PREMIER CONSTRUCTION CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference made under Section 66(2) of the Indian Income-tax Act by the Tribunal of Appeal. The question submitted for the Court s opinion is in these terms:

(2.) THE relevant material facts are these : THE assessees, a limited company, are the managing agents of Messrs. Marsland, Price & Co., Ltd. (referred to as the principal company in the reference). THE assessees were appointed managing agents under a contract. Clause 2 of that contract is as follows:

(3.) IN Patent Castings Syndicate, Ld. v. Etherington [1919] 2 Ch. 254, there was an agreement under which the defendant was appointed the works manager of the business of the plaintiff company at a salary. The company agreed also to pay him at the end of each business year of the company and within seven days of the holding of the annual general meeting a further sum by way of commission being a percentage upon the nett profits for the year. There was a proviso that the certificate of the company s auditors should be conclusive as to what constituted the nett profits at the end of any such business year. The Court had to construe the meaning of the words "nett profits". The question before the Court was whether in arriving at the nett profits the excess profit duty which was a debt of the company to the Crown should be deducted first. The Court came to the conclusion that the excess profit duty should be deducted before the nett profits, a percentage of which was to be paid to the works manager, came to be determined. The Court emphasized that the facts, that payment was to be made within seven days of the holding of the meeting and that certificate of the auditors was to be conclusive, showed that the nett profits intended to be divided on a stated percentage basis were the nett profits arrived at after deducting the excess profit duty. It was observed that excesss profit duty was, for the purpose of ascertaining what was payable to the shareholders of the company, an outgoing, and had to be paid before it could be ascertained what were the profits distributable amongst the shareholders of the company by way of dividend. This case is also on the question of determining the amount of profits out of which remuneration agreed to be paid on a percentage basis was to be calculated. It has no bearing on the construction of the clause here.