R. G. S. NAIDU AND CO. v. COMMISSIONER OF INCOME-TAX AND EXCESS PROFITS TAX, MADRAS
Citation: [1961] 3 S.C.R. 271; 1960 INSC 268
Court: Supreme Court of India
Bench: J.L. KAPUR , M. HIDAYATULLAH, J.C. SHAH
Judgment date:
Case summary
1960 INSC 268. Supreme Court of India judgment dated 1960-12-14. R. G. S. NAIDU AND CO. v. COMMISSIONER OF INCOME-TAX AND EXCESS PROFITS TAX, MADRAS. Read...
Judgment text
3 S. C. R. SUPREME COURT REPORTS 271 there was no agreement of sale of goods to be obtain- ed in future between the assessee and the third party". In the result, the appeals fail, and are dismissed with costs. One hearing fee. Appeals. dismissed. R. G. S. NAIDU AND CO. v. COMMISSIONER OF INCOME-TAX AND EXCESS PROFITS TAX, MADRAS (And connected appeals) (J. L. KAPUR, M. HIDAYATULLAH and J. c. SHAH, JJ. ) Excess Profits Tax-Excess profits, unassessed or u11derassessed -Assessment, if can be reopened-Apportionment of income-Excess Profits Tax Act, z940 (XV of z940), s. z5, r. 9, Sch. I. Under an agreement dated July II, 1945, the appellants were appointed managing agents of the Coimbatore Spinning and Weaving Co. Ltd. , for 20 years, and certain remuneration was provided for them including 10% commission on the net profits of the company due and payable yearly immediattily after the accounts of the company were closed and commissions on pur- chases and capital expenditure of the company.
Prior to Octo- ber l, 1944• the appellants were the managing agents of the Coimbatore Mills Agency Ltd. , who were the managing agents of the Coimbatore Spinning and Weaving Co. Lt as ax cer was rig t m a mg ac 10n un er s. an ·- 15 of the Income-tax and the Excess Profits Tax Act? 2. Whether on the facts and in the circumstances of this case, the provisions of r. 9, s. 1, were properly applied? 3. Whether on the facts and in the circumstances of the case, the Income-tax Officer/Excess Profits Tax Officer was correct in including the proportionate commission income of Rs. 1,127 for income-tax assess- ment 1945-46 and Rs. 1,43,163 plus Rs. 1,127 for Excess Profits Tax assessment Tax for the chargeable accounting period ending 31st March 1945, and 4. Whether on the facts and in the circumstances of the case, the proportionate commission of Rs. 37,129 and Rs. 2,299 were rightly assessed for the assessment year 1946-47 ?
The High Court answered all the questions against the appellants and in favour of the Department. Against the order passed by the High Court, these appeals have been preferred with certifiate granted under s. 66A(2) of the Income-Tax Act read withs. 21 of the Excess Profits Tax Act. Two questions were canvassed in these appeals: 1. Whether it was open to the Taxing Officer to re-open the assessment for 1945-46; and 2. Whether the commission received by the appel- lants was liable to be apportioned under r. 9 of Sch. 1 of the Excess Profits Tax Act. The appellants maintained their books of account on cash basis and commission received from the com- pany was credited after the accounts of the company were closed. The amounts received by the appel- . lants from the company were included in their return and assessment for the year 1945-46 was completed Shah ].
276 SUPREME COURT REPORTS [1961 J 196o for the purposes of the Excess Profits Tax by the Tax Officer without apportionment appropriate to the R. G. S. Naidu chargeable accounting periods. In so doing, the Tax &Co. v. Officer committed an error. He overlooked the fact Commissioner of that the chargeable accounting period for the as- Income-ta• sessment of Excess Profits Tax and the year of and Excess Profits account of the company did not tally. Under s. 15 Tax. Madras of the Excess Profits Tax Act, if the Tax Officer dis- Shah 1 . covers, in consequence of definite information which has come into his possession that profits of any charge- able accounting period chargeable to excess profits tax have escaped assessment, or have been under. assessed, he may serve on the person. liable to pay such tax a notice containing all or any of the require- ments which may be included in a notice under s. 13 and may proceed to assess or reassess the profits.
The provision is substantially similar to s. 34(1) of the Income-tax Act before it was amended in the year 1948. It is manifest that by the assessment of income made on the assumption that the chargeable accounting period and the accounting period of the company tallied, there resulted underassessment in the computation of tax liability for Excess Profits Tax, and it was open to the Tax Officer to take action under s. 15 of the Excess Profits Tax Act. Determination of the second question depends upon r. 9, Sch. 1, of the Excess Profits Tax Act. By s. 2(19) of the Excess Profits Tax Act, the expression " profits" means profits as determined· in accordance ~ with Sch. I. That schedule sets out rules for compu- tation of profits for the purPose of the Excess Profits Tax Act; and by r.
9, it is provided in so far as it is material that: " Where the performance of a contract extends beyond the accounting period, there shall (unless the Excess Profits Tax Officer, owing to any special circumstances, otherwise directs) be attributed to the accounting period such proportion of the entire profits or loss which has resulted, or which it is esti- mated will result, from the complete performance of the contract as is properly attributable to the 3 S. C. R. SUPREME COURT REPORTS 277 accounting period, having regard to the extent to 1 9 60 which the contract was performed therein. " The performance of the contract of managing R. ,;. s. Naidu &. Co. agency extended beyond the period of account of the v. company which was July 1, 1945, to June 30, 1946: Commissioner of it covered parts of two accounting periods. The Incom•-tax Tax Officer was therefore obliged to apportion to the and Exws P1ofit h bl t . .
d th t• fit 1'a• Madras c argea e aocoun mg per10 s e en ire pro s ' resulting from the complete performance of the con- Shah J. tract in proportions properly attributable to the accounting periods and this, he proceeded to do. Counsel for the appellants contends that the contracts contemplated by r. 9 a. re those of the nature of engineering or works contracts and the like where execution of the contract involves a profit making operation de die in diem and not contracts where remu- neration is payable a. t a. certain time for services performed throughout the stipulated period. It is true that remuneration was paid to the appellants after the expiry of the year of account of the com- pany ; but the contract was one the performance of which extended throughout the year of account of the company. The appellants were the managing agents of the company and they had to perform their duties as managing agents for the whole year.
It is not disputed that the contract of agency for 20 years is to be regarded for assessment of excess profits tax as an annual contract. The performance of the contract unmistakably cut across the accounting period is also manifest. The remuneration for per- formance of the contra. ct is not computed at a daily rate, but is computed on a percentage of the commis- sion on the profits of the company for the whole year, but on that account, the contract is not one in which performance does not extend throughout the year of account. Normally in a managing agency contract the managing agent may not suffer loss, but that does not rule out the application of r. 9 to mana"- ing agency contracts. The terms in which r. 9 ls enacted are general: the rule is applicable to all contracts which are intended to be operative for a fixed period.
If, for the performance of the entire contract, 278 SUPREME COURT REPORTS [1961] x96o remuneration is payable at rates stipulated, the profit earned out of that remuneration must be appor- 71· G. s. Naid" tioned in the manner ·provided by r. 9 if the perfor- & Co. v. mance of the contract extends beyond the accounting Commissioner of period. Income-ta• The judgment of this Court in E. D. Sassoon & Go. , a•d E•cess Profits Ltd. v. The Commissioner of Income Tax, Bombay Ta. , Madras Oity (') on which strong reliance was placed by the Shah 1 . appellants has no application to this case. In that case, M/s. E. D. Sassoon & Co. , Ltd. who were manag- ing agents of three different companies transferred the managing agencies to three other companies on several dates during the accounting year. · A question arose in the computation of income-tax payable by M/s. E. D. Sassoon & Co. , Ltd. whe- ther the managing agency commission was liable to be apportioned between M/s. E. D. Sassoon & Co.
, Ltd. and their respective transferees in the proportion of the services rendered as managing agents for the respective periods of the accounting year. It was held by this court ( J agannadhadas, J . , dissenting) that on a true interpretation of the managing agency agreements in each .. case, the contract of service between the companies and the managing agents was entire and indivisible and the remuneration or com- mission became due by the companies to the manag- ing agents only on completion of definite periods of service and at stated intervals ; that complete perfor- mance was a condition precedent to the recovery of wages or salary in respect thereof and the remunera- tion payable constituted a debt only at the end of each period of service completely performed, no remuneration or commission being payable to the managing agents for broken periods; that no income was earned by or accrued to M/s. E. D. Sassoon & Co. , Ltd.
and as the transfer of the agencies did not include any income which E. D. Sassoon & Co. , Ltd. had earned, they were not liable to be taxed under the Income-Tax Act. But that was a case dealing with liability of the assessees who did not receive any in- come and to whom no income had accrued to pay (t) (1955] t S. C. R. 313. > 3 S. C. R. SUPREME COURT REPORTS 279 income tax on the amounts of remuneration paid to z96o their transferees. The court was not called upon to R. G. s. Naidu apply to income received by the assessee the principle . ,. co. of apportionment under r. 9 of Sch. 1 of the Excess v. Profits Tax Act, or any provision similar thereto. It commissioner of is r. 9 of Sch. 1 which attracts the principle of appor- Income-tax tionment. The rule enunciated in M/s. E. D. Sassoon and Excess Profits a , (') h h ,, 1 . t' h' Tax, Madras & o. s case as t ere1ore no a pp 1ca 10n to t 1s case, · and the High Court was right in holding that the Shah J.
assessment made by the Excess Profits Tax Offcer by apportionment of the commission income between the chargeable accounting periods was correct. The appeals therefore fail and are dismissed with costs. One hearing fee. . t1J1Jieals dismissed. THE TRAV ANCORE RUBBER AND TEA CO. , LTD. v. THE COMMISSIONER OF AGRICULTURAL INCOME-TAX, KERALA (J. L. KAPUR, M. HIDAYATULLAH and J. c. SHAH, JJ. ) 4gricultural Income Tax-Rubber Plantation-Expenditure on immature trees-Whether permissible deduction-Travancore-Cochin Agricultural lticome-tax Act, r950 (Tr. Co. XXII of r950), s. 5. In computing the agricultural. income of a person s. 5(f) of the Travancore-Cochin Agricultural Income-tax Act, 1950, allow- ed deductions of any expenditure "laid out wholly and exclu- sively for purpose of deriving the agricultural income".
The assessee who had rubber plantations claimed that the amount expended on the maintenance and tending of immature rubber trees should be deducted in computing its agricultural income but this was disallowed on the ground that the use of the article "the" before the words agricultural income implied deduction (1) (1955) I S. C. R. 313.
Source: Supreme Court eSCR. Dataset: Dattam Labs, CC BY 4.0. Text extracted automatically; compare with the source PDF for layout and accuracy.