TaxTMI 
TaxTMI 
1960 (4) TMI 9
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....ies within the meaning of the Indian Income-tax Act. The business of the Malabar Steamship Co. Ltd. and of the New Dholera Steampships Ltd. was to carry cargo in cargo boats which touched ports in British India, Cochin State, Travancore State, and Saurashtra, as they were then known. The appellant became the managing agent of the Malabar Steamship Co. Ltd. with effect from April 1, 1943, and the firm consisted of Shoorji Vallabhdas and his two sons. Formerly, Shoorji Vallabhdas alone was the managing agent of the Malabar Steamship Co. Ltd. and a managing agency agreement dated September 16, 1938, was executed between the managing agent and the managed company, and that agreement as varied by two subsequent deeds dated June 26, 1942, and December 7, 1943, constituted the contract of managing agency between the appellant and the managed company. Under the managing agency contract the remuneration payable to the appellant after September 1, 1943, was expressed in the following terms : "That the remuneration of the managing agents as and from 1st September one thousand nine hundred and forty-three shall be ten per cent. (10%) on the freight charged to the shippers instead of annas fo....
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....the Excess Profits Tax Officer assessed the appellant to tax in respect of the whole of the managing agency commission received from the three managed companies on the footing that the entire managing agency commission accrued or arose in British India. The appellant went up in appeal to the Appellate Assistant Commissioner from the assessment orders on the ground inter alia that a part of the managing agency commission received from the three managed companies accrued in the Cochin and Travancore States and not in British India and was therefore exempt from tax under the relevant provisions (as they stood at the material time) of the Indian Income-tax Act, 1922, and the Excess Profits Tax Act, 1940. Thus, the dispute was about the place of accrual of the income in question. As to the managed companies, the income-tax authorities accepted the position that the profits of the three managed companies partly accrued in British India and partly in the Indian States ; but they did not accept the claim of the appellant that part of its managing agency commission from the three managed companies accrued or, arose in the Cochin and Travancore States. The Appellate Assistant Commissioner by....
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....itish India under section 14(2)(c) of the Indian Income-tax Act, 1922 (as it then stood) and the third proviso to section 5 of the Excess Profits Tax Act, 1940. It has been further contended that in view of the findings of the Tribunal that (a) the commission earned was a percentage of the freight and passage money received by two of the managed companies in Cochin and Travancore States, (b) a part of the commission was payable there and (c) a part of the services was also rendered by the appellant as managing agent in those States, the High Court was in error in coming to its conclusion that the whole of the managing agency commission accrued or arose in Bombay. While we agree with learned counsel for the appellant that the real question in this case is whether any part of the managing agency commission accrued outside British India, we do not agree with him that the High Court was wrong in reformulating the question. The Tribunal formulated the question as though the computation of the appellant's remuneration on the basis of freight determined the place of accrual : in this the Tribunal was in error, and the High Court rightly pointed out that the test to be applied was not how ....
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....l) were on the board of directors of the managed companies. They held a large number of shares in the managed companies. The Malabar Steamship Co. Ltd. had an office of its own 'to secure freight'. The Cochin office of the assessee firm, as far as one could make out, did practically nothing, except receive 10% of the gross freight at Cochin and retain the net income therefrom." "Now, the question is--on the aforesaid findings of fact reached by the Tribunal, where did the commission payable to the managing agent accrue ? It is well to remember that the problem in this case is not so much when the commission accrued as where it accrued, though the question as to where and when maybe interlinked. We think that normally, the commission payable to the managing agents of a company accrues at the place where the services are performed by the managing agents. It was so held by this court in Thiagaraja Chetty and Co. v. Commissioner of Income-tax [No. 2]. The assessee in that case, Thiagaraja Chettiar, claimed that a portion of the commission credited to it in the company's accounts accrued to it in the Indian States where the company had opened branches for selling yarn and as the commi....
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....ions, or even with respect to the sale of goods. To do so would be nearly impossible and wholly unwise...They are not saying that the place of formation of the contract prevails against everything else. In some circumstances it may be so, but other matters--acts done under the contract, for example--cannot be ruled out a priori. In the case before the Board the contracts were neither framed nor carried out in British India ; the High Court's conclusion that the profits accrued or arose outside British India is well-founded." A similar view was expressed in two earlier decisions : (1) In re Aurangabad Mills Ltd., where a reference was made to Commissioner of Taxation v. Kirk, and it was pointed out that the circumstance that the affairs of the company were directed from Bombay was not the determining test ; but the test was where the processes which yielded the income were carried out and that was outside British India ; (2) Commissioner of Income-tax v. Sarupchand Hukamchand, where the assessees acted as the secretaries, treasurers and agents of a mill company registered at Indore, outside British India, and under the terms of agreement, the assessees were entitled to charge and ....
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....n half of it was to be paid in the State. In pursuance of the assessees' articles of association the board of directors passed a resolution delegating a particular director to guide the company's operation in the State of Kutch and during the year of account that director supervised the salt works at Kandla. The question was whether the sum of Rs. 88,065, representing assessee's commission attributable to the salt works at Kandla accrued or arose at Kandla or in British India. First, the learned Chief Justice referred to the test to be applied in order to determine where the profits of the assessee company accrued or arose, and he said that the test was to find out where the actual business of the company was done which yielded the profits sought to be taxed. In that connexion he said : "The work of the managing agents must be looked upon as a unit and not as divided up into so many different categories, to each one of which a certain portion of the commission earned by the managing agents can be attributed or allocated." He then went on to consider when the right to managing agency commission arose in that case and came to the conclusion, which was decisive in his opinion, tha....
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....ghtly pointed out : "In our opinion it is not possible to read the managing agency agreement in that light. All that clause 2 of the agreement does is to lay down the standard by which the commission is to be computed and determined, and it lays down two different standards, one with regard to the shipping business and the other with regard to the other businesses, but as far as the business of the managing agency is concerned their responsibilities and their duties are integrated duties and responsibilities which are set out in the different clauses of the agreement. It is impossible to contend that they had not to supervise, control and manage the shipping business and, as we have already said the business of a shipping company is vastly more detailed and responsible than the mere task of finding people to go by ship or send their goods by ship and for that purpose paying freight. Freight is merely the resultant profit which accrues to a shipping company. In order that that profit should result the company has got to have ships, it has got to have sea-worthy ships, it has got to have sailors and officers, it has got to look to the repairs of the ships, the renovation of the shi....