Contractual definition of net profits controls commission calculation; excess profits tax excluded for pre-amendment managing agents.

The court applied ordinary contractual interpretation to the articles and held that the express contractual definition of "net profits" in revised article 83 governs commission computation; therefore excess profits tax is not deductible when calculating managing agents' commission under the managing agency agreement. The court further held the statutory provision enacted post-amendment does not govern appointments made before that amendment, so the statutory remuneration rule is inapplicable to the instant appointment. Outcome: commission calculated excluding deduction for excess profits tax.

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Issues: Whether, for the purpose of computing the "net profits" on which managing agents' commission is to be paid under the managing agency agreement read with revised article 83 of the articles of association, excess profits tax must be deducted before arriving at such net profits.

Analysis: Article 83 defines the managing agents' remuneration as a fixed office allowance plus a percentage of the "net profits of the company, after deducting interest on debentures and other loans but before taking anything to depreciation, reserves, or other special accounts as the directors may from time to time sanction." The Court applies ordinary principles of contractual interpretation to the expressly worded definition in the articles, taking the words of the agreement as they stand to ascertain the meaning of "net profits" for commission calculation. The Court also considers the applicability of Section 87C(1) of the Indian Companies Act, 1913 (a statutory provision governing remuneration for managing agents appointed after the amendment) and notes that the managing agents in this case were appointed prior to the commencement of Act XXII of 1936; therefore Section 87C does not govern the present appointment. The Court relies on its earlier reasoning in a similarly worded case (Civil Reference No. 18 of 1952, Commissioner of Income-tax v. Delhi Flour Mills Co. Ltd.) and holds that the contractual definition controls whether excess profits tax is to be deducted.

Conclusion: Excess profits tax is not to be deducted before arriving at the net profits of the company upon which commission is to be paid to the managing agents under the managing agency agreement read with revised article 83 of the articles of association; Section 87C of the Indian Companies Act, 1913, is inapplicable to this appointment.

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