Bhagwati, J. - (1.) These appeals arise out of two judgments and orders of the High Court of Judicature of Bombay in Income-tax Reference Nos. 23, 24, and 27 of 1951 made by the Income-tax Appellate Tribunal under Section 66 (1) of the Indian Income-tax Act and Section 21 of the Excess Profits Tax Act.
(2.) E. D. Sassoon and Company Ltd. (hereinafter referred to as the Sassoons ) were the Managing Agents of (1) E. D. Sassoon United Mills Ltd. under agreements dated the 14th February 1920 and the 2nd October 1934, (2) Elphinstone Spinning and Weaving Mills Company Ltd. under the agreement dated 23rd May 1922 and (3) Apollo Mills Ltd. under the agreement dated the 23rd May 1922. Sassoons agreed to transfer their managing agencies of the said companies to Messrs Agarwal and C., Chidambaram Mulraj and Co. Ltd. and Rajputana Textile (Agencies) Ltd. respectively by letters dated the 3rd September 1943, 16 April 1943 and the 27th April 1943. The consent of the share-holders of the respective companies to the agreements for transfer was duly obtained and the Managing Agencies were ultimately transferred to the respective transferees with effect from the 1st December 1943; 1st June 1943 and 1st July 1943 respectively. The Sassoons executed in favour of Messrs Agarwal and Co., Chidambaram Mulraj and Co. Ltd. and Rajputana Textile (Agencies) Ltd. formal deeds of assignment and transfer and received from them Rs. 57,80,000 and Rs. 12,50,000 and Rs. 6,00,000 respectively on transfers of the Managing Agencies and the net consideration, viz. Rs. 75, 77, 693 received by them on such transfers was taken by them to the "Capital Reserve Account." The accounts of the Managing Agency commission payable by the respective companies to the Managing Agents for the year 1943 were made up in the year 1944 and Messrs Agarwal and Company received from the E. D. Sassoon United Mills Ltd. a sum of Rs. 27,94,504, Chidambaram Mulraj and Co. Ltd. received from the Elphinstone Weaving and Spinning Mills Co. Ltd. a sum of Rs.2,37,602 and the Rajputana Textile (Agencies) Ltd. received from the Apollo Mills Ltd. a sum of Rs. 3,82,608 as and by way of such commission.
(3.) For the assessment year 1944-45 and the chargeable accounting period 1st January 1943 to the 31st December 1943 the original income-tax and excess profits tax assessments of the Sassoons were made on the 31st May 1945 at a total income of Rs. 46,48,483. This income however did not include, any part of the managing agency commission received by the transferees. The entire amounts of the managing agency commission received by the transferees were assessed by the Income-tax Officer for the assessment year 1945-46 as the income of transferees. The transferees appealed to the Appellate Assistant Commissioner who confirmed the orders of the Income-tax Officer. When the matter was taken in further appeal to the Income-tax Appellate Tribunal, the tribunal by its order dated the 28th December 1949 accepted the transferees' contention that the managing agency commission received by them should be apportioned on a proportionate basis and the transferees should be made liable to pay tax only on the commission earned by them during the period that they had worked as the Managing Agents of the respective companies.;