Khanna, J. - (1.) This judgment would dispose of two Civil Appeals Nos. 2083 and 2084 of 1970 which have been filed on certificate granted by the Calcutta High Court and are directed against the judgment of that Court whereby it answered the questions referred to the Court under Section 66 (1) of the Income Tax Act, 1922 (hereinafter referred to as the Act) for two assessment years against the assessee appellant and in favour of the respondent.
(2.) The assessee is a limited Company and the matter relates to the assessment years 1956-57 and 1957-58, the corresponding accounting years for which ended on June 30, 1955 and June 30, 1956 respectively.
(3.) The appellant Company was appointed as the Managing Agent of Shree Ramesh Cotton Mills Ltd., Morvi (hereinafter referred to as the managed Company) as per agreement dated 30-12-1946. The managed company was a 100% subsidiary of the appellant company. Under the terms of the agreement, the appellant company was entitled to receive a fixed office allowance of Rs. 1,000/- per mensem plus a commission at the rate of 12 1/2% of the net profits, an additional commission of 1 1/2% on all purchases of cotton and an equal amount on all sales of cloth and yarn. In the relevant years, the managed company suffered losses and consequently the commission payable at 12 1/2% of the net profits was nil but the commission on purchase of cotton at the rate of 1 1/2% and on sales of cloth and yarn at the same, rate, aggregated to Rs. 38,719/- for the assessment year 1956-57 and Rs. 1,963/- for the following year. Besides these amounts, the appellant was entitled to Rs. 12,000/- per annum for each of the two years as fixed office allowance. The total amounts which the appellant was entitled to receive from the managed company were Rs. 50,719/- and Rupees 13,963/- for the two years.;