K.R.M.T.T. Thiagaraja Chetty And... vs Commissioner Of Income-Tax, Madras

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 14 October, 1953

Coram: Ghulam Hasan

In this appeal, which concerned the assessment year 1943-44, the firm claimed entitlement to a commission of Rs 2,20,702. It was undisputed that the firm had not actually drawn that amount, but the amount had been shown as a credit in the firm’s accounts. The Income-Tax Officer treated the credited amount as income that had accrued to and been received by the firm, and therefore held it to be taxable. The firm, before the Appellate Assistant Commissioner, argued that the sum included Rs 81,023 which represented commission earned from the company’s branches that operated in the Indian States. It was contended that this portion of the commission was not assessable because 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. The reasoning was that the income from the branches in the 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 calculated on the basis of those consolidated accounts rather than on the basis of the separate accounts of each branch. The Tribunal affirmed this view. The Tribunal then referred two questions to the High Court. The first question was whether the whole amount of Rs 2,20,702 was assessable; the second question was whether the firm was entitled to an exemption for the portion of Rs 81,023. On the first question, both learned judges agreed that the full sum of Rs 2,20,702 was correctly assessed to tax, because there was nothing to prevent the firm from drawing the amount that was credited in its favour. No argument was raised on this point during the proceedings. The argument that remained before this Court concerned only the sum of Rs 81,023. The firm contended that this commission had accrued in the so-called “B States” and had not been brought into British India. The short answer to this contention was that the commission earned by the firm on the profits made by the company in those states arose out of a single, indivisible agreement to charge a reduced commission of five per cent on the company’s profits, and that the managing agents had performed the agency business in British India, not in the States. No evidence was presented that the managing agents performed any functions in the States. The Court therefore held that there was no substance in the firm’s contention. Consequently, the appeal was dismissed and the appellant was ordered to pay the costs of the respondent. The appeal was dismissed.