Hidayatullah, J. - (1.) This is an appeal on a certificate of fitness under section 66A(2) of the Income Tax Act by the High Court of Bombay, against its judgment dated October 1, 1958. The appellant is the Commissioner of Income-tax, Bombay, and the respondent, Messrs. Shoorji Vallabhdas and Co. (referred to hereinafter as the assessee firm).
(2.) We are concerned with the assessment year 1948-49, corresponding to the previous year ending March 31, 1948. The assessee firm consisted of three partners, Shoorji Vallabhdas and his two sons, Pratapsinh and Vikramsinh. The assessee firm was the managing agents of several shipping companies including the Malabar Steamship Co. Ltd., and the New Dholera Steamships Ltd. With the Malabar Steamship Co. Ltd. the assessee firm had entered into an agreement on September 16, 1938 (modified on December 7, 1943), and with the New Dholera Steamships Ltd. on June 8, 1946. Under these agreements, the assessee firm was entitled to receive as its commission, 10 per cent. of the freight charged. Between April 1, 1947, and December 31, 1947, the amount of commission at the rate of 10 per cent. of the freight was Rs. 1,71,885 from the Malabar Steamship Co. Ltd. and Rs. 2,56,815 from the New Dholera Steamships Ltd. These amounts were credited in the books of account of the assessee firm to itself with a corresponding debit to the shipping companies.
(3.) In 1947, the assessee firm floated two private limited companies, called Shoorji Vallabhdas Ltd. and Pratapsingh Ltd. The assessee firm desired to substitute these two companies as the managing agents of the shipping companies, one for each, and on November 20, 1947, expressed its desire to resign from the managing agency and to have the private limited companies appointed on the same terms. Two shareholders of the Malabar Steamship Co. Ltd. objected to the rate of commission, and wrote a letter on November 27, 1947, in protest. They suggested that the commission should be either 10 per cent. of the profits of the managed company or 2 1/2 per cent. of the freight received. This letter was considered by the board of directors of the Malabar Steamship Co. Ltd., and they invited the assessee firm to make an offer to reduce the managing agency commission to 2 1/2 per cent. of freight for the current year as also for the future years. As a result, the assessee firm made an offer as follows : "That whilst we will continue to insist on our right to receive the full managing commission, however, in order to put the company on a firm financial basis, and because we are interested both as shareholders and managing agents in the prosperity of the company, we shall voluntarily agree to a reduction in the managing agency commission both in respect of the current year as also in future years as may be mutually agreed between the board and ourselves or between the company and ourselves to the extent of 2 1/2 per cent of the total freight." ;