Profit-linked commission requires deduction of excess profits tax unless the contract expressly says otherwise.

On the construction of a managing agency agreement, excess profits tax payable by the company was held deductible in computing annual net profits for commission purposes. The agreement fixed commission by reference to net profits but contained no express provision excluding tax on profits. The Court treated excess profits tax as distinct from income-tax in a profit-sharing context and applied the commercial basis of ascertaining divisible profits, observing that such profits are ordinarily determined after deducting tax the company cannot retain. In the absence of an express contractual term to the contrary, the tax was required to be deducted and the issue was answered in favour of deduction.

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Issues: Whether, on the construction of the managing agency agreement, excess profits tax payable by the company was to be deducted in computing the annual net profits for the purpose of calculating the managing agents' commission.

Analysis: The agreement fixed commission by reference to annual net profits and specified certain deductions, but contained no express provision dealing with tax on income or excess profits tax. The Court treated excess profits tax as materially distinct from income-tax in the context of a profit-sharing arrangement and held that divisible profits of a trading company are ordinarily to be ascertained on a commercial basis only after deducting such tax. The earlier English authorities were treated as supporting this construction, and the language of the agreement did not negative the presumption against sharing profits which the company itself could not retain.

Conclusion: Excess profits tax had to be deducted in ascertaining the annual net profits, and the question was answered in the affirmative against the appellant.

Ratio Decidendi: In the absence of an express contractual provision to the contrary, excess profits tax payable by a company is deductible in computing net profits for the purpose of calculating commission based on a share of profits.

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