1960 (4) TMI 9 - SC - Income Tax

Supreme Court affirms managing agency commission accrued in Bombay, dismissing appeal

The Supreme Court affirmed that the managing agency commission accrued in Bombay, where substantial services were performed, dismissing the appeal and ... Whether any part of the managing agency commission accrued outside British India? Held that:- On the findings reached, the position in law is quite clear that normally the commission payable to the managing agents accrues at the place where the business is actually done, that is, where the services of the managing agents are performed. In this case the appellant practically performed all the services at Bombay, and therefore the commission which it earned though computed on the percentage of freight and/or passage money in respect of two of the managed companies, accrued or arose in British India. As to the third managed company whose business was stevedoring and trading and the remuneration was payable at 25% of the net profits, there can be no doubt that the remuneration accrued at Bombay. Therefore, the High Court of Bombay correctly answered the question against the appellant. Appeal dismissed. Issues Involved:1. Place of accrual of managing agency commission.2. Reformulation of the question by the High Court.3. Apportionment of income for tax purposes.Issue-wise Detailed Analysis:1. Place of Accrual of Managing Agency Commission:The primary issue was whether the managing agency commission accrued in British India or in the Cochin and Travancore States. The appellant firm, Messrs. Shoorji Vallabhdas and Co., was assessed to income tax and excess profits tax for the years 1945-1946, 1946-1947, and 1947-1948. The Income-tax Officer and the Excess Profits Tax Officer assessed the entire commission on the basis that it accrued in British India. The appellant contended that part of the commission accrued in Cochin and Travancore States, thus exempting it from tax under the Indian Income-tax Act, 1922, and the Excess Profits Tax Act, 1940.The Tribunal found that although one partner occasionally visited Cochin and the appellant maintained an office there, the significant and responsible work of managing the companies was conducted from the head office in Bombay. The High Court upheld this finding, concluding that the commission accrued in Bombay where the services were performed.2. Reformulation of the Question by the High Court:The appellant argued that the High Court erroneously reformulated the question from 'Did a part of the managing agency commission earned by the assessee accrue or arise in the Cochin StateRs.' to 'Where the actual business of managing agency was done which yielded the commission which is sought to be taxedRs.' The Supreme Court agreed with the High Court's reformulation, stating that the test was not how the remuneration was computed but where the services were performed. The High Court's reformulation was deemed appropriate as it focused on the place where the managing agency services were performed.3. Apportionment of Income for Tax Purposes:The appellant contended that the commission should be apportioned based on where the services were rendered, suggesting that part of the services were performed in Cochin. However, the Tribunal's findings indicated that the Cochin office performed negligible functions, primarily receiving freight. The High Court and Supreme Court both concluded that the substantial and responsible managing agency services were performed in Bombay, thus the commission accrued there.The Supreme Court referenced several cases to support its decision, including Thiagaraja Chetty and Co. v. Commissioner of Income-tax, where it was held that the commission earned by managing agents accrues at the place where the services are performed. The Court also cited Commissioner of Income-tax v. Chunilal B. Mehta, which emphasized that profits accrue where the trading operations are conducted.In conclusion, the Supreme Court affirmed that the managing agency commission accrued in Bombay, as the significant services were performed there. The appeal was dismissed with costs, upholding the High Court's decision.Final Judgment:The Supreme Court dismissed the appeal, confirming that the managing agency commission accrued in British India, specifically in Bombay, where the substantial managing services were performed. The High Court's reformulation of the question was appropriate, and the appellant's contention for apportionment was not supported by the Tribunal's findings. The appeal was dismissed with costs.