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Commissioner of Excess Profits Tax, Bombay City I Vs. Ramgopal Ganpatrai and Sons Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 96 of 1963
Judge
Reported in[1972]85ITR272(Bom)
ActsExcess Profits Tax Act, 1940 - Sections 4 and 5
AppellantCommissioner of Excess Profits Tax, Bombay City I
RespondentRamgopal Ganpatrai and Sons Ltd.
Advocates:R.J. Joshi, Adv.;Kaka, Adv.
Excerpt:
companies act (i of 1956), sections 477, 543 - ex parte order made under section 477 for private examination when can be vacated or modified--whether order obtained solely for facilitating progress of misfeasance summons an adequate ground for revoking it.;an ex parte order for examination made under section 477 of the companies act, 1950 is not final; it is open to a person summoned, to apply for vacating or modifying the order on the ground that it has been obtained without placing all the requisite materials before the court or by misstatement of facts or on other adequate grounds, and the court has jurisdiction in proper cases, i.e., where it is satisfied that the order is vexatious, or oppressive, or where other adequate grounds exist, to discharge the same. this jurisdiction may be.....mody, j.1. this is a reference under section 66 (1) of the indian income-tax act, 1922, read with section 21 of the excess profits tax act, 1940. the assessee is a private limited company. the assessments relate to the corresponding chargeable accounting periods ended on 31st march of 1944, 1945 and 1946. an agreement dated 13th july, 1936, was arrived at between the dhanraj mills ltd., hereinafter referred to as 'the mill company', and raja dhanrajgir, hereinafter referred to as 'the raja'. this agreement will be referred to us 'the raja's managing agency agreement'. under that agreement the mill company appointed the raja as its managing agent for a period of fifty years, commencing from the date of the registration of the mill company was rs. 10,00,000 divided into 10,000 shares of rs......
Judgment:

Mody, J.

1. This is a reference under section 66 (1) of the Indian Income-tax Act, 1922, read with section 21 of the Excess Profits Tax Act, 1940. The assessee is a private limited company. The assessments relate to the corresponding chargeable accounting periods ended on 31st March of 1944, 1945 and 1946. An agreement dated 13th July, 1936, was arrived at between the Dhanraj Mills Ltd., hereinafter referred to as 'the mill company', and Raja Dhanrajgir, hereinafter referred to as 'the Raja'. This agreement will be referred to us 'the Raja's managing agency agreement'. Under that agreement the mill company appointed the Raja as its managing agent for a period of fifty years, commencing from the date of the registration of the mill company was Rs. 10,00,000 divided into 10,000 shares of Rs. 100 each.

2. A tripartite agreement dated 3rd September, 1937, was arrived at between the mill company, the Raja and one Ramgopal Ganpatrai, the karta of a Hindu undivided family, hereinafter referred to as 'the H.U.F.' This agreement will be referred to as 'the tripartite agreement'. By clause 4 of the tripartite agreement it was stipulated that the then existing Raja's managing agency agreement do stand cancelled and the mill company agreed to enter into and execute a new managing agency agreement appointing the H.U.F. as its managing agent for the period and upon the terms and conditions contained in the engrossment of the agreement in that behalf which had then already been prepared.

3. As contemplated by the tripartite agreement, an agreement bearing the same date, viz., 3rd December, 1937, was executed between the mill company and the H.U.F. This agreement will be referred to as 'the H.U.F.'s managing agency agreement'. By clause 1 of that agreement the mill company appointed the H.U.F. as its managing agent from 3rd September, 1937, for a period of twenty years on the terms and conditions contained in that agreement. Clause 4 of that agreement stipulates that the remuneration of the H.U.F. as such managing agent should comprise, inter alia, of a commission to be calculated as provided in that agreement. It further provides that the commission would be calculated for every year and clause 5 provides that it shall become due to the H.U.F. yearly on the first day of April, immediately following the year ended 31st March in respect of which that commission was to be calculated and paid.

4. Thereafter, another agreement dated 3rd September, 1937, was executed between the Raja and the H.U.F. By an order of this court dated 31st March, 1970, the Tribunal was directed to submit a further statement of the case merely annexing to that supplemental statement of the case copies of certain documents which were already on the record of the Tribunal. In pursuance of those directions the Tribunal has submitted a supplemental statement of the case. Through oversight a copy of the said agreement dated 3rd September, 1937, was not directed to be annexed to that supplemental statement of the case. Under the circumstances, with the consent of both the parties, we have taken on file a copy of that later agreement and marked it as annexure 'L' to the supplemental statement of the case. This agreement will be referred to as 'the ancillary agreement'. By clause 1 of this agreement four stipulations mentioned as (a), (b), (c) and (d) in clause 1 were agreed to between the Raja and the H.U.F. By the first stipulation the Raja, shortly stated, agreed to exercise his voting power in respect of the share of the mill company as the H.U.F. may name but to the extend mentioned in that first stipulation. By the second stipulation the Raja agreed to use from time to time his voting power in respect of the said shares to secure the appointment of the H.U.F. as the stipulation. By the third stipulation the Raja agreed to sell and transfer of the ancillary agreement, ordinary shares of the ill company to the extent of Rs. 4,00,000 at par value or market value whichever was higher if the H.U.F. called upon him to do so. By the fourth stipulation the Raja stipulated that he would not, during or after the period of five years mentioned in the third stipulation, sell any of his shares to the H.U.F. at the price bona fide offered to him and the H.U.F. shall have refused or neglected for ten days to accept such offer.

5. The H.U.F. acted as the managing agent of the mill company under and in pursuance of the H.U.F.'s managing agency agreement. There after the Raja transferred his 6,000 shares of the mill company to the H.U.F. for a sum of Rs. 10,00,000.

6. On 23rd June, 1943, the assessee-company was incorporated. Its main object was the taking over of the managing agency of the ill company from the H.U.F. On the 1st July, 1943, the H.U.F. assigned its managing agency of the mill company to the assessee. The mill company passed an ordinary resolution at an extraordinary general meeting of its members held on 25th October, 1943, whereby it was resolved to approve the transfer by the H.U.F. to the assessee of the H.U.F.'s managing agency agreement. Thereafter, an agreement dated 13th December, 1943, was executed between the mill company and the assessee whereby the mill company acknowledged that by reason of the transfer to the assessee of the managing agency agreement of the H.U.F. the assessee was the managing agency agreement of the H.U.F.'s managing agency agreement. The assessee paid to the H.U.F. a sum of Rs. 13,00,000 for the purchase of the H.U.F.'s goodwill. The assessee also took over from the H.U.F. 6,000 shares of the mill company for a sum of Rs. 10,00,000. The assessee acted as a managing agent of the mill company and earned remuneration by way, inter alia, of managing agency commission.

7. The assessee has been assessed to excess profits tax under the Excess Profits Tax Act, 1940, hereinafter referred to as 'the Act'. The assessee exercised the option available to it under the second proviso to section 6 (1) of the Act by reasons whereof the standard profits of the assessee were calculated on the basis of a percentage on the capital employed in its business.

8. In the assessment for the said three chargeable accounting periods the assessee made three claims before the Excess profits Tax Officer, the claims being -

(a) that the sum of Rs. 13,00,000 paid for acquiring the good will should be considered as forming part of the capital employed in its business;

(b) that the sum of Rs. 10,00,000 paid out in the purchase of the said 6,000 shares of the mill company should be treated as part of the capital employed in its business; and

(c) that the managing agency commission should be held to have accrued to the assessee on the 1st day of April, 1944, 1945 and 1946, respectively, and that accordingly the managing agency commission relating to the last of the said three chargeable accounting periods ended on 31st March, 1946, should be held not liable to excess profits tax as the excess profits tax ceased to be operative after 31st March, 1946.

9. In respect of the assessee's first claim in respect of the said sum of Rs. 13,00,000 the Tribunal held that goodwill is an asset of the business, that as the transfer of the goodwill in favour of the assessee took place after 1st September, 1939, the provisions of section 8 (3) of the Act would apply and that the Supreme Court has held in the case of S. C. Cambatta & Co. Pvt. Ltd. v. Commissioner of Excess Profits Tax that the value, i.e., the market value, of goodwill of the business as on the date of the transfer would form a part of the capital employed by the assessee in its business. The Tribunal, therefore, allowed the first contention of the assessee and directed that the said sum of Rs. 13,00,000 should be taken into account as the value of the good will subject to the condition that 'if on ascertainment of the correct market value of such good will as on the date of the transfer, it is found that the appellant-company (assessee) had paid anything in excess over the market value, such excess amount has got to be excluded from the capital computation under section 8 (3) of the Excess Profits Tax Act.'

10. As regards the assessee's second claim in respect of the said sum of Rs. 10,00,000 the Tribunal held that the value of the said 6,000 shares of the mill company should be considered in the matter of computation of the average capital employed in the assessee's business during the relevant chargeable accounting periods because there was no contractual obligation subsisting between the assessee and the Raja like the one that existed between the H.U.F. and the Raja and that the assessee purchased the said shares out of sheer necessity and business expediency.

11. As regards the assessee's third claim in respect of the managing agency commission, the Tribunal held that the managing agency commission would fall due on the 1st day of April each year following the year to which it related and it therefore directed that no managing agency commission was period ended on 31st March, 1944, and the commission relating to the chargeable accounting period ended on 31st March, 1944, could only be assessed as income accruing and arising in the chargeable accounting period ended on 31st March, 1945. It further held that, similarly the commission for the period ended on 31st March, 1945, would be the income of the last chargeable accounting period ended on 31st March, 1946, and that there after no excess profits tax was chargeable.

12. As all these three contentions were decided by the Tribunal against the revenue, the Tribunal has, at the instance of the revenue referred the following three questions of law for decision of this court, the three questions being :

'(1) Whether, on the facts and in the circumstances of the case, the sum of Rs. 13 lakhs (subject to adjustment as directed by the Tribunal) is to be taken into account for computing the average capital under Schedule II to the excess profit Tax Act, 1940

(2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 10 lakhs is to be taken into account for computing the average capital having regard to the provisions of Schedule I, rule 4 and schedule II, rule 3 and

(3) Whether, on the facts and in the circumstances of the case, the managing agency commission relating to each of the chargeable accounting periods July 1, 1943, to March 31, 1944, April 1, 1944, to March 31, 1945, and April 1, 1945, to March 31, 1946, fell to be assessed to excess profits tax in the next chargeable accounting period so that the managing agency commission relating to the last of the chargeable accounting periods above fell outside the chargeability to excess profit tax ?'

13. We will now deal with the first question. In the case of S. C. Cambatta & Co. Pvt. Ltd. v. Commissioner of Excess Profits Tax, which also was a case under the Act, the Supreme Court has held that goodwill is an asset of the business and must be taken into account for working out the capital employed in the bosons under section 8 (3) of the Act. Under the aforesaid direction of the Tribunal it will be only the true market value of the goodwill at the date of its transfer to the assessee which will be includible in the computation of the assessee's employed in its business. Judged in the light of the decision of the Supreme Court in the Cambatta's case it is clear that the goodwill being an asset of the assessee's business, its true market value as on the date of its true market value as on the date of its acquisition by the assessee must be included in the computation of the capital of the assessee employed in its business. In view of this judgment of the Supreme Court, Mr. Joshi, the learned counsel for the revenue, has not advanced - and, in our opinion, quite rightly - any argument to the contrary or even to distinguish it in the application of the principle to the facts of this case. Under the circumstances, question No. 1 will have to be answered in the affirmative.

14. We will now turn to question No. 2. It involves the consideration of the question whether the said sum of Rs. 10,00,000 is includible in the computation of the assessee's capital employed in its business. The Tribunal has upheld that contention. The Tribunal has held that the purchase of the said 6,000 shares of the mill company was made by the assessee our of sheer necessity and business expediency.

15. Now, Mr. Joshi contended that on the construction of the relevant agreements referred to earlier the Tribunal's finding that the shares were purchased out of sheer necessity and business expediency is not correct, and that therefore the said sum of Rs. 10,00,000 cannot be treated as an 'investment'. His second contention was that even assuming that the shares were purchased out of sheer necessity and business expediency and the purchase of the shares be treated to be an 'investment' such 'investment' in shares cannot be regarded as capital employed in the business of an assessee except in the special category of cases mentioned in sub rules (2), (2A) and (4) of rule 4 of the First Schedule of the Act and that the assessee's said 'investment' does not fall within any of the said three exceptions.

16. Mr. Kaka, the learned counsel for the assessee, on the other hand contended, firstly that the finding of the Tribunal that the shares were purchased out of sheer necessity and business expediency is a finding of fact and that as there is no specific question raised and referred challenging that finding, this court must accept that finding. In the alternative, he argued that even if that finding be treated as finding on a mixed question of law and fact, it should, even on a examination by this court, be held to be correct finding. His second contention was that rule 3 of the Second Schedule of the Act has no application at all in this case as the shares held by the assessee do not constitute an 'investment' within the meaning of that rule and that the scheme of the Act makes it clear that the word 'investments' is used in contradistinction to the phrase 'assets employed in the business' as used in the Act.

17. In the view which we take, as we will state later on in this judgment, we do not think that it is necessary to consider and decide the said first contention urged by Mr. Joshi or the said first contention urged by Mr. Kaka. We will proceed on an assumption without, of course, so deciding it, that the shares were purchases by the assessee out of sheer necessity and business expediency and that the finding of the Tribunal cannot be disputed and that, even if it can be disputed, it is a correct finding. Mr. Joshi contended that the purchase of these shares was an 'investment' and did not form part of the capital employed in the assessee's business. Mr. Kaka contended that it did form part as it was not an 'investment' but an asset of the assessee's business. It should be noted that it is not the assessee's case that the assessee's business activities comprised, inter alia, of dealing in or holding of shares of limited companies. According to the assessee, it acquired these shares out of sheer necessity and business expediency and not with the intention of investing in those shares, but with the only object or purpose of guarding against a possible deprivation of or interference with its managing agency. He contended that the scheme of the Act shows that it uses the word 'investments' as an antonym of assets employed in the business and that, therefore, the assessee held these shares as an asset employed in its business. Sub-rule (1) of rule 3 of the Second Schedule provides that any investments the income from which is by virtue of the provisions of the First Schedule not to be taken into account in computing the profits of the business and any moneys not required for the purpose of the business shall be left out of account. Sub-rule (1) of rule 4 of the First Schedule provides that income received from investments shall be included in the profits in the cases and to the extent provided in sub-rules (2), (2A) and (4) of that rule and not otherwise. The point in controversy really turns in the provisions of rule 3 of the Second Schedule and rule 4 of the First Schedule. Mr. Kaka contended that the shares were for supporting the assessee's business of managing agents and they were therefore assets of its business and not an investment because the word 'investments' has been used in the Second Schedule in contradistinction to 'assets', i.e., 'capital', employed in the business. Mr. Joshi contended that these shares are 'investments' and the investments cannot form part of the capital employed in the assessee's business of managing agent. It is therefore necessary to ascertain what is the meaning of 'investments' and 'capital', i.e., 'assets', employed in a business. It necessitates examining the scheme of the Act.

18. The preamble of the Act shows the object or purpose of the Act to the to impose a tax on excess profits arising out of certain business in the conditions prevailing during the then existing hostilities. The hostilities referred to were the Second World War. Section 5 provides that the Act apply to every business of which any part of the profits made during the chargeable accounting period is chargeable to income-tax under the Income-tax Act, 1922. Section 4 is the charging section and it imposes a tax of the amount by which the profits of a chargeable accounting period rules for computation of profits of a business. The first Schedule contains rules for computation of profits for purpose of the excess profits tax. The provision of the rule in the First Schedule shows that the profits which are to be taxed are the profits of a business, which means that the profits other than those of a business are not to be included in the computation of the income of a business. The Second Schedule provides rules for computation of the average amount of capital employed in a business, which means that other capital is not to be taken into account in the computation of the average amount of capital employed in a business. Sub-rule (1) of rule 1 of the Second Schedule reads :

'Subject to the provisions of this Schedule the average amount of the capital employed in a business (so far it does not consist of money) shall be taken to be - ....'

19. The words in brackets clearly show that money, which would normally be included in assets of a business, is not to be included in 'capital' employed in a business for the purposes of the Act. The provisions of that rule further show that 'capital' employed in business is equivalent to 'assets' employed in business. 'Assets' can consist of different kinds of properties, money being excluded from the present consideration. Properties can consist of shares and securities, movable properties other than shares and securities and immovable properties. The words which we have just used are 'shares and securities'. But, that is only for brevity and they would include shares, stocks, loans issued by Government and public bodies, debentures, and the like. 'Investments' is a difficult word to construe and its meaning may vary depending on the context. It is capable of three meanings. In the first meaning it would include only shares and securities. In the second meaning it would include not only shares and securities but all other kinds of properties which a person acquires with the intention of relating them either to enjoy them or mostly to earn periodical income from them, but not with the intention to deal or trade in them and to earn profits by selling them. An example of the second meaning would be that of a person who lays out his spare moneys or savings in shares to earn dividends from them. In the third securities or any other kind of property to deal or trade in them, the intention being to earn profits by their sale, the earning of periodical income from them would be merely incidental. In such a case the properties on which the moneys are laid out would be the owner's stock-in-trade. Taking an example, again of shares and securities, such would be the case when a speculator purchases them, the only differentiating feature being his intention to earn profits by selling them.

20. We will now turn to the word 'business'. The preamble, section 4, section 5 and all the other provisions of the Act and its Schedules show that what is intended to be taxes are excess profits of business. 'Business' is defined in clause (5) of section 2. It says, in so far as it is relevant, that ''business' includes any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture....' It is clear from this definition that the object of the Act being to tax profits of a business which are its excess profits and a mere 'holding' not being 'business', the said clause (5) was not intended to apply to 'holding'. That a mere 'holding' is not 'business' falling under clause (5) is confirmed by the first proviso to clause (5). Because of the first proviso to the said clause (5) 'the holding of investments or property' is to be deemed to be a business in the circumstances and to the extent laid down in that proviso. The word used in the proviso is 'holding', not 'dealing'. Now, the normal function of a proviso in an enactment is to create an exception to the main provision to which the proviso is added. The very fact that the first proviso had to be added in clause (5) indicates that the legislature intended that the taxing provisions of the Act should apply even to mere 'holding' in the limited class of cases mentioned in the proviso and the legislature, therefore, thought it necessary to add the proviso, because even according to the legislature mere holding would not be 'business' as defined in clause (5).

21. Now the relevant part of sub-rule (1) of rule 3 of the Section Schedule provides that any 'investments' the income from which is by virtue of the provisions of the First Schedule not to be taken into account in computing the profits of the business shall be left out of account when computing the average amount of capital employed in the business under the Second Schedule. Sub-rule (1) of rule 4 of the First Schedule uses the word 'investments' and provides that income received from investments shall not be included in the profits of a business in cases other than those mentioned is sub-rules (2), (2A) and (4). Sub-rules (2) and (2A) use the word 'investments', but sub-rule (4) within 'investments' mentioned in sub-rule (1) makes it clear that the word 'investments' has been used not in its said first meaning of including only shares and securities, but in its said second or third meaning. The distinction between the said second and the third meanings is only the intention in acquiring them, although the properties, i.e., 'investments', can be the same.

22. Now the object and purpose of the Act being to tax excess profits which from part of the profits and the profits being the profits of a business 'investments' could not have been used in its said second meaning the intention of the owner in acquiring them would not be to do business in them by holding them as his stock-in-trade. Therefore, as the Act concerns with profits of only a business, it would be meaningless to exclude investments in its said second meaning because in such profits, they not being profits of a 'business'. Surely, the legislature could not have intended by enacting rule 4 of the First Schedule to specifically exclude profits of investments in the said second meaning when such profits were not capable of being included in profits of a business. It must, therefore, be concluded that the word 'investments' has been used in rule 4 of the First Schedule in its said third meaning, that is, investments acquired by its owner with the intention to deal or trade in them by way of business. But for the exception created by rule 1 of the First Schedule, the profits from 'investments' in its said third meaning would have formed part of the profits of the 'business' of the owner of such 'investments', and it was to create an exception by excluding them from the profits of a 'business' that rule 4 of the First Schedule was enacted. Such exclusion, however, is not complete, as even the profits of 'investments' which are stock-in-trade are to be included in the profits of a business in causes falling under sub-rules (2), (2A) and (4) of the rule 4 of the First Schedule.

23. We will now turn to the Second Schedule. The Act intends to tax excess profits, but, as shown by the preamble, where such excess arises by reason of the prevailing circumstances due to war. But, profits may decrease or increase. They may increase not merely due to circumstances caused by the war. They may increase by the owner of the business increasing the capital employed in that business. Excess in the profits caused by the increase in the capital employed in the business was intended to be excluded from the excess profits which the Act intends to tax. Hence it was necessary to exclude the excess caused in the profits by reason of the increase in the capital employed in the business. Another class of cases when capital employed in the business would require to be computed is when profits are to be computed by a calculation of a percentage on the capital employed in a business. The Second Schedule contains rules for computation of capital employed in the business has to be consistent such computation of capital of capital employed in the business has to be consistent such computation of capital employed in the business has to be consistent with the basis of the computation of profits as provided by the First Schedule. Such consistency is brought about, inter alia, by rule 3 of the Second Schedule. It is because of that reason that the said rule 3 provides that 'investments' the income from which is, by virtue of the provisions of the First Schedule, not to be taken into account in computation of capital employed in the business. The principal underlying this provision is, to use the language of Viscount Cave L. C. in his speech in Commissioners of Inland Revenue v. Gas Lighting Improvement Co. Ltd., where the fruits is out the source must be out be out. The source here is 'investments'. Therefore, in rule 3 of the Second Schedule also the word 'investments' must be given the same meaning as it has in rule 4 of the First Schedule, viz., the said third meaning. Therefore, the assessee's shares which the assessee purchased for the said sum of Rs. 10,00,000 even though they may have been acquired out of sheer necessity and business expediency, and would therefore be 'investments' in the said third meaning, they must, because of the provisions of rule 3 of the Second Schedule, read with sub-rule (1) of rule 4 of the First Schedule, be excluded in the computation of capital employed in the assessee's business. The reason for such exclusion is obvious. The shares did not actively or intimately contribute to the profits of the assessee's business. The assessee's business was that of managing agency. The shares did not directly contribute to the profits of that business. They were held, as stated earlier, merely for the indirect purpose of protecting the assessee against a possible deprivation of its managing agency of the mill company and any possible interference in its smooth day-to-day working of that managing agency by the assessee.

24. During arguments counsel on both sides relied upon served decided cases. Mr. Joshi particularly relied on the judgment of the house of Lords in Commissioners of Inland Revenue v. Gas Lighting Improvement Co. Ltd. and Commissioners of Inland Revenue v. Total Broadhurst Lee Co. Ltd. Mr. Kaka urged that the provisions of the English Acts with which those two cases were concerned were different from the Indian Excess profits Tax Act. We do not, however, think it necessary to refer to those the English Acts were in pari materia with those of our Acts, because we have reached our conclusion as aforesaid on the construction of the provisions of the Indian Act itself.

25. Under the circumstances, the second question will have to be answered in the negative.

26. We will now produced to consider the third question which involves the point as to in which chargeable accounting year are the profits earned by the managing agent in a particular year to be taken into computation. Diverse arguments were advanced, comparisons made with similar or relevant provisions in the Income-tax Act, 1922, and certain authorities were cited. In our opinion, however, the judgment of the Supreme Court in R. G. S. Naidu and Co. v. Commissioner of Income-tax lays down the ratio. In the present case the relevant case the relevant rule 9 of the First Schedule. The same was the case before the Supreme Court in the said case. The Supreme Court has laid down that the provision of rule 9 of the First Schedule is a special provision and that when considering the application of rule 9, the principles underlying the Income-tax Act are of no avail. We will, therefore, not deal with the arguments based upon the provisions of the Income-tax Act. The facts before the Supreme Court were, however, different. The judgment of the Supreme Court was concerned with a case in which the commission was received fell within two successive charging accounting periods. The Supreme Court by applying the provisions of rule 9 of the First Schedule, held that although the commission of the managing agent was to be calculated for the whole of the company's accounting year and was to be paid on the first day after the expiry of that year, it should be apportioned as if it was earned day to day during the company's year of account. The facts in the case before us are, however, different. In the case before us the accounting year of the mill company, the accounting year of the assessee and the chargeable accounting period, and end of the 31st day of March of the same year. Therefore, no questions arises in the case before us of apportioning the managing agency commission earned by the assessee for the purposes of computation of the profits or losses of each of the said three chargeable accounting periods. The ratio, however, of the Supreme Court judgment that the managing agency contract is to be treated as an annual contract for the excess profits tax purposes applies in the present case, but the principles laid down by rule 9 of the First Schedule about apportionment of the managing agency commission cannot apply because they would apply only if the performance of the contract, i.e., rendering of services as managing agents, extends beyond one accounting period. Such is not the case before us. The Tribunal's decision is, therefore, correct. Under the circumstances, question No. 3 will have to be answered in the affirmative.

We answer -

Question No. 1 : In the affirmative.

Question No. 2 : In the negative.

Question No. 3 : In the affirmative.

27. In view of the partial success and failure of either side, we makes no order as to costs.


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