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K.R.M.T.T. Thiagaraja Chetty and Company Vs. Commissioner of Income-tax, Madras: No. 2 - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtSupreme Court of India
Decided On
Judge
Reported inAIR1954SC268; [1953]24ITR535(SC)
ActsIncome Tax Act, 1922 - Sections 4 and 14(2)
AppellantK.R.M.T.T. Thiagaraja Chetty and Company
RespondentCommissioner of Income-tax, Madras: No. 2
Excerpt:
.....(2) of income tax act, 1922 - appeal arising out of judgment and decree of high court - respondent firm is managing agent of company in issue - accounts of company showing commission paid to firm during year as revenue expenditure - firm followed mercantile method of accounting - income accrued became assessable whether received or not - appellate assistant commissioner confirmed assessment - tribunal decided that income had not accrued to firm and amount should be excluded from taxation as not having been received during accounting year - no material to show that firm maintains its account on cash basis - expenditure of company must be considered as profits and gain of firm for purpose of assessment of tax - contention that commission cannot said to accrued as profits of company not..........that this sum included rs. 81,0223 which represented the commission accruing to the firm in the indian states where the company had opened branches for selling yarn. it was urged that this amount was not assessable, as it had not been remitted to what was then called 'british india'. the appellate assistant commissioner held that under the managing agency agreement, the commission due to the firm accrued or arose in british india as it was found that the income from these branches in indian states had been included in the profit and loss account of the head office for presentation to the shareholders and the commission had been worked out on the basis of the accounts so prepared and not on the basis of the accounts of each branch separately. this view was upheld by the tribunal. two.....
Judgment:

Ghulam Hasan, J.

1. This appeal relates to the assessment year 1943-44. The firm was entitled to Rs. 2,20,702 as its commission, but it is common ground that the firm did not draw this amount. It is, however, not disputed that the amount was credited to the firm in the accounts. The Income-tax Officer treated the amount as income accrued and received by the firm and held it taxable. In appeal before the Appellate Assistant Commissioner it was contended that this sum included Rs. 81,0223 which represented the commission accruing to the firm in the Indian States where the company had opened branches for selling yarn. it was urged that this amount was not assessable, as it had not been remitted to what was then called 'British India'. The Appellate Assistant Commissioner held that under the managing agency agreement, the commission due to the firm accrued or arose in British India as it was found that the income from these branches in Indian States had been included in the profit and loss account of the head office for presentation to the shareholders and the commission had been worked out on the basis of the accounts so prepared and not on the basis of the accounts of each branch separately. This view was upheld by the Tribunal. Two questions were referred by the Tribunal to the High Court, firstly whether this whole amount was assessable and secondly whether the firm was entitled to exemption of the sum of Rs. 81,023. Upon the first question both the learned Judges agreed that the sum of Rs. 2,20,702 was rightly assessed to tax, in that there was nothing to prevent the firm from drawing the amount from the company which stood credited in their favour. Nothing has been urged in the course of arguments upon the first question. The argument before us in confined to the sum of Rs. 81,023. It is contended that this commission accrued in what are now called 'B States', but it was not brought into British india. The short answer to this argument is that the commission earned by the firm on the profits made by the company in the states arose out of one indivisible agreement to charge the reduced commission of 5 per cent. on the profits of the company and that the managing agents had been doing the business of the agency in British India and not in the States. It is not suggested that the managing agents performed any functions in the States. We hold, therefore, that there is no substance in this contention. We accordingly dismiss the appeal. The appellant shall pay the costs of the respondent.

2. Appeal Dismissed.


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