1949 (9) TMI 20 - HC - Income Tax

Tax Liability Determined Based on Location of Accrued Commission

The court determined that the commission of Rs. 88,065 accrued and arose in British India, not at Kandla. The assessee was held liable to pay income tax ... - Issues Involved:1. Determination of the place where the commission accrued or arose.2. Liability to pay income tax and excess profits tax on the commission earned.Issue-wise Detailed Analysis:1. Determination of the place where the commission accrued or arose:The core issue was whether the commission amounting to Rs. 88,065 accrued or arose at Kandla or in British India. The assessee, a joint stock company incorporated in Bombay, was the managing agent of United Salt Works & Industries Ltd., which also had operations in Kandla and Aden. The managing agency agreement stipulated a commission based on the annual net profits, with a minimum commission of Rs. 30,000 per annum. A specific clause in the agreement stated that the commission attributable to profits arising in an Indian State would be payable in that state unless directed otherwise by the agents.The Tribunal's view was that the total commission payable was Rs. 2,10,815, with Rs. 1,22,750 attributable to Aden and Rs. 88,065 to Kandla. The assessee argued that since the business at Kandla was managed by Yuvraj Maharaj Kumar Shree Madansinghji and the profits arose there, the commission should also be considered to have accrued at Kandla. However, the court emphasized that the actual business of the company and the place where profits yield should determine where the profits accrue or arise. It was held that the commission could not be divided into parts corresponding to different locations of business activities. The managing agency's commission was dependent on the overall net profits of the company, not on profits from individual locations.The court referenced the decision in 'In re The Aurangabad Mills Ltd.' to support that the place where the actual business yields profits is where profits accrue or arise. The managing agents' commission only arose after determining the company's net profits from all operations. Therefore, the commission did not accrue at Kandla but in British India, where the company's head office was located, and all accounts were finalized.2. Liability to pay income tax and excess profits tax on the commission earned:The court addressed the liability to pay income tax and excess profits tax on the commission. The assessee sought to raise a separate question regarding its liability for excess profits tax on the commission. The court decided to amend the original question framed by the Tribunal to encompass both income tax and excess profits tax considerations. The amended question was: 'Whether in the circumstances of the case the commission viz. Rs. 88,065 received by the assessee company from the United Salt Works & Industries Ltd., accrued in the State of Kutch or in British India, both for the purpose of income-tax and excess profits taxRs.'The court answered this question by stating that the commission accrued in British India. Consequently, the assessee was liable to pay both income tax and excess profits tax on the commission earned.Conclusion:The court concluded that the commission of Rs. 88,065 accrued and arose in British India and not in a Native State. The assessee was liable to pay income tax and excess profits tax on this commission. The reference was answered accordingly, and the assessee was ordered to pay the costs of the reference.