(1.), J. : This is an appeal on a certificate granted by the High Court of Bombay under S. 66A (2) of the Indian Income-tax Act, 1922. The short facts are these. The Cotton Agents Limited, Bombay are a limited liability company registered under the Indian Companies Act and will be called the assessee Company in this judgment. It held a substantial number of shares of the New Swadeshi Mills of Ahmedabad Ltd. (hereinafter called the Mills Company), Messrs. Shivnarayan Surajmal Nemani (called the Nemani group) also held a block of shares of the Mills Company along with its managing agency. The assessment year was 1946-1947, and the year ending with Diwali, 19 4/10/194 4/11/1945) was the accounting year. Sometime in 1944 some differences arose between the assessee Company and the Nemani group; these differences were referred to one Govindram Seksaria, who decided that the Nemani group should sell its block of shares to the assessee Company at an agreed price. It was further decided that a sum of Rs. 5,00,000 be paid by the assessee Company to the Nemani group as the price of the managing agency rights. This arrangement was approved by the share-holders of the Mills Company by a resolution dated 4/01/1945, and came into effect immediately. The agreement further was that the assessee Company would come in as managing agents of the Mills Company in place of the Nemani group and would be entitled to the emoluments of the managing agents as from 1/04/1944. The managing agency commission from 1/04/194 4/12/1944, amounted to Rs. 2,20,433 and from 1/01/194 5/03/1945, to Rs. 67,959. The case of the assessee Company was that for the assessment year 1946-47 it was liable to pay tax only on the commission of Rs. 67,959 which it had earned by working as managing agent of the Mills Company and it was not liable to pay tax on the sum of Rs. 2,20,433. This contention of the assessee Company was not accepted by the departmental taxing authorities; but the Tribunal decided in its favour. The assessee Company's case before the Tribunal was that as the managing agency commission was based on the sales, the commission accrued to the managing agents as and when the sales were made and furthermore the sum of Rs. 5,00,000 paid by the assessee Company to the retiring managing agents included the purchase price of the managing agency commission which had accrued in the hands of the retiring agents. The Tribunal expressed the view that on a true construction of the relevant managing agency agreement the 3 1/2 % commission on sales made when the Nemani group was the managing agent accrued to that group and not to the assessee Company and thus a debt was created in favour of the Nemani group on every sale during its period of managing agency and only the payment of the debt was deferred till the accounts of the Mills Company were passed at a general meeting; therefore, the commission prior to the close of the year 1944 was assessable in the hands of the Nemani group and thereafter in the hands of the assessee Company. The Department, however, contended that the whole of the managing agency commission accrued to the assessee. Thereupon, at the instance of the Department, the Tribunal referred the following question of law to the High Court for decision:
"Whether on the facts and circumstances of the case the managing agency commission @ 3 1/2 % on sales made by the New Swadeshi Mills of Ahmedabad Ltd. between 1/04/1944 and 31/12/1944, accrued to Shivnarayan Surajmal Nemani, or to the assessee?"
(2.)THE High Court held that the matter was concluded by the decision of this Court in E. D. Sassoon and Co. Ltd. v. Commissioner of Income-tax, Bombay City, (1955) 1 SCR 313: ( AIR 1954 SC 470). With reference to the argument of learned Counsel for the assessee Company that the commission was payable on the sale proceeds and not on the profits as in Sassoon's case, (1955) 1 SCR 313: ( AIR 1954 SC 470) (supra), it said:
"We would have given serious thought to this aspect of the matter but for the view we take that the decision of the Supreme Court with regard to the question of creation of the debt and with regard to the serving by the managing agents for a term of one year being a condition precedent for their being entitled to receive payment is indistinguishable on the facts of this case. We may point out that here as in the Sassoon's case the commission of 3 1/2 cent, is to be earned in any year, and also by Cl. 3 of the agreement the commission is to become due to the managing agents at the end of each financial year. THErefore, till the end of the financial year there is no debt whatsoever created in favour of the managing agents and also their right to receive payment depends upon their having served for a whole year. Under the circumstances we must hold, following the decision of the Supreme Court, that the assessees are liable to pay tax on the whole of the commission as the commission accrued due on 31/03/1945, and they became entitled to receive it at the end of the year. We do not agree with the view of the Tribunal that according to the agreement of the managing agents the debt was created in favour of the agents when the goods were sold by the company and that the payment was deferred to a date after the accounts having been passed by the shareholders in the general meeting of the company. In no view of the case can it be said that the debt was created in favour of the agents when the goods were sold".
The answer to the question really depends on a construction of the relevant terms of the managing agency agreement dated 15/03/1925, entered into between the Mills Company and the Nemani group. Before we proceed to a consideration of those terms it is necessary to state that the Department has assessed that Nemani group also to tax in respect of the commission for the period April 1, 194 4/12/1944. That circumstance has, however, no bearing on the question of construction and learned Counsel for the Department has stated before us that there is no intention to tax two parties for the same income and if the tax has been realised from both for the same income, it will have to be refunded to one of the two parties after the decision of this Court. We are not considering in this case the validity or otherwise of what are known as protective or precautionary assessments, and nothing said in this judgment has any bearing on that question.
(3.)WE go at once to the Managing Agency Agreement dated 15/03/1925. Under that agreement the managing agents were appointed for a period of fifty-one years, but with liberty to them to resign the appointment and retire from the agency at any time by twelve calendar months, notice in writing, such notice to expire at the end of any financial year of the Mills Company. Then came cls. (2) and (3) of the agreement, which are material and must be quoted so far as they are necessary for our purpose:
"2. The remuneration of the Agents as such Agents of the Company as aforesaid shall be as follows:
A commission at the rate of three and a half per cent. on the gross proceeds of all sales of the yarn, cloth, waste and other articles manufactured by the Company earned in any year or other period for which the accounts of the Company are made up and laid before the General Meeting".
Provided etc. (it is unnecessary to quote the proviso)
"3. The said commission shall become due to the Managing Agents at the end of each financial year or other period for which the accounts of the Company are to be laid before the General Meeting and shall be payable and paid immediately after such accounts have been passed by the General Meeting".
Clauses (6) to (11) recited the rights and duties of the managing agents, one of such rights being to retain, reimburse and pay themselves "all sums due to the agents for commission". Clauses (13) and (14) dealt with the right to assign the remuneration and the managing agency, and said inter alia that "it shall be lawful for the agents to assign this agreement and the benefit thereof and their rights and privileges etc. to any person or firm or company having authority by its constitution to become bound by the obligations undertaken by the agents... ... and the Company shall be bound to recognise the person, firm or company aforesaid as the agents of the Company". It is unnecessary to read the other clauses of the managing agency agreement.