Construction of managing agency agreement excludes excess profits tax from net profit computation for commission.

A managing agency agreement must be construed according to its express terms when computing annual net profits for commission. Because the agreement specified the deductions to be made and did not include excess profits tax, that tax could not be implied as a further deduction. The levy was imposed after the agreement and was treated as a tax on profits, not an expense incurred in earning them. The court therefore held that managing agents' commission had to be calculated without deducting excess profits tax, and answered the reference in favour of the assessee.

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Issues: Whether, on a true construction of the managing agency agreement, excess profits tax was liable to be deducted while computing the annual net profits on the basis of which the managing agents' commission was to be calculated.

Analysis: The agreement specified the deductions to be made before arriving at net profits and did not refer to excess profits tax. The tax was imposed after the agreement and was a levy on profits, not an expense incurred in earning them. The ordinary rule of construction required the agreement to be applied as written, without making a new bargain for the parties. On that footing, excess profits tax could not be treated as a permissible deduction before computing commission. The contrary view taken in an earlier decision was held not to govern the present agreement.

Conclusion: Excess profits tax was not deductible in computing the annual net profits for the purpose of calculating the managing agents' commission.

Final Conclusion: The reference was answered against the Revenue and in favour of the assessee by holding that the managing agents' commission had to be computed without deducting excess profits tax.

Ratio Decidendi: Where a profit-sharing or commission agreement specifies the deductions to be made in computing net profits, a later tax on profits cannot be treated as an implied deduction unless the agreement expressly or by necessary implication so provides.

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