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Maheshwari Khetan Sugar Mills Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 208 of 1963
Judge
Reported in[1970]75ITR520(All)
AppellantMaheshwari Khetan Sugar Mills Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateS.R. Misra, Adv.
Respondent AdvocateShanti Bhushan, Adv. General and ;R.R. Misra, Adv.
Excerpt:
- - 8. the principle of that case can well be applied where the income-tax officer has to consider the question of allowance for expenditure claimed......not incur any expenditure towardsagency commission during the accounting period. consequently the assesseecompany was not entitled to a deduction of rs. 55,359 as managing agencyremuneration.9. the second question framed by the tribunal refers to revenue receipt.we do not know how the question relating to revenue receipt at all arosein the present reference. no such question appears to a have been raised bythe assessee before the income-tax officer, the appellate assistant commissioner or the appellate tribunal. since question no. 2 does not arise outof the appellate order of the tribunal, it is not necessary to answer thequestion.10. we answer question no. 1 in the negative, and against the assessce.question no. 2 does not arise out of the appellate order of the tribunal.consequently,.....
Judgment:

V.G. Oak, C.J.

1. This is a reference under Section 66 of the Indian Income-tax Act, 1922. The assessee, Maheshwari Khetan Sugar Mills Ltd. 4s a private limited company. Another firm, ' Devi Dutt Chaturbhuj,' Gorakhpur', was the managing agent of the assessee-company. Under the managing agency agreement, a sum of Rs. 55,359 was payable by the assessee to the managing agent as commission. The assessment year is 1950-51. The corresponding previous year ended on September 30, 1949. At first the assessee-company made a debit entry in its account books for the sum or Rs. 55,359 towards commission of the managing agent. But the managing agent agreed to forgo the commission. Consequently, entries were reversed in the books of the assessee-company. The result was that there was no debit under this head in the profit and loss account of the assessee-company. The question arose at the time of the deduction of Rs. 55,359 as expenditure during the previous year. The Income-tax Officer decided that the assessee-company was not entitled to any such deduction. This decision was confirmed in appeal by the Appellate Assistant Commissioner and by the Appellate Tribunal. Under the directions of this court, the Appellate Tribunal has referred two questions of law to this court. The two questions are :

(1) Whether, on the facts and in the circumstances of the case, the assessee-company is entitled to a deduction of Rs. 55,359 as managing agency remuneration ?

(2) Whether, on the facts and in the circumstances of the case, the sum of Rs. 55,359 forgone by the managing agent after the end of the relevant previous year is a revenue receipt of the assessee-company and liable to income-tax for the said year?'

2. It was conceded for the assessee that the sum of Rs. 55,359 was never paid to the managing agent during the previous year ending on September 30, 1949. It has been found that, in view of the managing agent's waiver, this sum is not at all payable by the assessee-company to the managing agent.

3. The main contention advanced on behalf of the assessee before the Tribunal was that the assessee-company should get a deduction for this amount of Rs. 55,359, because this sum was included in the assessment of the managing agent for the assessment year 1950-51. The Tribunal has rightly pointed out that what has or has not been included in the assessment year of a different assessee is irrelevant for the purpose of ascertaining the amount that is to be assessed in the case of the assessee-company. Admittedly the assessee-company did not pay any commission to the managing agent during the accounting period ending on September 30, 1949. The fact that the amount of Rs. 55,359 was included in the assessment of the managing agent for the assessment year 1950-51 has no bearing on the assessment of the assessee-company for the same year.

4. The learned counsel for the assessee suggested that consequent adjustment in the books of the assessee-company might have taken place some time after September 30, 1949. . No such contention appears to have been advanced before the Tribunal. Nonetheless we have considered this point raised on behalf of the assessee.

5. In Kothari Mehta and Co. Ltd. v. Commissioner of Income-tax, [1963] 50 I.T.R. 753 it was held by the Madras High Court 'waiver of managing agency commission by a managing agent after such income has accrued due to him under the terms of the managing agency agreement can be treated only as a disposal of income by the managing agent after it has accrued and is no ground for excluding such income from the assessable profits of the managing agent'.

6. However, a different view was taken by the Supreme Court in Commissioner of Income-tax v. Shoorji Vallabhdas and Co., [1962] 46 I.T.R. 144 (S.C.) In that case the facts were these. The assessee was a firm of managing agents. The assessee-firm worked for two shipping companies. The' assessee-firm was entitled to receive commission at the rate of 10%. Entries were made in the books of the assessee-firm on that basis. Subsequently, the assessee-firm agreed to accept commission at the lower rate of 21/2%, and gave up 75% of its earnings. The department sought to assess the firm for the commission given up. It was held by the Supreme Court that the subsequent agreement had altered the rate of commission in such a way as to make the income which really accrued to the assessee different from what had been entered in the books of account. This was not a case of a gift by the assessee to the managed companies. The assessee had in fact received only the lesser amount which alone was taxable. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. But where the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the books of account.

7. We note that in that case the accounting period ended on March 31, 1948, and the assessee-firm gave up the major part of its commission in December, 1948, several months after the expiry of the accounting period. Yet the Supreme ,Court held that the assessee-firm was liable to be taxed on the lower figure only.

8. The principle of that case can well be applied where the Income-tax Officer has to consider the question of allowance for expenditure claimed.The Income-tax Officer had to ascertain the actual expenditure incurred bythe assessee during the year ending September 30, 1949. Admittedly, theassessee-company in the instant case did not incur any expenditure towardsmanaging agency commission during the accounting period. So, not muchturns on the question whether the waiver by the managing agent took placesome time before or some time after September 30, 1949. In either case, the material point was the actual expenditure, if any, incurred by the assessee.We have seen that the assessee did not incur any expenditure towardsagency commission during the accounting period. Consequently the assesseecompany was not entitled to a deduction of Rs. 55,359 as managing agencyremuneration.

9. The second question framed by the Tribunal refers to revenue receipt.We do not know how the question relating to revenue receipt at all arosein the present reference. No such question appears to a have been raised bythe assessee before the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal. Since question No. 2 does not arise outof the appellate order of the Tribunal, it is not necessary to answer thequestion.

10. We answer question No. 1 in the negative, and against the assessce.Question No. 2 does not arise out of the appellate order of the Tribunal.Consequently, it is not necessary to answer that question. The assesseeshall pay the Commissioner of Income-tax, U.P., Rs. 200 as costs of thereference.


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