Statutory includibility of managing agent remuneration allowed company deduction despite no actual assessment in agent's hands.

Remuneration paid by a controlled company to its managing agent was deductible under proviso (b) to rule 4(1) of Schedule I of the Gwalior War Profits Tax Ordinance where that remuneration was legally includible in the managing agent's taxable profits under the Ordinance. Actual assessment in the managing agent's hands was not required, because the statute treated the company and the managing agent as separate assessment units and the phrase "is included" was read as referring to statutory includibility, not completed assessment. The contrary construction was rejected as creating unreasonable and anomalous results. The deduction claim therefore succeeded.

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Issues: Whether, under rule 4(1)(b) of Schedule I of the Gwalior War Profits Tax Ordinance, remuneration paid by a controlled company to its managing agent was deductible only if the remuneration had actually been assessed in the managing agent's hands, or whether it was enough that the remuneration was liable to be included in the managing agent's profits under the Ordinance.

Analysis: The opening part of rule 4(1) disallowed deduction of remuneration paid to directors having controlling interest, but proviso (b) exempted cases where the remuneration of a managing agent was included in the profits of the managing agent's business for war profits tax purposes. The Court read the words "is included" in their statutory setting and held that the phrase referred to inclusion under the Ordinance itself, not merely to actual inclusion in a return or to the assessing authority's completed assessment. The scheme of the Ordinance treated the company and the managing agent as separate units of assessment, and the default of either the assessee or the assessing authority could not prejudice the company where the remuneration was otherwise taxable in the managing agent's hands. The suggested construction would also lead to unreasonable and anomalous results and was rejected.

Conclusion: The remuneration was deductible because it was liable to be included in the managing agent's taxable profits under the Ordinance, even though it had not in fact been assessed in the managing agent's hands; the answer was in favour of the assessee.

Final Conclusion: The controlled-company disallowance in rule 4(1) did not apply where the managing agent's remuneration was within the charging scheme and liable to tax in the managing agent's assessment, so the company's deduction claim succeeded.

Ratio Decidendi: For the purpose of proviso (b) to rule 4(1), "is included" means legally includible in the managing agent's taxable profits under the Ordinance, and actual assessment in the managing agent's hands is not a prerequisite to the company's deduction.

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