AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1960 (5) TMI 1
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....Seksaria, who decided that the Nemani group should sell its block of shares to the assessee company at an agreed price. It was further decided that a sum of Rs. 5,00,000 be paid by the assessee company to the Nemani group as the price of the managing agency rights. This arrangement was approved by the shareholders of the mills company by a resolution dated January 4, 1945, and came into effect immediately. The agreement further was that the assessee company would come in as managing agents of the mills company in place of the Nemani group and would be entitled to the emoluments of the managing agents as from April 1, 1944. The managing agency commission from April 1, 1944, to December 31, 1944, amounted to Rs. 2,20,433 and from January 1, 1945, to March 31, 1945, to Rs. 67,959. The case of the assessee company was that for the assessment year 1946-47 it was liable to pay tax only on the commission of Rs. 67,959 which it had earned by working as managing agent of the mills company and it was not liable to pay tax on the sum of Rs. 2,20,433. This contention of the assessee company was not accepted by the departmental taxing authorities; but the Tribunal decided in its favour. The ass....
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....the commission is to become due to the managing agents at the end of each financial year. Therefore, till the end of the financial year there is no debt whatsoever created in favour of the managing agents and also their right to receive payment depends upon their having served for a whole year. Under the circumstances we must hold, following the decision of the Supreme Court, that the assessees are liable to pay tax on the whole of the commission as the commission accrued due on the 31st March, 1945, and they became entitled to receive it at the end of the year. We do not agree with the view of the Tribunal that according to the agreement of the managing agents the debt was created in favour of the agents when the goods were sold by the company and that the payment was deferred to a date after the accounts having been passed by the shareholders in the general meeting of the company. In no view of the case can it be said that the debt was created in favour of the agents when the goods were sold." The answer to the question really depends on a construction of the relevant terms of the managing agency agreement dated March 15, 1925, entered into between the mills company and the Nem....
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.... the benefit thereof and their rights and privileges etc. to any person or firm or company having authority by its constitution to become bound by the obligations undertaken by the agents.... and the company shall be bound to recognise the person, firm or company aforesaid as the agents of the company ". It is unnecessary to read the other clauses of the managing agency agreement. The controversy before us hinges really on the scope and effect of clauses (2) and (3), read in the context of the agreement as a whole. On behalf of the assessee company the argument is that under clause (2) the managing agency remuneration accrued at the rate of 3 1/2 per cent. on the gross proceeds of all sales; the word " all " is emphasised, and it is argued that the remuneration accrued as each sale took place, the totality of sales giving the gross sale proceeds. It is argued that embedded in each sale was the managing agency commission of the assessee company. It is further suggested on behalf of the assessee company that though clause (3) uses the word " due ", it merely indicated the time of payment and not that of accrual. We do not think that this reading of the two clauses is correct. In ....
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.... to him by somebody. There must be as is otherwise expressed debitum in praesenti, solvendum in futuro; see W.S. Try Ltd. v. Johnson and Webb v. Stenton and Others, Garnishees. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him." It has been argued before as that the decision requires reconsideration because it failed to make a further distinction a distinction which it is stated arises in law, between the right to receive payment and the creation of a debt. We consider it unnecessary to consider such a distinction, if any such exists, in the present case. On our view of the managing agency agreement, the commission of the managing agents became due at the end of the financial year and that is when it accrued; and there were neither any debt created nor any right to receive payment when each transaction of sale took place. We were also addressed at some length on the further question whether managing agency is service and if so, whether it must be for one full year or whether apportionment is permissible. These questions do not fall for decision i....