VEERASWAMI J. - This matter relates to the assessment year 1960-61. The assessee was a registered firm and was the managing agent of Heavy Chemicals Limited, a public limited company. Under the provisions of the articles of association, the assessee was entitled to remuneration consisting of an office allowance of Rs. 1,000 per month from the date of the incorporation of the company and commission of the ten per cent. on the net annual profits with a minimum payment in the absence or inadequacy of profits of Rs. 1,500 per month from the date of commencement of the business by the company. On June 15, 1953, the assessee wrote to the company confirming the resolution of the letter nominating Chevalier J.L.P. Roche Victoria as its ex-officio director on behalf of the managing agents and intimating that thereby they authorised Roche Victoria to draw the managing agency allowance of Rs. 1,000 per month for his expenses to attend to all the matters relating to the managing agency affairs on behalf of the assessee. During the accounting year ended on June 30, 1959, the assessee credited the sum of Rs. 12,000 in its books as managing agency commission from the company and debited Roche Victoria with that amount. In the circumstances, the assessee did not include the sum of Rs. 12,000 in its total income in the return. The Income-tax Officer added this sum declining to accept the assessees claim that the sum should not be regarded as an income or in any case should be viewed as an expenditure entitled to deduction under section 10(2)(xv). The Appellate Assistant Commissioner however accepted the assessees appeal. The revenue made a successful appeal to the Tribunal which expressed its view that the receipt was by the assessee-firm primarily and the payment Roche Victoria was only an application of that income. In its application under section 66(1) the assessee specifically wanted the Tribunal to refer to this court the question covering the claim for deduction. In the statement of the case the Tribunal has stated that it did not overlook, as wrongly assumed by the assessee, the contentions that the assessee would be entitled to deduction of the sum under section 10(2)(xv). But actually in the order of the Tribunal it does not appear that the Tribunal expressed any view on that question if it formed any in its mind. But it is clear from the statement of the case that the question was raised before the Tribunal.
In the above circumstances, learned counsel for the assessee contended that if this court took the view that the sum of Rs. 12,000 constituted income in the hands of the assessee, this court should reframe the question in such a way as to include the tenability of the assessees claim to deduction under section 10(2)(xv). We think that learned counsel is right on that aspect. But, before we consider it, we shall first see whether the sum could be regarded as income in the hands of the assessee.
As we mentioned, the article of association clearly provided for the remuneration for the assessee as the managing agency of the company, which include the sum of Rs. 12,000 which was payable at the rate of Rs. 1,000 per month as office allowance. Though the amount was received by Roche Victoria directly from the company, that was pursuant to the direction of the assessee in its letter dated June 15, 1953. We think that in the circumstances the Tribunal was right in its view that the sum of Rs. 12,000 was income in the hands of the assessee for it was the assessee who was entitled to get it as remuneration from the company under the article of association. Physically no doubt the amount was paid into the hands of Roche Victoria, but this can make no difference to the fact that it was received by him on behalf of the assessee so that the income was that of the assessee.
The next question is whether, if the question referred to us by the Tribunal is answered in favour of the revenue, the assessee is entitled to deduction of the sum of Rs. 12,000 as expenditure laid out under section 10(2)(xv). Learned counsel for the assessee argues that since the actual work and duties of the managing agency were carried out at its instance by Chevalier J.L.P. Roche Victoria the sum of Rs. 12,000 was to be paid to him by the company direct towards his remuneration for the work done by him, instead of the assessee receiving the amount and then paying it over to Roche Victoria. On the other hand, for the revenue it is said that the entries in the account books showed that the receipt and payment was only a book adjustment and the actually the sum of Rs. 12,000 was not paid out by the assessee as expenditure within the meaning of section 10(2)(xv). We are unable to appreciate this contention. It is true sub-section (5) of section 10 says that 'paid' means actually paid. We are of the view that the sum of Rs. 12,000 which was paid by the company directly to Roche Victoria is expenditure laid down out and in the circumstances will be regarded as actually aid by the assessee. 'Actually paid' in sub-section (5), in our view, is not to be understood in a physical sense, but in the sense that the expenditure is actually incurred. When it is found that Roche Victoria acted for the assessee in its capacity as the managing agent and discharged its duties, he was entitled to remuneration. It is true there was no agreement in writing providing for remuneration. But there is sufficient indication in the latter of the assessee dated June 15, 1953, that there was an implied understanding between the assessee and J.L.P. Roche Victoria that the matter shall be the sum of Rs. 12,000 as remuneration for the year for the word done by him for and on behalf of the assessee. For the revenue, out attention was invited to section 12A but, in our opinion, this is not a cases of apportionment of the managing agency commission.
In our opinion the sum of Rs. 12,000 was income in the hands of the assessee and the payment of that sum by the company on the direction of the assessee to J.L.P. Roche Victoria was an expenditure laid out by the assessee within the meaning of the section 10(2)(xv). The question referred to us by the Tribunal is answered in favour of the revenue and the question which we have framed as arising out of the Tribunals order is favour of the assessee. The assessee will be entitled to its costs. Counsels fee Rs. 250.