Managing agency commission accrues where management activities are performed, not merely where the head office is located.

Managing agency commission was treated as accruing where the managing agent actually carried on the substantive business of managing the managed concern, not merely where the head office was located or where remuneration was computed. On the stated facts, the managed company's factory, manufacturing operations and sales were in Pakistan, so the commission-generating activities arose there. The presence of the assessee's head office in India did not, by itself, fix accrual in India, and the double taxation arrangement supported that territorial sourcing analysis. On that reasoning, inclusion of half the commission in the Indian assessment was not justified.

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Issues: Whether 50% of the managing agency commission received from the Pakistan-based managed company was rightly included in the assessee's income in India.

Analysis: The decisive question was where the income from the managing agency commission arose or accrued. The agreement and the surrounding facts showed that the managed company's factory and manufacturing operations were in Pakistan and its sales were also made there. The mere fact that the assessee's head office was in India and that remuneration was computed under the agreement did not, by itself, fix accrual in India. Applying the principle that commission accrues where the managing agent actually performs the business of managing the affairs of the managed concern, and having regard to the double taxation arrangement, the activities generating the commission were performed in Pakistan.

Conclusion: The inclusion of 50% of the managing agency commission in the assessee's Indian assessment was not justified; the question was answered in favour of the assessee.

Final Conclusion: The reference was decided by holding that the managing agency commission did not accrue in India merely because the assessee maintained its head office there, and the addition made by the tax authorities was deleted.

Ratio Decidendi: Managing agency commission accrues at the place where the managing agent performs the substantive business of managing the managed company, and not merely at the place where remuneration is computed or where the head office is situated.

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