H M KASHIPAREKH Vs. COMMISSIONER OF INCOME TAX BOMBAY NORTH KUTCH AND SAURASHTRA BARODA

JUDGEMENT

(1.) THIS Reference raises a question of some importance and the income under assessment relates to managing agency commission. It is a trite saying that income-tax is not and cannot be cast on logical lines. No considerations of equity or hardship can be permitted to control the application of the Act. Nor is it permissible to the Court to disregard any axiomatic principle of tax law. One such principle expressed in the laconic style of Lord Macnaghten is that income-tax is a tax on income -- an expression of wide connofation and elaslic ambit. Another principle -- one of computation which also may bo regarded as axiomatic -- is that in assessing the yearly profits and gains of a business for the purpose of the Income-tax Act, each year is a self-con-tained period. We have said all this at the very outset, because we have been very strongly reminded by Mr. G. N. Joshi,. learned Counsel for the Revenue, that we are bound to act in conformity with this principle of compulation. We agree that it is incumbent on the Court to see that there is no departure on its part from any fundamental concept or principle of tax law. There is nothing, however in these axiomatic rules or anything formidable about them which militates against the simultaneous application of another basic principle of tax law which requires the Court -- cases of deemed income apart -- to see that ultimately it is the real income of the assessee which alone is brought to tax and not any artificial or notional income that may be said to have accrued to him.

(2.) THE assessec company is the Managing Agent of The Gujurat Paper Mills Ltd. Ahmedabad. The assessment year was 1950-51 and the relevant accounting year was 1-4-1949 to 31-3-1950. It earned during the accounting year a commission ot Rs. 1,17,644-4-0. At the instance of the managed company, the assessee company surrendered Rs. 97,000/ -. The Income-tax Officer accepted that position, but the Commissioner of Income-tax disapproved of the same and served a notice on the assessee company under Section 33-B (1 ). He passed an order directing the Income-tax Officer to include the amount of Rs. 97,000/- in the assessee company's total income for the assessment year 1950-51. The matter was carried to the Tribunal and one of the contentions urged on behalf of the assessee company was that Clause 5 of the Managing Agency Agreement authorised the managed company to cut down a portion of the commission earned by the managing company and that, therefore, the surrender or Rs. 97,000/- was justified. Chases (5) and (6) of that Agreement may be set out in full:

(3.) THE Reference came up for hearing before Chagla, C. J. and Tendolkar, J. on 24th February 1955. It appears that the question whether the amount forgone by the assessee company was on the ground of commercial expediency or not was regarded as one of importance by the Court and a supplemental Statement of Case was folt necessary. In the judgment of the learned Chief Justice, it is mentioned: