Contract interpretation of commission clause: excess profits tax counted as tax on income, so commission was payable without deduction.

A managing agency commission clause excluded deduction of income-tax, super-tax and any other tax on income before calculating the commission. The Bombay HC treated excess profits tax under the Indian Excess Profits Tax Act, 1940 as a tax on income because it was levied on business profits rather than on capital, and the character of the levy was not altered by being enacted as a separate statute or by the business-based unit of assessment. On that construction, the contractual phrase was wide enough to cover the levy, so the commission was payable without deducting excess profits tax.

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Issues: Whether, on the construction of the managing agency agreement, the plaintiff was entitled to commission on net annual income without deduction of excess profits tax payable by the defendant.

Analysis: The commission clause excluded deduction of income-tax, super-tax, and any other tax on income before computing the ten per cent commission. Excess profits tax under the Indian Excess Profits Tax Act, 1940 was held to be a tax on income, because it was levied on business profits and not on capital, and its character was not altered by the fact that it was enacted as a separate statute or that the unit of assessment was the business. On that construction, the parties themselves had covered the levy within the phrase used in the agreement.

Conclusion: The plaintiff was entitled to commission without deducting excess profits tax, and the question was answered in the affirmative.

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