BEAUMONT, C.J. - This is a case stated by the Commissioner of Income Tax under Section 66 (2) of the Indian Income Tax Act which raises a question 'whether the half share of the net profits payable by the assessee company under Clause 5 of the agreement dated the 19th day of February 1935, viz., Rs. 3,35,861 is a proper deduction to be allowed for the purpose of arriving at the amount on which this company should be assessed for the purposes of income-tax and super tax within the meaning of Section 10 (2) (ix).
The sum in question is payable under the agreement referred to by the Commissioner and it is expressed to be a payment of half share of the net profits. The agreement is rather a long and complicated one made between the Imperial and International Communications, Ltd., which is an English company, and the assessee company. The arrangement is that the assessee company is to take over, putting it shortly, the Indian business of the English company, and to take over all plant, machinery instruments, apparatus etc., with it, and they are to pay a lump sum in respect of costs for maintenance by the English company of its communication system throughout the world exclusive of India. Then the material Clause is clause 5 (b) which provides that in addition to the lump sum mentioned above, the assessee company is to pay in Bombay to the English company one half of the net profits of the assessee company earned by it for each of its financial years. Then there is a provision as to how the half share in the net profits is to be calculated.
It is argued that the payment of the sum representing the half share in the net profits of the assessee company is really in the nature of rent payable under a lease for the property purchased. It is quite impossible to extract that meaning from the agreement. It is a perfectly plain agreement, from which it is clear that the assessee company acquired a certain business and certain assets and as consideration therefor agreed to pay a half share in the net profits to be ascertained as provided for in the agreement. Of course it may be that profits ascertained for the purposes of the agreement are not exactly the same as profits on which tax has to be paid. But that does not alter the fact that the English company is getting a share of the net profits. Therefore I agree with the Commissioner that the case is governed by the case of The Pondicherry Railway company v. The Commissioner of Income Tax, Madras to which he refers. We are not of course concerned in this reference with any question between the assessee and the English company as to the ultimate liability to tax.
The question raised by the Commissioner must therefore be answered in the negative.
The assessee company to pay the costs of the Commissioner on the original side scale.
RANGNEKAR, J. - I agree.