1974 (8) TMI 42 - HC - Income Tax

Court allows managing agents' remuneration based on net profits, not limited to minimum; costs awarded against revenue.

The court ruled in favor of the assessee, rejecting the Income-tax Officer's restriction of managing agents' remuneration to the minimum for the period ... Business Expenditure Issues:Interpretation of managing agents' remuneration accrual, applicability of minimum remuneration clause, calculation of managing agents' remuneration based on net profits, pro rata basis for broken periods, impact of new managing agency firm on remuneration calculation.Analysis:The case involved a limited company managed by a firm under an agreement. The managing agents were entitled to 10% of net profits, with a minimum remuneration clause. Following the death of a partner, a new managing agency firm took over partway through the year. Disputes arose regarding the calculation of managing agents' remuneration for different periods. The Income-tax Officer restricted remuneration to the minimum for the period served, disallowing the balance. The Appellate Assistant Commissioner disagreed, allowing remuneration based on net profits for the broken periods. The Tribunal upheld the disallowance, arguing net profits could only be ascertained at year-end. However, a previous case established that managing agents were entitled to pro rata remuneration based on net profits after the year-end. The court agreed, emphasizing that minimum remuneration applies only in the absence of profits. The presence of a new managing agency firm did not alter this principle. Therefore, the court ruled in favor of the assessee, rejecting the disallowance and awarding costs against the revenue.