1. The question referred to this Court by the appellate tribunal is as follows :
'Whether in the facts and circumstances of the case the tribunal was right in holding that the non-compliance by the assessee with the provision of Section 12A disentitled him from claiming the deduction of Rs. 32,685 in question and is assessable under the provision of Section 10 of the same Act.'
2. The applicant is the managing agent of Radha Krishna Sugar Mills Ltd. Its income is mainly from the managing agency commission which it received from the mill. The Radha Krishna Sugar Mills Ltd., was loated by a number of persons: Radha Krishna Jajharia who was karta of a joint Hindu family, Gobardhandas the Shroff and Joy Doyal Kasaria. It is stated that there was an agreement between these parties to share the managing agency commission payable by the Radha Krishna Sugar Mills Ltd. Later on, both Joy Doyal and Gobardhandas assigned their respective shares of the managing agency commission to Bhartia & Co. and Rai Bahadur Mangturam Tapuria. During the year of account, payments were made to the parties in terms of the agreement and they amounted to Rs. 32,685 and the details are set out in the statement of case.
3. The payments were no doubt made by the managing agents out of the commission which the company received from the mills and they were proved by vouchers. Bat no declaration showing the proportion in which the commission was shared under Section 12A, Income-tax Act, was filed before the Income-tax Officer. It is further stated that the parties concerned were approached by the applicant to make the required declaration, but they refused to do so on various grounds. What those grounds are it is not stated. However, no declaration was filed before the taxing authorities and the Income-tax Officer refused to apportion the payments amongst the parties for separate assessments.
4. On appeal the Assistant Commissioner upheld the decision of the Income-tax Officer and the tribunal has also taken the same view. However, the Commissioner of Income-tax did not oppose a reference to this Court and that is why the question aforesaid was referred to us for our opinion.
5. Section 12A, Income-tax Act, was introduced in the year 1939 after the judgment of the Judicial Committee in Tata Hydro Electric Agencies, Ltd., Bombay v. Commissioner of Income tax, Bombay Presidency & Aden, . That Section 12A is in the following terms :
'Where a managing agent of a company in liable under an agreement made for adequate consideration to share managing agency commission with a third party of parties, the said agent and the said party or parties shall file a declaration showing the proportion in which such commission is shared between them, and on proof to the satisfaction of the Income-tax Officer of the facts contained in such declaration such agent and each such partyshall be chargeable only on the share to which such agent or part is entitled under the agreement.'
6. Section 12A was introduced partly to counteract the decision of the Judicial Committee in Tata Hydro Electric case , and also to remove doubts with reference to the application of Section 10 (2) (xv), Income-tax Act. It is often difficult to determine whether a particular payment represented by a share of profits has been made in order to earn such profits or whether it was really a distribution of the profits. (Sundaram's Law of Income-tax' 6th Edn. p. 723).
7. The wording of Section 12A shows that it is only applicable to the managing agents of companies. There are certain conditions clearly prescribed by that Section (1) there must be an agreement to share the commission with a third party or parties; (2) that agreement must be for adequate consideration; (3) the managing agent must file a declaration showing the details of such profit-sharing; and (4) the Income tax Officer must be satisfied as to the facts contained in that declaration.
8. Having regard to the clear language of that section there is no escape from the conclusion that the submission of a declaration as specified in that section is a condition precedent to the managing agents claiming that they are chargeable only on the share to which they are entitled under the particular agreement.
9. Learned counsel appearing for the assessees has drawn our attention to Section 10 (2) (xv), Income-tax Act. Section 10 deals with the profits or gains of business, profession or vocation and Sub-section (2) specifies certain allowances which have got to be taken into account in computing such profits or gains. Under Sub-clause (15) an allowance permissible in respect of'any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purpose of such business, profession or vocation.
10. Mr. Kar contends that if we take the submission of a declaration as a condition precedent to his clients getting relief under Section 12A he can still apart from that section get the identical relief by virtue of Sub-clause (15) of Section 10 (2).
11. I must, however, point out that there is no finding of the tribunal that the expenditure in question was laid out or expended wholly or exclusively for the purpose of the managing agency business. In the absence of such finding it is impossible for us to entertain the point. But Mr. Kar contends that having regard to the finding by the tribunal that the payments were made by the managing agents out of the managing agency commission to the four persons named therein and that they were proved by vouchers, we ought to infer that his clients satisfied the conditions prescribed in Sub-clause (15). Difficulty often exists in deciding whether a particular payment or expenditure is allowable for the purpose of income-tax.
12. In my view, Section 10 (2) (xv) and Section 12A should be read together and the proper construction is that if the managing agent of a company claim that they should not be made liable to pay taxes on the total amount of the managing agency commission, then they must satisfy the conditions prescribed in Section 12A, although it may be that the payments made to the other parties constituted expenditure actually laid out or made wholly for the purpose of the managing agency business or solely for the purpose of earning the managing agency commission. In my opinion the two sections can be reconciled, Section 10 is a general enactment with regard to all businesses. Section 12A makes certain specific enactment with regard to a special kind of business the managing agency of a company. Hence the special or particular enactment should be operative and should be considered as an exception to the general rule.
13. In Muthu Chettiar v. Meenakshisundaram Ayyar, 47 C. L. J. 183 : (A. I. R. (15) 1928 P. C. 36) Lord Atkiuson pointed out that every part of a document should be brought into action in order to collect from the whole one uniform and consistent sense. His Lordship cited a judgment of Lord Ellenborough wherein it was observed that the intention of the parties should be collected from the whole context of the instrument so as to make one entire and consistent construction of the whole document. The same principle is applicable to the construction of a statute. A statute should be read as a whole, and it is an established rule that construction should be made of all the parts together, and not of one part or section only by itself. Each section should be brought into play and that construction should be put which does not make one section repugnant to another.
14. Mr. Kar has referred us to a number of cases including Commissioner of Income-tax, Bombay v. Tata. Sons Ltd. : 7ITR195(Bom) . In that case the assessees who were the managing agents of a company were entitled to receive a commission based on profits with a certain salary per year not depending upon profits. In a certain year the company was urgently in need of funds and therefore, they procured a loan from a third person in order to finance the company. An agreement in respect of the payment of that loan was entered into between the company, the assesses and the lender and it was provided that the assesses should give and assign to the lender a certain share in the commission which the former might be entitled to receive from the company.
15. The question arose as to whether in assessing the income of the assessee the amount of commission paid to the lender should be omitted. Beaumont C. J., and Rangnekar J. held that the agreement between the assessee, the company and the lender operated as an assignment of the share of the income which the assessee was entitled to receive from the company. Therefore, that part of the assessee's income which was assigned to the lender no longer formed part of the assessee's income and could not therefore be assessed as such. In any event, the payment of share of commission to the lender was, in a commercial sense, an expenditure incurred solely for the purpose of earning profits or gains in the conduct of the agency business and, therefore, it should be excluded in computing the assessee's income as the managing agent of the company. In his judgment, the learned Chief Justice referred to Pondicherry By. Co. Ltd. v. Income-tax Commissioner, 0043/1931 as also the case of Tata Hydro-Electric Agencies and the later case of the Judicial Committee, India Radio and Gable Communications Co. Ltd. v. Commissioner of Income-tax, Bombay Presidency and Aden : 5ITR270(Bom) .
16. The significant fact is that this case dealt with assessment of income tax during the period prior to 1939 when Section 12A was not on the statute book. Managing agents who are paid commission on the profits of a company often enter into agreements with third parties who lend them moneys or render some other services promising to give the latter a certain proportion of the commission. The Bombay High Court had held in the case of Tata Hydro-Electric Agencies Ltd. v. Commissioner of Income tax, Bombay, 1935-4 I.T.R. 92 and in Commr. of Income-tax, Bombay v. Macdonald & Co., 1934-3 I.T.R. 459 : (A.I.R. (22) 1935 Bom. 197) that the managing agents were not entitled to deduct in computing their income the share of the com. mission which was paid to the other parties on the ground that the sums paid to such third parties represented portions of the profits and were not really expenditure for earning profits. The Judicial Committee in the Tata Hydro-Electric case pointed out that this principle was not applicable to such cases. In the Tata case the commission paid by the managing agents was held to be not a profit or gain but it was an item or factor in the computation of the assessee'sprofits or gains. It is not always correct to say that a payment the making of which is conditional on profits being earned cannot properly be described as an expenditure incurred for the purpose of earning such profits. See The Indian Radio Case . Section 12A was introduced in order to remove all doubts on this point and the section provides the means by which each of the recipients of the managing agency commission may be charged only on the share which he actually received and, if he fulfils the conditions mentioned in that section, he may claim separate assessment on his individual share.
17. Learned counsel for the assessee has urged that even if he does not fulfil the conditions prescribed by Section 12A he can still ignore the same and come under Section 10 (2) (xv). To put that construction would be to make Section 12A illusory. That section applies to the managing agents of a company in every case where there is an agreement for sharing the managing agency commission. If such an agreement for sharing of commission brings the assessee under Section 10 (a) (xv) the statute now says that if an an assessee wants to be charged only for the amount he has actually received out of the total managing agency commission, then he must file a declaration and prove the facts stated in the declaration to the satisfaction of the taxing authorities.
18. Dr. Gupta has drawn our attention to a printed form of declaration to be made under the provisions of Section 12A, Income-tax Act, 1922, in respect of managing agency commission. That seems to be in accord with what is prescribed in Section 12A and it has got to be signed by the managing agents as well by the person or persons sharing the managing agency commission. This section has been introduced to safeguard the revenues of the country and in order to avoid possible evasion of the tax by some kind of profit sharing arrangement. If the agreement is bona fide, there ought not to be any difficulty in getting such declaration signed by all the patties.
19. Whether a particular agreement brings an assessee within Clause (16) of Section 10 (2) will depend upon the facts of each case. But if there is an agreement whereby the remuneration of a managing agent of a company is being shared by some other parties, then the managing agent should fulfil the conditions prescribed in Section 12A in order to get relief or deduction under the statute.
20. Therefore the answer to the question formulated in the statement of case must be in the affirmative. The tribunal was right in holding that the non-compliance with the provisions of Section 12A disentitled the assessee from claiming the deduction asked for.
21. The Income-tax authorities are entitled to their costs of this reference. Certified for two counsel.