profits during these three periods. The assessing officer disallowed the claim on the ground that as the remuneration received by the managing agency firm had not been factually assessed in the hands of the managing agent, proviso (h) to r.4( I) of Sch. I was not applicable. It was found that the managing agents had in their statement of their own Profit and Loss account fo~ the relevant years disclosed the managing agency commis- sion received by them but they claimed before the assessing authority that the sum was not liable to be taxed and this claimed was accepted. Held, that the remuneration paid to the managing agents, even though they had a controlling interest in the 1962 April 3. 196r,; Thi Sta/1 oj Madhya P"dtsh v. Binod Mills Compan1 Ltd. 206 SUPREME COURT REPORTS [1963) company, was a permissible deduction for the purp= of compudng the profits of the company under the War Pro- fits Tax Ordinance, Samvat 2001, because by virtue of proviso (b) to r.4(1) of Sch. I to the Ordinance, the manag- ing agent was liable to include this remuneration in his assessable profits. The words "is included" in proviso (h) to r.4(1) refer to the inclusion under the provisions of the Ordinance. Neither the default of the managing agent as an assessee nor of the assessing authority to include the sum in the pro- fits of the managing agent could prejudice the rights of the company in the matter of the computation of its income. C1v1L APPELT.ATE JURISDICTION: Civil Appeals Nos. 228 to 230 of 1960. Appeals from the judgment and decree dated February 4, 1957, of the Madhya Pradesh High Court (Indore Bench) at Indore in Civil Reference No.15 of 1952. B. Sen, B. K. B. Naidu and T. N. Shroff, for the appellants. A. V. Viswanatha Sastri, K. A. Ohitale, J. B. Dadachanji. S. N. Andky. Rameshwar Nath and P. L. Volwa for the respondents. 1962. April 3. The Judgment of the Court was delivered by . AYYANGAR, J.-Rule 4 (l )(h) of Sch. I heade•l "Rules for the computation of profits for the purposes of War Profits Tax'' of the Gwalior War Profit~ Tax Ordinance, Samvat 2001 (hereinafter referred to as the Ordinance), provided: ' 14. In computing the profits of a business carried on by a company, no deduction eball be made in respect of- ( l) remuneration. paid to directors if during any part of the accounting period concerned, they bad controlling interest in the company; 1 S. C.R. SUPREME COURT REPORTS 20? Provided that this sub-rq.le Fhall not apply- (a) ...•........•••• • •.. •. •. • •• . . . . . . .....••.•. • (b) to the remuneration of any managing agent where such remu~eration is included in the profits of the mana- ginp: agents' business for the purposes of the War Profits Tax". The respondent-Binod Mills Co. Ltd. which had its business at Ujjain i.n the State of Gwalior was a company who
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