TaxTMI 
TaxTMI 
1979 (6) TMI 18
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....e its best endeavours to promote the interest and the business of the company. The remuneration payable to it is to, be found in cl. 6 of the agreement which was subject to a minimum of Rs. 50,000 and it was in accordance with the graded scale usually to be found in managing agency agreements, depending on the quantum of the profits earned by the managed company. M/s. Textool Co. Ltd. needed finance for its business. It issued 25,000 preference shares of Rs. 100 each of the total value of Rs. 25 lakhs. The assessee, the managing agent, entered into an agreement with M/s. Merwanjee Bomajee Dalal, a Bombay firm of stock and share brokers, for arranging for the " sale " of the preference shares. The Textool Co. Ltd. in its letter dated 7th January, 1966, addressed to the brokers authorised them to negotiate for the " subscription " of the preference shares of the value of Rs. 10 lakhs at par, and in the same letter it was stated: " Our managing agency firm, who, in the best interests of the firm, are keen to get the issue fully subscribed will pay a price of 4% for services rendered as financial consultants, advising on condition in the capital market and regarding rules and reg....
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.... with the assessee-company, the following statements occur: "We have this day done by your order and on your account the following transactions --------------------------------------------------------------------------------------------------------------------------------------------------- Securities Cash against application Delivery rate sold for you for kind of for quantity security --------------------------------------------------------------------------------------------------------------------------------------------------- 7,000 New preference shares of Rs. Textool Company Ltd. 96 --------------------------------------------------------------------------------------------------------------------------------------------------- The contract was made subject to the rules and regulations of the Bombay Stock Exchange. Though originally the letter addressed to the Bombay broker was written by the managing agent on behalf of the managed company, subsequently the agreement was entered into only between the Bombay broker and the assessee, the managing agent. In entering into the contract, the assessee did not act in its capacity as managing agents. Section....
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....ny. The managing agent was not bound by the conditions prescribed in s. 76 and, therefore, the commission with respect to these 14,590 shares could be given. The result of the transaction, as it appears from annex. 'C', is that the managing agent got all the 14,590 shares allotted in its own name and sold those shares through the Bombay broker to the two parties mentioned already at a discount of Rs. 4. If the nature of the transaction is one of sale of shares as seen from annex. C, then, unless the assessee is a dealer in shares, it would not have been eligible for the allowance of any loss sustained by it in the said sale. The assessee is not shown to be a dealer in shares. The assessee has, therefore, claimed it as a commission or brokerage paid to the Bombay broker for the purpose of " sale " of shares of the managed company. The question for our consideration is whether the said sum of Rs. 58,368 was incurred by the assessee-company as an allowable expenditure in its income-tax assessment. Though no reference has been made in the question to s. 37(1) of the I.T. Act, the claim has actually been made only under the cover of that section. Learned counsel for the assessee c....
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.... In that case, one of the contentions urged in support of the disallowance of the amount was that the assessee had undertaken the payment voluntarily. But the Bombay High Court pointed out that even though the assessee was under no obligation to share the bonus with the managed company, if an expenditure is incurred even by a voluntary act out of considerations of commercial expediency, it would be an expenditure falling within s. 10(2)(xv) of 1922 Act, if it can be shown that it was intended for the purpose of making or increasing the profits of the assessee-company. Whether the payment was due to any compulsion or a voluntary act is thus beside the point. What is required is that it must be bound up with the assessee's business. It is not so bound up here. The assessee did not get the capital. The preference capital went into the coffers of the managed company. The assessee did not get any benefit by the expenditure. The possibility of earning profits with this capital was problematical and remote as far as the assessee is concerned. One of the aspects adverted to in the said decision was that the amount actually paid to the employees would fall squarely within the scope of ....
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....ere. That was a case where the managing agent had, in view of the unsatisfactory position of the managed company, waived a portion of the commission, and the question was whether this waived portion could be allowed as a deduction under s. 10(2)(xv). We are not concerned with any similar object here. We were also referred to the latest decision of the Supreme Court in Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261. In that case, the shares of the company were held by a group known as Davids. The assets of the company were worth Rs. 155 lakhs as on 31st December, 1955. On 2nd December, 1955, its directors proposed that the services of 22 employees, the managing director and a director be terminated and that they may be paid compensation. The shareholders accepted the directors' proposal on 25th January, 1956. Davids agreed to sell their shares to Tatas for Rs. 155 lakhs. Out of the said amount of Rs. 155 lakhs, the amount payable to the employees and others for the termination of their services was to be deducted. After the take-over, nine of the employees were continued and there was substantial reduction in the wage bill as a consequence of the retrenchment. The com....