- (1.) The respondent is a Private Limited Company; it carried on business in hides and skins, minerals, tobacco and other commodities and also acted as managing agents for the Nellor Power and Light Company Ltd. and for two other Companies. T. M. Ayyadurai, T. M. Rangachari and P. C. Chakrabarti were directors of the Company. Each director was paid a fixed remuneration of Rs.4,800 per annum for attending to the business of the Company. On June 21, 1951 the respondent was appointed by the Central Government as its agent for buying, checking weighing, leaf drying, storing, transporting, retaining and reselling tobacco under and in accordance with the directions issued from time to time. The Central Government agreed to pay to the respondent price of the tobacco purchased, charge at the rate of one anna per lb. for tobacco not redried, and at the rate of two annas per lb. for tobacco redried, and commission on all purchases. On June 22, 1951 the respondent passed a resolution placing T. M. Ayyadurai in "special charge" for arranging purchases of tobacco on credit, inspecting tobacco at Guntur and at Madras Port, and for supervising shipment of tobacco, and agreed to pay him 30 per cent of the net profit as remuneration. Under the contract with the Government of India Rs. 1,38,454/- became due to the respondent as commission in the account year ending March 31, 1952. After providing Rs.41,473/- for expenses, 30 per cent of the balance among Rs.29,094 was paid to T. M. Ayyadurai as commission and was claimed in the assessment year 1952-53 as a permissible deduction under S. 10(2)(xv) of the Indian Income-tax Act, 1922. The Income-tax Officer allowed only 10 per cent of the net profits for the services rendered by T. M. Ayyadurai in the contract for tobacco purchase and sale, and disallowed Rs.19,796 out of the amount claimed by the respondent.
(2.) The managing agency agreement of the respondent with the Nellor Power and Light Company Ltd. was terminated with effect from September 28, 1951 when the Government of the State of Madras in exercise of the powers conferred upon it by the Electrical Undertakings Acquisition Act, 1949 compulsorily acquired the undertaking of that Company, and the respondent was paid Rs.17,346 as compensation for premature termination of its agency. This amount was taken into account by the Income-tax Officer in computing the income of the respondent in the assessment year ending March 31, 1952.
(3.) Appeals against the order passed by the Income-tax Officer to the Appellate Assistant Commissioner and to the Tribunal challenging the disallowance of part of the commission and inclusion of compensation for termination of the managing agency agreement were unsuccessful.;